Budget bonanza relies on tech
Naturally, much has been made of the budget in recent days, from energy credits to GP visits and school books, but zooming out to take a wider view reveals how dependent Ireland is on the technology sector.
Ireland, it turns out, is running a surplus, even as it staggers into recovery from the Covid-19 pandemic and its attendant lockdowns. The primary reason for this is corporation tax receipts from US-based multinationals using Ireland as a toehold for the European market.
Indeed, finance minister Paschal Donohoe noted this in his statement to the Dáil.
“While this is extremely welcome news, headline deficit and tax revenue figures do not account for the fact that much of the surge in tax revenue is due to excess corporation tax. These receipts could change significantly in the future, and with little warning,” he said.
Unsurprisingly, tech companies account for the lion’s share. A 2021 report showed Ireland’s top 10 corporation tax payers were Apple, Microsoft, Google, Pfizer, MSD (Merck), Johnson & Johnson, Meta Networks (Facebook), Intel, Medtronic and Coca-Cola. The question, then, is how vulnerable is the county to a ‘techcession’?
The tech sector, which has seen widespread hiring freezes, is among those most battered by the 2022 economic downturn. Some of this can be put down to the cyclicality of certain subsectors, such as semiconductors, and some of it is certainly due to the supply chain crunches that hit during the pandemic.
Adding or subtracting value
There is more, though. The stockmarket performance of a business is not the alpha and omega of its true worth, but just about every tech company you could care to mention is down in 2022. Largely, this can be blamed on a necessary decline following their over-inflation during the pandemic. However, with inflation rocketing around the world, cutbacks in spending, both consumer and at organisational level, will continue to put the squeeze on the tech giants.
In addition, after 40 years of increasing globalisation the world is changing. Despite Donald Trump’s political agenda coming to an end with his replacement by Joe Biden, demands are growing for the repatriation of jobs. Of course, the idea that everyone will pack up and head home is over the top, but there is a clear political case being made in the US for bringing investment home. A report in the New York Times said manufacturing jobs were on the rise in the US. “As of August this year, manufacturers had added back about 1.43 million jobs, a net gain of 67,000 workers above prepandemic levels,” it said.
This is not directly relevant to Ireland, as much of the manufacturing outsourced from the US has gone to Mexico, China and the Far East, but the political shift demands attention. Indeed, a push to increase US domestic industrial output is arguably more compatible with the agendas of Biden and the Democrats than Trump and the Republicans.
Putting all of this together, if the global economy continues to slide into recession, or even enters a period of 1970s-like stagflation, the tech sector could be at the centre of a particularly nasty slump.
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