John FitzGerald, a research professor at the ESRI (Economic and social Research Institute), says in a paper published today that GNP (gross national product) and the Current Account surplus have been overstated by the rise in large mainly US companies transferring headquarters to Ireland while having most of their operations overseas.
For example, in 2009, Accenture, the US management consultancy, moved its headquarters from Bermuda to Ireland. Large US industrial companies such as Seagate and Ingersoll-Rand also are technically Irish companies.
FitzGerald says: "The treatment of these redomiciled plcs in the national accounts differs from the treatment of the profits of many of the multinationals already operating in the Irish economy in the manufacturing or services sector because, crucially, these latter multinationals are not head quartered in Ireland."
Traditionally GNP, which excludes the profits of most of the foreign-owned sector, has provided a better measure of economic activity in Ireland. However, this has been affected in recent years by the profit flows of redomiciled plcs. Adjusting GNP to take account of these flows finds the contraction in the Irish economy was much deeper in 2009, the Irish economy actually contracted in 2010, rather than showing moderate GNP growth, and was marginally weaker in 2011, while GNP growth in 2012 was approximately 1 percentage point lower than official estimates.
If the pattern persists then adjusted GNP growth will be lower than forecast and any boost to growth from a fall in the balance of payments surplus will be smaller than had been previously anticipated.
John FitzGerald says in his paper [pdf]: "The change in the undistributed profits as a share of GNP is a measure of the extent to which the measurement of GNP has been inflated by the activity of these firms over the last five years, without a compensating reduction affecting GNP through increased factor outflows.
There is also a corresponding implied adjustment needed in the official current account figures, as shown in Table 2. This would imply that, instead of having a current account surplus of around 6.1% of GNP in 2012, the underlying surplus was closer to 0.6% of GNP."
The fact that the underlying value of GNP is also lower than measured in the national accounts means that the burden of debt, "when expressed as a percentage of GNP, is higher than we had thought."
The GNP level also has an impact on the "the base on which Irish contributions to the EU Budget are calculated. Thus, while these companies confer no significant benefit on the Irish economy in terms of employment or taxes, they do give rise to a higher EU budgetary contribution."
The data show that incoming net profits from re-domiciled PLCs have grown exponentially since 2009, up from €1.5bn to €7.4bn in 2012.
CRH, Ireland's largest indigenous company, has about 1,500 of its 75,000 employees based in Ireland and 90% of its shareholders are resident overseas.
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