Irish Economy: Ten years ago this week we asked the same question in an article headline as we do today. It was a time of optimism: almost 100,000 new jobs had been created in 2004; Citigroup, the US financial services giant, was the 2005 Irish Exporter of the Year, and in June of that year Thomas Friedman, chief foreign affairs columnist of The New York Times, wrote: "How Ireland went from the sick man of Europe to the rich man in less than a generation is an amazing story" — in 2006 we warned that the "outlook for the Celtic Tiger beyond 2008 looks uncertain, there is a sense that the significant opportunities to reform and modernise the economy to better withstand future challenges, have been wasted."

 

Political leaders, garlanded with superlatives at home and overseas for the miracle economy that they had apparently created, inevitably fell for the delusion that they had invented the free lunch. Less than three years later, in response to the international financial crisis, Ireland was unprepared for a recession, and in a panic wrote a blank cheque to save the floundering banking system.

Ireland and Finland, both members of the euro system, ended 2007 with the same level of GDP (gross domestic product). Finland had surplus public funds of €130bn while Ireland had net debt of €20bn after offsetting cash balances and the value of the National Pensions Reserve Fund — despite its current economic problems, Finland in 2015 has a minus net public debt of 41% of gross domestic product (GDP).

What could go wrong when the recovery is so strong?

On Thursday the Central Statistics Office (CSO) reported growth data for the third quarter of 2015 showing a strong rise of 7% in GDP in nine months while gross national product (GNP) increased by 8%.

While jobs and retail data are strong, and mainly foreign-owned multinational companies (MNC) are responsible for a jump in tax receipts, the GDP and GNP are both heavily distorted by both MNCs with significant business operations in Ireland and giant US companies becoming Irish for tax purposes. In the coming year Pfizer, will be the world's biggest drugs company and it's incorporation in Irish data will both artificially boost the Balance of Payments and GNP data.

Headline exports are up 41% since 2007 but jobs in the sector are down about 30,000 since mid-2008 according to our calculations.   

The broad rate of unemployment is at 19%.

Last August Prof Patrick Honohan, then governor of the Central Bank, warned Michael Noonan, finance minister, on the distortions in the national accounts — we have links and more background on this issue here.

Earlier this week the Government launched its Innovation 2020 Strategy document, which is based on tax-avoidance related distorted data.

Irish Innovation 2020 Strategy Report: Wish list based on distorted data

It has a target to have total research and development (R&D) spending double by 2020 to about €5.6bn.  

On Thursday the CSO reported that R&D spending by MNCs, jumped a massive €5.3bn in real terms on the year (over 200%) to Sept 2015. This relates to shifting of patents to Ireland.

We can have a poor patenting record but wonder how these virtual shifts can create magic for politicians!

Ireland economy distortions, multinationals

What change

What is remarkable about the current political leadership is that despite the crash, Enda Kenny, taoiseach, and his Cabinet colleagues, so resemble the Cabinet of 2005.

The horizons of Kenny and ministers extend only to the next general election as it did with Bertie Ahern and colleagues.

Enda Kenny has no interest in significant reforms and apart from a subdued housebuilding sector, the economy remains dominated by American-owned firms.

The overdependence on these firms is a risk as the outcome of the changing international corporate tax system is unknown — it's unlikely for example that in 10 years time Apple will be able to get away with paying Ireland for providing shell companies to siphon off profits from other countries.

Wonder why Kenny has put taxes again as the central focus of a general election campaign?

Another housing crisis and more band-aid measures are the only remedies while lawyers and farmers are indulged. 

Agricultural land prices are among the highest in the world!

Kenny, Burton Noonan, Bruton and colleagues are another crew of handymen rather than engineers and architects.

The piecemeal work of the handymen will only be really tested when the next economic storm arrives unexpectedly.

Dublin house rents near boom peak; Rents and wages too low

Dutch house price doubled in 350 years; Irish prices in 20 years

Irish fisheries industry and myth of EU stealing our fish

Irish standard of living per inhabitant at 23rd of 34 richest nations

17% of Irish-born live overseas; 20% of Irish population foreign-born

EU farm numbers plunge 27% in decade; Ireland only riser

Nordics tops for financial literacy; Ireland lags UK, Germany

Irish Legal Services Reform: Kenny & Burton hoist the white flag

Can Ireland reduce its reliance on FDI by boosting Irish firms?

Jobs in Irish exporting firms down 30,000 since Q2 2008

Europe's export stars: Ireland and UK as laggards Part 2

Pfizer as Irish firm would swamp Ireland's national accounts

Doing Business 2016: Singapore on top; Ireland slips to 17 ranking

Ireland: Best small country for business in 2016?

Ireland a low-tax country; Kenny wants radical income tax cuts

Irish Politics: Scraps on tax & welfare in place of vision

Half Ireland's population paid public income supports in 2014

Ireland & Beps Tax Reform: Services exports to drop 50%

Pic on top: Brendan Howlin, spending and reform minister, and Enda Kenny, taoiseach, at a Civil Service event in Dublin, 3 Dec, 2015