The Irish National Accounts: Towards some do’s and don’ts

The statistical distortions created by the impact on the Irish National Accounts of the global assets and activities of a handful of large multinational corporations have now become so large as to make a mockery of conventional uses of Irish GDP. I suggest four preliminary remarks to help overcome some of the challenges facing observers of the Irish macroeconomy.

  1. GNP is now almost as unhelpful an aggregate economic measure for Ireland as GDP. (This is due to a change in the way in which some globalized countries are managing their affairs, with some significant global headquarters now being located to Ireland)

  2. Ratios to GDP are now almost meaningless for Ireland in most contexts. They need to be supplemented by alternative purpose-constructed ratios for specific uses, as the Irish Fiscal Advisory Council already proposed a few years ago with its weighted average of GDP and GNP for assessing fiscal sustainability – though that particular solution will no longer work well for the reason mentioned in point 1.

  3. International statistical conventions should be revisited to help the interpretation of the data in a world where huge MNCs, legally controlled from small jurisdictions are moving assets around on this scale.

One natural approach is to apply the thinking underlying the current statistical treatment of financial intermediaries to this kind of MNC.

(One aircraft leasing firm that publishes its accounts has just 164 employees in Ireland – and just 221 elsewhere – but a balance sheet total of $44 billion, the bulk in the form of aircraft that are operated by other firms. I do not know how the statisticians classify it, but in economic terms it looks much more like a financial firm than a non-financial firm).

Failing international convention changes, it may be necessary to envisage a parallel set of accounts being also prepared for the Irish economy.

  1. Some of the big aggregates of the national accounts are largely unaffected by the distortions. For instance, the figures for personal expenditure on consumer goods and services and for government expenditure on goods and services. These two series can still be used to get a more realistic picture of the recovery as it is felt in public and private consumption. But they should not be expressed as a percentage of GDP, but instead in real constant price terms, seasonally adjusted.

Thus, by the first quarter of 2016, personal expenditure was still just below its quarterly peak of eight years ago; it has been growing for twelve quarters since the trough at an annual average rate of 3.5%.

Government spending on goods and services (i.e. not including transfer payments) in the first quarter of 2016 was still six per cent below peak but has grown by 4.0% per annum on average in those twelve quarters.

Personal disposable income (a much under-used series; up to date figures not available yet); other elements of the government finances; building and construction investment are other series that remain valid and usable for understanding the relevant parts of the economy.

How do these recent growth rates in consumer and government spending compare with those registered in the decade before the bust? Much lower of course: consumer spending rose by an average of 5.6% per annum 1998-2008, and government spending by 4.9%. Recovery yes: boom no.

Spending

Comments

comments

26 thoughts on “The Irish National Accounts: Towards some do’s and don’ts”

  1. Today the US Bureau of Economic Analysis released data on 2015 foreign investment in the US and Ireland at $176.5 billion is the top investor! This resulted from tax inversions such as Medtronic and Allergen — US firms becoming Irish for tax purposes.

    http://www.bea.gov/newsreleases/international/fdi/fdinewsrelease.htm

    The American Chamber of Commerce in Ireland claimed in a 2015 report that Irish companies employed 141,500 in the US and both the Brookings Institution, a Washington DC think-tank, and IDA Ireland, fell for it. Only about 6 of the 26 listed “Irish” companies on the Nasdaq stock market are in fact Irish.

    Prof Honohan’s suggestion of “a parallel set of accounts being also prepared for the Irish economy” is a good one as it would provide a structure for the many caveats/ distortions — overseas contract manufacturing, Double Irish related services exports, impact of tax inversions on GNP and current account, spikes in aircraft purchases/ leasing, intellectual property transfers, R&D etc.

    1. @Michael Hennigan

      To what do you attribute the following unemployment and tax figures if its not growth?

      Is Finfacts still on holiday? Very unfortunate timing given all that’s happened.

      Changes in the unemployment rate between Jun 2012 and Jun 2016 among EU15 countries:

      [ 1] Ireland -7.3%
      [ 2] Spain -5.0%
      [ 3] Portugal -3.9%
      [ 4] U. Kingdom -2.9%
      [ 5] Greece -1.6%
      [ 6] Denmark -1.5%
      [ 7] Germany -1.2%
      [ 8] Sweden -0.7%
      [ 9] France +0.2%
      [10] Netherlands +0.6%
      [11] Italy +0.8%
      [12] Austria +1.0%
      [13] Belgium +1.0%
      [14] Luxembourg +1.1%
      [15] Finland +1.2%

      Approximate figures for increase in tax revenues between Jan-Jun 2013 and Jan-Jun 2016 in EU15 countries:

      [ 1] Ireland +28.5%
      [ 2] Sweden +13.0%
      [ 3] Luxembourg +13.0%
      [ 4] Germany +12.0%
      [ 5] Austria +11.0%
      [ 6] U. Kingdom +10.0%
      [ 7] Spain +7.0%
      [ 8] France +7.0%
      [ 9] Finland +5.0%
      [10] Portugal +4.0%
      [11] Netherlands +4.0%
      [12] Belgium +3.0%
      [13] Italy +3.0%
      [14] Denmark +2.0%
      [15] Greece -4.0%

      1. Nobody is suggesting that the economy isn’t growing but a lesson from bubble times is that positive data should be cross checked with indicators that suggest a less rosy scenario.

        Quality of spending is important for a country and a firm — think of Nokia spending four times Apple’s sales ratio on R&D and failing.

        In 2010 Rossa White produced a report at Davy before moving to the NTMA, and he wrote that much of the bubble investment was wasted. “One of the great misconceptions about Ireland is that it is a wealthy country.”

        https://www.davy.ie/research/content/pubarticles/economy20100219.pdf

        Ireland’s innovation capacity trails comparable countries as it is dependent on FDI firms that do not engage in significant research in Ireland. Almost half of the 85,000 people in the ICT sector are administrators and the patenting record in the economy is poor.

        For too long the distortions of the FDI sector have been used to mask the poor performance of the indigenous international sector.

        1) Ireland has one of Europe’s lowest ratios of exporting firms;

        2) The broad rate of unemployment is almost 17% of the workforce.

        Added to the ILO headline rate are 99,000 part-time workers seeking full-time work; 70,000 in activation schemes (will be over 80,000 in September) and 30,000 discouraged workers as calculated by the CSO (potential additional labour force).

        In June there were 386,000 on the Live Register and in activation schemes — 163,000 above the comparable level in December 2007;

        3) Last year it was estimated that 23.5% of Irish households with adults under 60, were jobless households — double the rate in the EU28.

        4) The OECD says Ireland has the second highest ratio of low paid in the developed world and the skills of many adults are poor;

        5) Only 40% of the private sector have occupational pension coverage;

        6) In 2014 at 20% of current government spending, Ireland had the highest public health spending in the EU28. Public + private spending as a ratio of GNI was second to the US in 2013 while some key outcomes were among the worst of advanced countries.

        Ireland has both the highest percentage of young doctors who emigrate and the highest ratio of immigrant doctors.

        7) Stagnant wages coupled with rising rents and house prices will be a persistent trend in coming years.

        In short, if superlatives are needed to describe growth conditions, why is life grim for so many?

        Earlier this year the ESRI reported that Back to Education activation courses for over 20,000 unemployed, were effectively useless.

        More here:

        The fable of the frog and Ireland’s response to Brexit

    2. Michael,

      You deserve a lot of credit for highlighting the distortions throw up by the GDP figures, distortions I suspect going back many years. But even you must have been taken aback by the enormity of the recent data.

      That said, I do not agree that a ‘duplicate’ set of account is the way to go. It would create confusion and attract ridicule, and lead to everybody using whatever figures they wished.

      The matter is very simple. The rules as they stand do not measure Irish GDP accurately, for whatever reason, therefore the rules must be changed to reflect Irish GDP accurately. To use an accounting analogy, the CSO should present data that gives a ‘True and Fair’ view of the economic performance of the Irish economy, not the performance of a cloud based economy ythat has nothing to do with Ireland..

      Rules that help in standardization of data measurement are of no benefit to anybody, if the results shown up, are meaningless in economic terms.

      Some are turning this into a contest between Boomsters and Doomsters , which is great for a bit of fun, if one has not been at the receiving end of the Great Recession, and a little ugly if one has been at the receiving end of the disaster visited on Ireland, for which the erstwhile Boomsters must bear a great degree of responsibility.

      [The Boomsters are apparently winning hands down at the moment, but lets see the winnings shared out, so that we can be sure the money is in the pot]

      1. Over the long-term the figures do measure Ireland’s growth accurately. See my posts below.

        There is a well-known discrepancy between GDP growth and GNP growth. There is no mystery about it. Its all perfectly clear. No one is trying to deceive anyone. Anyone can understand them who makes the effort. GDP measures output produced in Ireland. Some of the companies producing that output are foreign-owned. So, part of the profits go to shareholders living abroad. When this is deducted we are left with GNP which does accurately measure growth in Ireland over the long-term (there may be under-estimation or over-estimation in particular years largely due to timing issues).

        I have a post in confirming this by comparing GNP growth 1970-2014 with the figures for growth in spending (personal spending + government spending + investment spending). When it appears you can see the figures for yourself.

  2. While FDI is the national business model it brings the problem of crowding-out of small indigenous firms as the FDI sector consumes the lion’s share of tech literate human resources, media focus, government R&D supports. It also affects the popular perception of what Ireland does and where its loyalties must lie. The price paid for the modest FDI corp tax-led growth or recovery being experienced in Ireland is continued low rates of growth of indigenous business.
    As long as the official national accounts facilitate cheer-crazed government propaganda about the ‘real’ business climate, it is far harder to scrutinise the many problems in the indigenous sector, and start to address its endemic low growth, profitability, ambition and isolation. Yet we Irish must do this, as this is what we will be left with should our FDI guests ever decide to leave us in significant numbers. Gov will not willingly do anything other than embellish the present business model, as long as GDP/GNP-based propaganda is an available fig leaf. Unsurprisingly, there is little media or academic scrutiny of the scandalously weak and neglected indigenous enterprise sector.
    To that extent I welcome these ridiculous statistics. Perhaps the adults in the EU will take greater interest in our government’s lazy lying ways.

  3. According to April’s Stability Programme Update, GDP was 1.7% below potential in 2015. On the new figures it was 17% above, unless you believe that potential output rose by over one-fifth last year.

    The reported increase in capital stock is just ridiculous. It’s not here. If some Dublin aircraft leasing companies have lots of aircraft busily producing Irish GDP in China, good luck to them. They are essentially banks and should be treated as such in ESA 2010, whenever it is revised. The inversion practitioners and IP traders are not so straightforward but Patrick’s suggestion is on the right track. They are of course exploiting loopholes in the US tax system, which Ireland cannot address.

    The CSO has announced plans to “convene a high-level cross sector consultative group to examine how best to provide insight and understanding of all aspects of the Irish economy”. Fine, but the group should also propose methodology changes to Eurostat, who wrote the book.

    I used to think that GNP, or better GNDI, was the best denominator in debt ratios, since closer to a measure of taxable capacity. But the absurd depreciation figures point to Seamus Coffey’s favourite, Net National Income. Since you asked, the debt ratio was around 140% at end-2015 on this basis.

    1. @Colm

      ” If some Dublin aircraft leasing companies have lots of aircraft busily producing Irish GDP in China, good luck to them. They are essentially banks and should be treated as such in ESA 2010, whenever it is revised.”

      I’d start with the fact that General Electric mostly bailed-out Guinness Peat Aviation, the state’s involvement being …contained, and proceed without engaging the automatic pilot.

    2. Colm, why should Eurostat be required to revise ESA2010 to quantify the antics of a relatively small EU member-state presenting aspects of “Leprechaun Economics” (copyright Prof. Krugman)? I agree there are elements of ESA2010 that require revision. An example of such a revision might be the “Market Corporation Test” which the last government sought to abuse and exploit in the case of Irish Water – and then cut up rough and tried to bully and browbeat Eurostat when it stuck to an appropriate application of this test.

      Would it not be far better just to strip this MNC enclave out of the national accounts? In the early years of the bail-out programme the IMF referred to Ireland’s MNC export enclave, but was probably encouraged to row back on this. Some of the MNCs appear to here for the long-haul, but many are just gaming various national taxation regimes – in particular the Irish and US regimes. But, irrespective of the extent of thier “physical presence”, there always has to be uncertainty about their commitment to Ireland. The linkages are relatively limited and should be easy to identify and quantify. We would then have a better picture of the domestic economy in all its glory.

      But, of course, this would encourage a greater focus on the rip-offs, inefficiencies and rent-seeking that characterise the domestic economy and we couldn’t be having that. So, instead, let’s demand that Eurostat change the rules – rules that seem to work quite well for almost all member-states with the exception of Ireland – and possibly Luxembourg. It looks like a classic case of “They’re all out of step, except my Johnny”.

    3. 140% sounds horrific on the face of it. But for context, do you have any ratios for other countries by the same measure?

  4. On better measurements:

    I visited the Traffic Control Centre in Dublin City Council a while back. They said that in October last year, the traffic on the M50 was 30% higher than at the peak of the boom.

    Does that count?

    1. A similar story with Dublin airport.

      http://www.independent.ie/business/did-you-fly-into-dublin-airport-on-its-busiest-day-in-history-34879756.html

      When T2 was built one prominent economist, not a million miles from your post, argued on here for it to be mothballed as it would be superfluous to the country’d needs for the foreseeable future. Now they’re talking about the need for a third terminal.

      ps I sent this same post through a few mins ago but typed the wrong entries in the email and name fields – can you remove it

  5. A measure of economic growth based only on personal expenditure and government spending on goods and services would be wholly inadequate. Any accurate measure has to include within it a measure of exports relative to imports, or net exports, as they are called. This is elementary.

    Two countries could each be showing the same growth in spending, say 5%. But, if one is seeing exports growing at 8% and imports at 2%, and the other is seeing exports growing at 2% and imports at 8%, then clearly the former is doing much better and its economic growth will be much higher according to the way economic growth is measured. The way this would pan out in practice is that the first country would be able to continue or even increase its spending, while the second country would soon have to rein back spending as it hit a growing balance-of-payments deficit.

    In addition, spending on investment is just as important as spending on consumption. For long-term growth its actually more important. And that investment spending includes so-called intangibles, like computer software. I write map-making software that is exported worldwide (not from ROI). Its used as an investment tool by companies who buy it. It greatly increases those companies’ productivity. Even though you can’t see it or touch it (intangible), such spending has every right to to be included under the heading ‘investment’ as spending on machinery and equipment that you can see.

    Of course, we depend on the CSO to measure these items accurately. That’s what they are paid to do. No one has produced a shred of evidence that they don’t.

  6. Anyway, its all a bit academic.

    If we look at the figures over the long-term, taking the composite figures for growth in spending rather than GNP makes little difference to Ireland’s growth figures.

    These are the figures for real economic growth in EU15 countries between 1995 and 2014, taken from Eurostat – Luxembourg is omitted because Eurostat doesn’t give it for 1995. I have replaced the GDP figure that Eurostat gives for Ireland with the CSO figure for GNP (which is lower).

    [ 1] Ireland +107.5%
    [ 2] Sweden +55.7%
    [ 3] Finland +50.9%
    [ 4] U. Kingdom +47.7%
    [ 5] Spain + 46.3%
    [ 6] Netherlands +43.4%
    [ 7] Austria +40.3%
    [ 8] Belgium +39.6%
    [ 9] France +34.8%
    [10] Germany +27.7%
    [11] Denmark +26.8%
    [12] Portugal +23.5%
    [13] Greece +17.0%
    [14] Italy +9.0%

    So, Ireland’s growth was 4 times the EU15 average and almost 2 times as great as the next highest country (Sweden).

    Enough to make the Irish Times go apoplectic and have screaming headiness about ‘insane figures’.

    But, would replacing the GNP figure by figures for growth in spending make any difference?

    Answer: none at all

    These are the CSO figures for growth in spending (volume) in Ireland over the same period:

    personal spending:

    1995 figure: 43,514
    2014 figure: 87,760

    increase: +101.7%

    government spending:

    1995 figure: 15,791
    2014 figure: 26,479

    increase: +67.7%

    investment spending:

    1995 figure: 16,053
    2014 figure: 39,572

    increase: +146.5%

    total spending (personal spending + government spending + investment spending):

    1995 figure: 75,358
    2014 figure: 153,811

    increase: +104.1%

    So, +104.1% when we use total spending (as recommended in the post) versus +107.5% when we use GNP – virtually no difference.

    Of course, that’s over a long period. In individual years the two measures may diverge. Between 1995 and 2014 during years when the balance-of-payments improved the spending growth was less than GNP growth, and vice-versa. But, over the long-term the two measures will always converge.

    Thus it will be from 2015 on. In 2015 the spending growth was much less than the GNP growth. This will be compensated for in coming years by higher spending growth and lower GNP growth. Allready signs of this happening in Q1 2016. Within a few years the two will converge again, just as in 1995-2014. There is every reason to believe that when they do, well get a post-2015 growth league table similar to the one for 1995-2014 shown above.

  7. More statistics.

    In my last post I gave figures for 1995-2014. But, the CSO website also gives figures for 1970-1995. So, we can piece the figures together for 1970-2014, taking care to account for the break in the series in 1995.

    All figures are for volumes (constant prices) rather than values (current prices).

    [1] GNP:

    1970: 35,928 billion euros in constant 1995 prices
    1995: 77,099 billion euros in constant 1995 prices

    then rebased by the CSO to 1995:

    1995: 78,757 billion euros in constant 2014 prices
    2014: 163,445 billion euros in constant 2014 prices

    real increase between 1970 and 2014: +345.3%

    or, putting another way, GNP in real terms in 2014 was 4.453 times its 1970 level

    This is the figure that is now under attack by the media. Its claimed that it doesn’t accurately measure growth in the Irish economy and that a ‘parallel set of accounts’ based on actual spending in the economy should be used instead.

    So, let’s do it. Applying the same methodology to the individual items of expenditure, we get:

    [2] personal spending:

    1970: 21,150 billion euros in constant 1995 prices
    1995: 43,222 billion euros in constant 1995 prices

    then rebased by the CSO to 1995:

    1995: 43,514 billion euros in constant 2014 prices
    2014: 87,760 billion euros in constant 2014 prices

    real increase between 1970 and 2014: +312.2%

    or, putting another way, personal spending in real terms in 2014 was 4.122 times its 1970 level

    [3] government spending:

    1970: 7,344 billion euros in constant 1995 prices
    1995: 15,745 billion euros in constant 1995 prices

    then rebased by the CSO to 1995:

    1995: 15,791 billion euros in constant 2014 prices
    2014: 26,479 billion euros in constant 2014 prices

    real increase between 1970 and 2014: +259.5%

    or, putting another way, personal spending in real terms in 2014 was 3.595 times its 1970 level

    [4] investment spending:

    1970: 6,578 billion euros in constant 1995 prices
    1995: 14,535 billion euros in constant 1995 prices

    then rebased by the CSO to 1995:

    1995: 16,053 billion euros in constant 2014 prices
    2014: 39,572 billion euros in constant 2014 prices

    real increase between 1970 and 2014: +444.7%

    or, putting another way, personal spending in real terms in 2014 was 5.447 times its 1970 level

    [5] total spending (i.e. personal + government + investment):

    1970: 35,072 billion euros in constant 1995 prices
    1995: 73,502 billion euros in constant 1995 prices

    then rebased by the CSO to 1995:

    1995: 75,358 billion euros in constant 2014 prices
    2014: 153,811 billion euros in constant 2014 prices

    real increase between 1970 and 2014: +327.8%

    or, putting another way, total spending in real terms in 2014 was 4.278 times its 1970 level

    So, using the measure the CSO uses, real GNP in 2014 was 4.453 times its level in 1970, i.e. it more than quadrupled.

    But, using the composite of measures for spending on the individual items, it was 4.278 its level in 1970. If we used this measure instead, mean annual growth between 1970 and 2014 would be reduced by well under 0.1%.

    In other words, hardly any difference at all. Claims that the CSO have been systematically over-esimating GNP growth are clearly nonsense. The media should apologise to the CSO.

    And, even the very small difference is more than accounted for by the improvement in the balance-of-payments between 1970 and 2014 (deficit in 1970, surplus in 2014). When this is factored in (as it must be), the CSO’s estimate of GNP growth between 1970 and 2014 becomes almost totally accurate,

    1. So, G*P is not a reliable measure of aggregate economic activity. This is surely correct for financialized economies – and I believe I made this assertion several times on this blog. Its only when the estimates are so obviously distorted, so deeply embarrasing and make us look like a bunch of idiots that folk start to notice and comment. No worries. It will all blow over in a few days or so. Then its back to the same olde rubbishy data estimates of yore. You see, they suit our politicians. And that’s all that matters? Accuracy be damned!

      A reasonably reliable economic estimate (plus-or-minus a few percent) would be the domestic consumption of energy* by sector – in its different forms. These will obviously fluctuate up and down (seasonally) but its their annual trend-lines that will tell the story. The trend-line should show a +3.x% (annual, compounding) increase if our economy is actually expanding; less than 3% if its stagnating and below 2 % if it is regressing.

      The financial services sectors should be kept completely seperate. Can someone give the order on this? Or are we just a bunch of panicky rabbits caught in the glare of a headlight.

      * Note; You might need to discount out some proportion of industrial-scale energy consumption for non-food processed goods (ie: not manufactured from raw materials) that are exported – and the revenues from their sale are not fully repatriated back into our domestic economy. There may also be the need to take some account for demographic variations.

  8. The idea of some parallel national accounts , to reflect the ‘real’ economy is not the way forward. The published data is to the accepted international standard. The issue is not that standard but the scale of multinational flows relative to the size of Ireland. For example, FDI inflows normally average around €15-€20bn a year but last year amounted to €170bn, with €130bn coming in the final quarter, and as such perhaps not available when the CSO had its first stab at 2015 GDP.
    Presumably it is in the hands of the government as to whether a multinational can locate here and its time to make sensible decisions as to whether that location is ultimately of real benefit – let them all come is not a good development policy. Employment creation is and should be a strong determinant but perhaps we should now examine the scale of each firms “output’ to see how potentially distortive it could be. The horse has bolted but we can do something about the size of the stable in the future.

    1. I think that it is largely accepted at this point that Ireland – with Luxembourg – is an outlier. The controversy certainly has not impacted the Spanish view of the fiscal rules cf. their reply to the threat of fines (h/t Open Europe).

      http://www.mineco.gob.es/stfls/mineco/comun/pdf/Solicitud_Motivada.pdf

      There is also discussion of them in the Mid-term Expenditure Report.

      http://www.per.gov.ie/en/mid-year-expenditure-report-must-ensure-effective-use-of-taxpayers-money-donohoe/

      The report is otherwise, simply more of the same, breaking down expenditure by departmental allocations, which are the result of the recent haphazard political process, not any reasoned budgetary classification, coupled with lots of other largely irrelevant technical commentary.

    2. @ Dan McLaughlin. But the size of the stable doesn’t matter if the horse is no longer in it. 🙂

      @Paul Hunt, Colm McCarthy and Prof. Honahan

      “Colm, why should Eurostat be required to revise ESA2010 to quantify the antics of a relatively small EU member-state presenting aspects of “Leprechaun Economics”

      Nail on the head.

      Why would France, Italy or even Germany agree to help us out here? Its not in their economic or political interests. Id say some french economists were laughing into their Croissants or more likely giving a Gallic shrug. A proposal is only worth making if there is at least a possibility of success.

    3. This would be absurd. Should the IDA put firms on hold while it submits their business plans to the CSO for an opinion on the likely statistical treatment?

      It would presumably run counter to EU freedom of establishment rules too.

    4. You say “FDI inflows” but this is a fiction as the farcical claims that the US invests more in Ireland than China results from tax avoidance and this factor in the data has nothing to do with real US FDI investment in Ireland.

      The top 50 US companies currently hold about $1.4 trillion in cash or near cash instruments supposedly “offshore” but it is typically invested in US Treasuries or held in US banks.

      Overseas “contract manufacturing” has in recent times polluted the Irish national accounts. It can make sense in respect of two separate companies but for companies within a group, it has provided a massive opportunity for dodging taxes in Europe.

      http://www.cso.ie/en/media/csoie/surveysandmethodologies/documents/pdfdocs/ContractManufacturingInformationNotice.pdf

      Google books it sales across Europe In Dublin, avoiding taxes in several countries while for drugs companies contract manufacturing gives the same tax dodging benefits by having say manufacturing in a group firm in France booked as if it really occurred in Ireland.

      Data on employment in the giant companies have also become unreliable and for a number of years IBM has not been disclosing its head count figures as it then avoids having to publicly disclose job losses.

      In recent times Google has disclosed that it has doubled its Irish staff to 6,000 by adding 3,000 contract staff. However when the taoiseach officially opens a Google data centre that employs 30 people, one has to wonder why this apparent good news was kept a secret by ministers and the IDA — it appears that Google has been reclassifying staff elsewhere to its Irish onshore company ahead of the ending of the Double Irish loophole.

      http://www.finfacts.ie/Irish_finance_news/articleDetail.php?Does-Google-Ireland-have-6-000-employees-in-Ireland-649

  9. One wonders if the CSO are just implementing the rules more strictly than others.

    One can think of a few other jurisdictions (Luxembourg, Singapore) which share many similar features but where revisions aren’t as large and quarterly data aren’t as volatile.

    1. Every national accounts exercise involves some degree of judgement. There will be cases where the available numbers seem to depart from broader information. For example is the size of Ireland’s black economy zero? This looks like a case where someone inside CSO should have been willing to go beyond mindless compilation and use discretion to get a more sensible result. By publishing numbers from a confidential survey but not explaining the underlying transactions, they’ve set off a round of detective work that will make big firms more reluctant to participate in future surveys. Worst of both worlds.

  10. John FitzGerald comments today on the issue in The Irish Times:

    http://www.irishtimes.com/business/economy/cso-needs-to-develop-better-tools-to-tell-us-what-s-really-going-on-in-economy-1.2721974

    I added the following comment:

    For years the consensus of ministers and policy makers was to ignore the distortions in the national accounts and there was a benefit internationally as Ireland’s economic performance was enhanced. Unit cost of labour and indicators such as on innovation were also positively improved. There was a taboo in acknowledging significant corporate tax avoidance and its impact on data.

    There was also an official welcome mat out for foreign firms that wished to become Irish for tax purposes, including brass plate operations. It was good business for the big professional firms.

    The wide reaction to the huge revision of 2015 growth data is because Irish statistics have become an international joke.

    In 2010 Prof Patrick Honohan, then governor of the Irish central bank, spoke of “the accounting and measurement challenges that have been presented by the extraordinarily globalized nature of the Irish economy as it evolved over the years…unit labour costs tend to fall even if wage costs for any individual firm or industry are increasing. Because of this shifting composition effect, as has been well-known for decades, but is routinely forgotten by superficial analysts, unit labour costs are a false friend in judging competitiveness developments for Ireland.”

    Nevertheless, improving unit labour costs were good news for the Dept of Finance to highlight and in 2013 Mario Draghi, ECB president, said on the reduction: “Ireland has seen an 18 percentage point improvement relative to the euro area average.”

    For years Irish economists reacted to rises in services exports as reflecting “a move up the value chain” — Microsoft and Google had typically booked 25% and 40% of their global revenues in Ireland but they did not engage in significant research there.

    I estimated in early 2012 that about a third of the value of services exports was fake but that was unwelcome news to officials and the mainstream media. The ratio is now at about 50% or €60 billion.

    In 2012 the official value of services exports overtook merchandise exports for the first time.

    The Central Bank’s Q1 2013 Quarterly Bulletin said that “Computer services exports grew at an average rate of 14.6 per cent over the first three quarters of the year…a notable development in the Balance of Payments statistics during 2012 was the emergence for the first time of a surplus in the services trade balance.”

    In February 2013, Michael Noonan, finance minister, at a Bloomberg event in London, attributed the jump in services exports to “the significant price and cost adjustments that have taken place in recent years.”

    The Economic and Social Research Institute said in its Quarterly Economic Commentary that “exports of services in 2012 grew very rapidly. We estimate the growth at 8-9%. This growth was due primarily to the expansion of recently established overseas firms in the communications and IT sectors.”

    Ibec commented in January 2013: “Internationally traded services businesses remain the main driver of both export and employment growth for the Irish economy.”

    There was no mention of the biggest contributor to the rise in services — the Double Irish tax dodge.

  11. I wonder what impact the Government’s new Knowledge Development Box tax incentive — which became operational on January 1 — had in terms of influencing MNCs to transfer their IP to Ireland?

Comments are closed.