The fundamental reason for Ireland’s high GDP growth rates is that, in recent years, a number of large multinational firms have transferred their economic activities, and more especially their underlying intellectual property, to Ireland, largely due to low corporate tax rates.
Why is Ireland’s economy performing so well?
Since 2014, certain economic pundits and media outlets have adopted the term “Celtic Phoenix” to characterize the indicators of economic development in several industries in Ireland, which was popularized by journalist and satirist Paul Howard.
Ireland exited an EU/ECB/IMF bailout in late 2013. Ireland’s economy began to recover in 2014, rising at a rate of 4.8 percent, making it the EU’s fastest-growing economy. A rising construction sector, quantitative easing, a weak euro, and low oil costs all contributed to growth. The national debt was reduced to 109 percent of GDP as a result of this growth, and the budget deficit was reduced to 3.1 percent in the fourth quarter.
The headline unemployment rate stayed unchanged at 10%, however the youth unemployment rate remained significantly higher than the EU average, at over 20%. Emigration remained a key influence in unemployment statistics, albeit the rate of emigration began to decline in 2014.
Property prices rose in 2014 as well, with Dublin seeing the most growth. The reason for this was a housing crisis, particularly in the Dublin area. The building and property sectors in Ireland have seen some improvement as a result of increased home demand. House price rises across the country began to outstrip those in Dublin by early 2015. House prices in Cork increased by 7.2 percent, while prices in Galway increased by 6.8 percent. Limerick prices increased by 6.7 percent, while Waterford prices increased by 4.9 percent. During the housing crisis, over 20,000 people applied for social housing for the first time in the Dublin City Council region. The Insolvency Service of Ireland reported to the Oireachtas Justice Committee in May 2015 that 110,000 mortgages were in default, with 37,000 of those defaulting for more than 720 days.
Ministers for Finance Michael Noonan and Public Expenditure and Reform Brendan Howlin unveiled the 2015 budget on October 14, the first in seven years to feature tax cuts and spending increases.
With increased spending and tax cuts totaling little over 1 billion, the budget reversed some of the austerity measures implemented during the preceding six years.
Noonan and Howlin announced the government’s intentions and projections through to 2020 during a “Spring Economic Statement” in April 2015. Policy declarations on expansionary budgets, deficit management strategies, and suggested cuts to the Universal Social Charge and other taxes were among the items on the agenda.
Wolfgang Schuble, Germany’s finance minister, remarked in October 2014 that Germany was “jealous” of Ireland’s economic recovery following its bailout. He also stated that Ireland has contributed significantly to the euro’s stabilization. While Taoiseach Enda Kenny praised the economy’s development and stated that Ireland will strive to avoid a “boom and bust” cycle, he also stated that some aspects of the economy were still vulnerable. The European Commission praised the recovery and development, but cautioned that any additional government money should be utilized to lower the country’s debt.
Other observers have warned that the growth experienced in Ireland in 2014 and early 2015 may not signal a longer-term trend of sustainable economic recovery, depending on the Eurozone, global economic outlook, and other domestic and foreign factors. Others have pointed out that recovery estimates do not take into consideration emigration, youth unemployment, child poverty, homelessness, and other problems.
The United Kingdom decided to leave the European Union on June 23, 2016, which was widely reported as having a detrimental impact on commerce between the UK and Ireland, as well as the Irish economy. Others, such as the Financial Times, have speculated that some London-based financial organizations may relocate their operations to Dublin following Brexit.
Is Ireland’s Gross Domestic Product high?
From 1960 to 2020, Ireland’s GDP averaged 103.37 USD billion, with a top of 425.89 USD billion in 2020 and a low of 1.94 USD billion in 1960.
Is Ireland a wealthier country than Switzerland?
According to the OECD, Ireland has surpassed Switzerland in terms of economic “wealth,” relegating the once-dominant Swiss to fifth place globally.
Is Ireland wealthier than the United States?
The economy: According to the survey, Irish citizens are now wealthier than Americans. The Irish GDP per capita, adjusted for purchasing power to $36,360, is now greater than the US figure of $35,750 for the first time since the data was published.
Is Ireland wealthier than the United Kingdom?
According to IMF and World Bank figures from 2015/2016, Ireland is far wealthier (living standards are significantly higher) than the United Kingdom, France, or even Germany.
Is Ireland richer than the United Kingdom in 2021?
Welcome to the strange world of national economic accounts in Ireland. The official estimates for Ireland’s tax haven economy are so odd that Nobel Laureate and American economist Paul Krugman has termed them “leprechaun economics.” And now, the skewed figures that are used to calculate Ireland’s GDP are catching up with the country in the form of greater contributions to Brussels.
Ireland’s GDP per capita is 91 percent larger than the UK, according to the Irish government and recognised by international organizations implying that Ireland is nearly twice as wealthy as the UK. This, however, is a distortion of reality. If we look at adequately recorded indices of living standards, such as consumer and government spending in Ireland, we can see that Ireland is 10% poorer than the UK. Many international figures, such as spending on health and education, are presented as a percentage of GDP, making Irish measures nearly worthless. So, what exactly is going on here?
The distortions are caused by multi-national corporations’ massive revenues pouring through Ireland but not generated or spent there. Ireland has one of the lowest profit tax rates in the world and is widely recognized as a major tax shelter. Multinational corporations with operations in Ireland inflate their profits in Ireland dramatically. Profits from R&D in the United States and elsewhere are reported at Irish manufacturing plants. This is why R&D-intensive industries like pharmaceuticals and electronics have so many plants in Ireland.
Other multinational corporations simply establish a presence in Dublin so that earnings can be routed via the country. For example, Ireland generates the majority of global earnings from aircraft leasing (most airlines lease rather than own their jets). According to Brad Setser of the US Council on Foreign Relations, Irish national accounts reveal more about the tax affairs of American corporations than about the Irish economy. The EU despises it but is helpless to stop it. The ECJ has overturned a recent EU judgement that the Irish government should recoup 13 billion euros (11.5 billion) in owed taxes from Apple, but Brussels is unlikely to give up. It held a consultation last Christmas on the idea of removing member states’ veto power over corporate tax legislation and reining in European tax havens.
Because EU budgets are established on the size of member-state economies, Ireland is now paying the price for these inflated numbers in the shape of payments to EU budgets. Payments to the EU’s 750 billion euro (667 billion) Covid ‘Recovery Fund,’ announced last month, are based on GDP, making Ireland the second largest net donor per person after Luxembourg, another tax haven.
Contributions to the larger 1074 billion euro (955 billion) Multi-Annual Financial Framework (MFF) for 2021-2027 are computed on the basis of GNI rather than GDP, which is more advantageous for Ireland. GNI aims to separate multinational corporation profits from GDP in order to capture the portion of income that belongs to a country’s citizens.
However, it is clear that this correction is insufficient. On a per capita basis, Ireland’s GNI is still 45 percent higher than the UK, exaggerating the true size of the Irish economy. As a result, Ireland contributes to the EU MFF budget based on a far larger GDP than it actually has. GNI* is a supplementary adjustment made by Irish statisticians for domestic use. This eliminates further distorting factors such as intellectual property depreciation and airplane leases. Even if Ireland’s GDP is 14 percent larger per capita than the UK’s, distortions must still be factored in. However, GNI* is not utilized to determine EU budget contributions.
The EU Council’s actions on July 19 increased EU budgets significantly. The standard MFF, which pays things like the Common Agricultural Policy and regional and cohesion subsidies, was renewed for another seven years, this time until 2027. The budget remains unchanged at 0.9 percent of each member state’s yearly GNI (a cumulative 6.3 per cent over the full seven-year period). Germany and the ‘frugal’ northern states, led by the Netherlands, have requested and will receive rebates this time. These rebates are significant, lowering these countries’ contributions by 15%, implying that other countries, including Ireland, will have to pay more.
The pandemic-related Recovery Fund adds further 750 billion euros to the EU budget, or 5.4% of GDP. This fund is roughly half grants and half loans, with a smaller component to supplement the MFF. Importantly, this is money that will be borrowed directly by the EU Commission, which is a historic first. There are limited immediate payments from member states because these funds are borrowed, but they will be repaid over the next three decades. To settle the debt, the Commission proposes a series of additional levies, all of which would benefit the Commission. A plastics tax, a digital tax, and possibly a financial transactions tax are among these. Ireland is expected to contribute 19 billion euros (17 billion) to the Recovery Fund. Because Ireland will only get two billion in grants and another billion in loans over the next three decades, its net contribution will be close to 5% of GDP.
Ireland’s annual payments to the MFF will also increase in the near future. The EU’s popularity in Ireland has historically been built on EU funding transfers to the country’s farmers and impoverished regions. Since 2014, Ireland has been a tiny net donor to the budget, but the numbers are about to increase. For two reasons, net contributions will increase. Aside from the exaggeration of the size of the Irish economy, Ireland’s budget inflows are primarily from the Common Agricultural Policy (CAP), although EU farm payments have been curtailed for the period 2021-2027 and will drop in real terms. Annual net payments, according to my estimates, will climb from 230 million euros in 2019 to about one billion euros on average over the next seven years, accounting for 0.5% of GNI*. To put this in perspective, the net payment would be similar to what the UK has lately paid as a percentage of national income.
Payments on this size may erode the EU’s popularity in Ireland, just as they have in the United Kingdom. Links to the EU are aggressively promoted by a liberal elite in Ireland, as former Irish ambassador to Canada Ray Bassett writes in his new book, ‘Ireland and the EU, Post-Brexit.’ European referendums, like those in the United Kingdom, tend to be anti-EU, albeit in Ireland, they have been rerun to achieve the desired outcome in Dublin and Brussels. Irish political culture is more regimented than that of the United Kingdom, with the main ruling parties, the media, and academics all singing from the same hymn sheet and dissenters being marginalized. Although there has been no public discussion of greater payments in Ireland, hiding this information is going to become more difficult. The political classes in Ireland have made a big investment in European identity, which is now more entwined than ever with anglophobia, and this is more essential than the occasional billion euro payment to Brussels. Nonetheless, the tide of gratitude for EU handouts must now turn the other way.
Is Ireland Europe’s richest country?
Ireland’s per capita GDP is ranked fifth highest among the 182 nations studied, or third (after Qatar and Singapore) if countries with populations of less than half a million are excluded – and first in Europe.