Ireland brought to book over Leprechaun Economics

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18 April 2018 | 0

Billy MacInnesThe eccentricities of the Irish economic model have been laid bare by the IMF’s estimate, in its latest World Economic Outlook report (Chapter 1, Global Prospects And Policies, page 34), that the iPhone contributed about a quarter of Ireland’s 7.8% economic expansion in 2017.

The statistic was eagerly picked up by a number of commentators in the press, many of whom also referred back to Ireland’s reported growth of 26% in 2015, dismissed at the time as “Leprechaun Economics” by notable economist and nobel prize winner, Prof Paul Krugman.

The IMF report stressed that despite the significant effect of iPhone sales on Ireland’s economic growth, “the income generated from smartphone sales does not fully contribute to the Irish economy. The acquisition of foreign-owned intellectual property assets leaves domestic employment mostly unchanged.”

To my mind this suggests that, when it comes to the reality of the Irish economy, a substantial part of these figures might as well not exist. Much of the growth is a chimera because most of the real economic activity takes place in other countries and is only recognised as Irish for tax purposes.

The oddities of trying to measure Irish economic activity, especially in light of that 26% figure in 2015, led the IMF to devote a whole section to the issue in its World Economic Outlook Report in April 2017 (Chapter 1 Global Prospects And Policies, Tackling Measurement Challenges of Irish Economic Activity, pages 43-45). The report identified the major reasons for the magical growth figure in 2015 as the “exceptional” scale of the relocation of balance sheets to Ireland and a significant increase in activity attributable to goods for processing (contract manufacturing).

It noted that despite these changes, domestic employment was “mostly unchanged”. The difficulty for Ireland was that “the use of standard headline measures – such as domestic production, national income, domestic demand, and net exports – are less applicable to economic activity in Ireland. For instance, the conventional measures of fixed capital formation and domestic demand contain significant components related to the non-domestic economy. Additional measures to reflect the level of activity within the domestic economy are therefore required.”

Social distortion
The difficulty, surely, is that Ireland’s economic figures are wildly distorted by its model which enables companies to recognise their sales activities here for tax purposes even though comparatively little activity actually occurs in Ireland. As a consequence, the claimed economic activity, most of which didn’t happen in Ireland, provides far fewer of the benefits that an economy would usually expect to accrue from that activity. At the same time, it severely diminishes the benefits that economies where that activity actually took place could reasonably expect to accrue through taxation revenue.

In other words, it’s robbing Antoine, Camille, Dietrich, Helga, Marco, Francesca, Juan, Carmen, Stelios, Anastasia and many other people in Europe but, with “domestic employment mostly unchanged” and an income from sales that “does not fully contribute to the Irish economy”, it’s not exactly doing so to pay Aoife and Conor either.

RTE Correspondent Sean Whelan highlighted the absurdity of the situation in his column on the impact of iPhones on the Irish economy when he noted that all the growth took place “in a country that doesn’t even have an Apple store”.

What he forgot to say is that Ireland doesn’t need to have an Apple store. From a taxation point of view, it’s already an Apple superstore. And it’s the only one in Europe.

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