Q4 2013 International Investment Position and External Debt

The CSO have published the Q4 2013 update of the IIP data.

These are important data but, as with many macro aggregates on the Irish economy, establishing meaningful trends can be difficult.  In the data the totals look enormous but the IFSC sector has foreign assets of €2,390 billion and foreign liabilities of €2,394 billion for a net external liability of just €4 billion.  It is possible to generate some ridiculously large external debt figures for Ireland by including the liabilities of the IFSC but they are wholly matched by foreign assets.

The net international investment position of the non-IFSC sector improved significantly in the final quarter of 2013, moving from –€172 billion to –€150 billion.  This measure troughed in Q4 2011 at -€196 billion.  The bulk of the –€150 billion arises from the –€116 billion net IIP of the government sector.

The net IIP of the non-IFSC sector began to improve in 2012 though obviously the position of the government sector continued to deteriorate.  However, this  was more than offset by the improvement in the net IIP of the Central Bank which fell from –€101 billion at the end of 2011 to –€37 billion now (these are the liabilities to the ESCB including TARGET2 balances).  Most of this improvement occurred in 2012.

In the most recent quarter there was a €6 billion improvement in the net IIP of the non-financial corporate sector, from –€87 billion to –€81 billion.  However, on this the release notes the following:

With the relocation of a number of group headquarters to Ireland, foreign assets of Non-Financial Companies increased by €47.5bn and foreign liabilities increased by €41.4bn resulting in a decrease of €6.1bn in the net liability to €81.2bn

Thus, all of the quarterly improvement for the sector (and half of the total quarterly improvement for the non-IFSC sector) is as a result of company re-domiciling.  To the extent that these companies have retained earnings on their balance sheets this is also likely to have impacted GNP figures for the same quarter.

Ireland’s Gross External Debt was largely unchanged at €1,604 billion, with 70 per cent of this arising from the foreign debt-instrument liabilities of the IFSC sector.  The Net External Debt after subtracting foreign assets in debt instruments was –€696 billion (i.e. an asset position). 

Removing the impact of the IFSC, the Net External Debt of the non-IFSC sector at the end of 2013 was a liability position of €92 billion.  This was €146 billion at the end of 2012 and €182 billion at the end of 2011.  Again, the improvement in 2012 was due to improvements in the Central Bank position but this did not continue into 2013.  The 2013 improvement in Net External Debt can mainly be attributed a jump in debt instrument assets under the heading “debt liabilities to affiliated enterprises”. These debt instrument assets show an increase of €30 billion over the year, all of which happened in Q4.  Again this can be attributed to the re-domiciling of firms.

As a result of the impact of the IFSC sector looking at the overall totals for Ireland is largely meaningless.  There has been some improvement in the stripped-out results for the non-IFSC sector but, recently at least, much of that can be attributed to boardroom decisions.

Barbara Solow

A friend just told me the very sad news that Barbara Solow passed away in February.

She wrote a classic book on Ireland, The Land Question and the Irish Economy, which has a good claim to being the first major cliometric work on Ireland — if by cliometric you mean economic history that is strongly informed by economic theory, and systematically uses data to back up the arguments being made. In more recent years she did terrific work on plantation slavery, which was very influential and certainly made a big impression on me. The last time I saw her was at a conference which she organised in Oxford a couple of years ago to commemorate Eric Williams, and she was as impressive as ever.

I can’t claim to have known her very well, but she was always very nice to me when I was a young Irish economic historian in Boston. She had a wonderful dry sense of humour, and produced one of the great acknowledgment footnotes of all time. Her death is a major loss for the profession, and my heart goes out to her family.

Chartbook of economic inequality

Readers of the blog may be interested in a Vox piece by Tony Atkinson and Salvatore Morelli on the Chartbook of Economic Inequality. It provides a summary of changes in inequality for 25 countries (alas not including Ireland) over a 100 year period.  If you follow the links you can get the data on an Excel basis or in chart format.  The vox link is here  http://www.voxeu.org/article/chartbook-economic-inequality.

BEPS progress by the OECD

The OECD’s unit working on the Base Erosion and Profit Shifting (BEPS) project have been releasing documents based on the points in the Action Plan published last year.  The full set is here.

Yesterday, a discussion document for Action Point 1: Taxing the Digital Economy was published.  It is a very wide-ranging document.  One of the notable suggestions are the proposals to allow/force the greater taxation of companies selling digital products in their “market jurisdictions”.  This primarily arises from the ability of such companies to circumvent the existing rules on permanent establishment because of the intangible nature of the product.

The proposal is not a move to formulary apportionment. The document puts forward proposals to alter the existing source principle of corporation tax to try and ensure that more/some of the profits earned by these companies are attributed to the country of their customers using changes to PE rules.  Other proposals include the new concept of a “virtual” permanent establishment, the creation of a withholding tax on digital transactions and the use of consumption tax options.

There is a lot in the document and some extracts summarising the problems the OECD group are trying to tackle in this area are below the fold.  Whether there will be any effective solutions by the end of the process remains to be seen.

Continue reading “BEPS progress by the OECD”

Forfás: Survey of Economic Impact

The 2012 release of the Annual Business Survey of Economic Impact is available here.

The coverage is obviously not as broad as the various equivalent figures provided by the CSO.  The Forfás survey is limited to “client” companies with ten employees or more but a benefit of the survey is that the indicators surveyed are decomposed by company ownership.