Proposed Trump tax cut exposes hole at the heart of Irish economic policy
No-one can say they didn’t see it coming. Indeed, even before Donald Trump first entered the White House in 2016, wiser heads had long been warning that Ireland was over-reliant on foreign direct investment (FDI).
This fact has some strange effects on the Irish economy, not least that the country has undeniably become a rich place, but at the cost of domestic industrial underdevelopment.
Some 11% of Irish workers are employed by multinationals, mostly American-based ones in technology and pharmaceuticals, and, according to a recent study by Economic & Social Research Institute (ESRI) economist John FitzGerald, they pay a staggering third of all wages collected in the country.
The state is even more reliant on them: just three big US-based companies account for about one in every eight euros of taxes paid in Ireland.
Ireland’s 2024 budget surplus of 7% was not called a “windfall” for nothing, resulting as it did in large part from a €14 billion back-tax payout from a single company, Apple, following an EU court judgement that Ireland opposed.
It’s not just taxes, either. A significant imbalance between domestic industry and the FDI sector is noticeable, and in more than just salary gaps.
Such is the disparity in Ireland’s two-tier economy that the country’s inflated improbable gross domestic product (GDP) figures were famously mocked as “leprechaun economics”. Indeed, an alternative metric known as ‘modified gross national income’ (GNI) had to be developed in an attempt to make the numbers match reality.
Now, re-elected to the office of US president, Donald Trump has exposed the fragility of Ireland’s strategy of providing low-cost access to the EU market.
Addressing the assembled dignitaries and think-tankers at the World Economic Forum in Davos, Trump, speaking via video link, said that a global corporate minimum tax deal “has no force or effect” in the US and that he planned to reduce corporation tax from 21% to 15%.
Crucially, this would see US corporation tax match the Irish rate.
Speaking to the Irish Times on Thursday, IDA Ireland chief executive Michael Lohan said: “Trump’s order is undoubtedly going to lead to further negotiations on international tax and over the course of the next year we’re going to see that intensify,” but was reported as saying Trump’s move did not pose a “significant threat to Ireland”.
Of course, we all knew it was coming. In the tedious interregnum between Trump’s November victory and his January inauguration, politicians and other officials were quick to respond that corporations do not make decisions on the basis of a four-year political cycle, implying that any cuts Trump introduced could be undone at the next election.
This is true. However, even without the prospect of Apple, Google, Microsoft, Meta, Intel, Dell and the rest packing up and going home, the reality is that Ireland’s reputation as a technology hub is entirely a result of investment by foreign corporations brought about by clever tax policies.
No-one expects Ireland to take on the United States when it comes to technology, manufacturing or anything else. Nor could it really even be a Germany, but it could, like Germany, Austria and even Switzerland (which is frequently mistaken for a mere tax haven), develop a significant and productive mittelstand of medium-sized businesses, including in sectors such as technology that have benefitted from the presence of the US giants.
For all the talk of start-ups and Irish success stories, the reality is that Ireland is a nation of small businesses. Very small businesses. According to Central Statistics Office (CSO) figures, in 2021, micro enterprises, defined as businesses that employed less than ten people, accounted for 92.6% of all enterprises, 27.6% employees, 15.3% of turnover, and 16.2% of gross value added (GVA).
Frankly, it would be nice to see greater focus on sectors outside tech, but, to exhume a spine-chilling phrase from the 2008 crash, ‘we are where we are’. Where we want to be, though, is in a position where the country isn’t buffeted around on the capricious winds of foreign politics.
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