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News : Irish Last Updated: Jan 2, 2013 - 8:52 AM

Wednesday Newspaper Review - Irish Business News and International Stories - - January 02, 2013
By Finfacts Team
Jan 2, 2013 - 8:23 AM

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The Irish Independent reports that  Taoiseach Enda Kenny remains the third best-paid leader in the EU, while a controversy over political pay is raging in Germany.

Even though Mr Kenny cut his salary by €14,000 to €200,000 upon taking office, he is still paid more than the vast majority of EU leaders. The only leaders on higher salaries are German chancellor Angela Merkel, who earns €250,000, and Luxembourg's prime minister Jean-Claude Juncker, who gets €210,111.

The issue of salaries paid to EU leaders has hit the headlines because the main challenger to Ms Merkel in the German election later this year has complained that the salary for the job of chancellor is too low.

Ms Merkel is often described as the most powerful woman on the planet, given her position in charge of Europe's biggest economy.

But while the salary debate continues in Germany, Mr Kenny is still on higher wages than the leaders of other large European countries.

French president Francois Hollande is paid €179,000, British prime minister David Cameron is paid €172,000 and Spanish prime minister Mariano Rajoy is paid just €75,000. Italian prime minister Mario Monti has given up his entire salary.

Although Ireland is currently in a bailout programme, Mr Kenny is still being paid more than leaders from solvent countries, such as the Netherlands (€180,000), Finland (€129,000) and Poland (€33,367). The Cypriot president, Demetris Christofias, who has requested a bailout for his country, is on a salary of €158,551.

However, Mr Kenny is earning less than US President Barack Obama, who is on a salary of $400,000 (€303,000).

The issue of the salaries paid to EU leaders has hit the headlines again due to a controversy involving the main challenger to Ms Merkel in the German election in September.

Social Democrat leader Peir Steinbruck complained that the job of the German chancellor was underpaid.

"Almost every (savings) bank director in North Rhine-Westphalia earns more than the chancellor," he said. "A chancellor of Germany earns too little, measured by the performance they provide, in relation to other jobs with far less responsibility."

But he was criticised by Germany's last Social Democrat chancellor, Gerhard Schroder, who insisted that politicians in Germany receive an appropriate level of pay.

"I have always been able to live from my earnings as a politician," said Mr Schroder, "and if the rewards are too low, a politician can always try some other career."

The salary of the Taoiseach was even higher during the last Fianna Fail administration. Before the State's banking guarantee in September 2008, the then Taoiseach Brian Cowen was on a salary of €285,000. This was later reduced to €228,000 and then €214,000.

Tánaiste Eamon Gilmore promised while in opposition that he would take a salary of €190,000 if elected Taoiseach.

The Irish Independent also reports that a raft of new levies and charges enforced from this week are set to cost households up to €1,000 each over the full year.

Consumers are being hit with higher rail and bus fares, increased taxes on savings, rises in car insurance for women and a hike in motor tax.

Other areas where prices are set to rise include health insurance and the cost of a driver's licence, while later this year the new property tax kicks in. Most of the rises are due to government decisions following the Budget last month.

The impact of the higher charges will be felt from January 1, in what experts said would mean another massive strain on family finances.

Hard-pressed motorists, already reeling from high petrol and diesel prices, have been hit with a 400pc rise in the cost of renewing a one-year driving licence.


The cost has shot up from €5 to €25 from Tuesday. Renewing a 10-year licence now costs €55, up from €25. This is a 120pc rise. New plastic, credit-card sized licences are being introduced.

Motorists also face higher motor tax from this month, and those with cars whose road tax is calculated on engine size face increases of up to €126 a year.

Cars that are taxed on emissions, which is mainly those registered since 2008, will also be hit, with increases of up to €40 a year.

Female drivers will face higher premiums after new EU rules came in last month banning premiums being calculated on the basis of gender. This has meant that women drivers under the age of 30 are seeing premium jumps of up to €300.

And savers will also be hit.

From the start of this month anyone with savings will now have any interest they earn taxed at 33pc, up from 30pc. And next year all those, apart from pensioners, will have pay-related social insurance(PRSI) deducted also from interest earned.

Families are bracing themselves for higher health insurance premiums after a series of price increases last year. Some 400,000 people renew their policies at this time of year and they will be hit by a series of rises imposed last year that average around 20pc. Bus and rail fares went up by up to 18pc from last month.

The scrapping of the PRSI-free allowance for workers earning more than €18,000 will be visible on the payslips of workers at the end of the week. It will cost workers an average of €5 per week.

The €10 cut to child benefit also came into force yesterday.

The Irish Times reports that Tánaiste Eamon Gilmore has predicted a “post-recession” Republic will become apparent by the end of 2013, bringing enormous potential for growth to our economy.

Mr Gilmore believes the recession will have ended by 2014 and that the political and economic landscape will alter radically.

As a corollary, those changes would shore up support for the Labour Party in its Coalition with Fine Gael.

“We believe that we are now at a stage where we can start looking forward. We have been mired in economic recession. As we move into 2013, we will be able to look beyond that crisis.

“My parting words to the parliamentary party was when we come back in 2013 we will need to be talking and thinking about what post-recession Ireland will look like. I see enormous potential. The EU presidency absolutely parallels what we are doing, concentrating on jobs and growth and trade,” he said.

In an interview with The Irish Times, Mr Gilmore also contended that some of the group of five TDs and one Senator expelled from the parliamentary party since February 2011 are more comfortable in Opposition than in Government and lack the courage to live with difficult decisions.

He dismissed any suggestion the party has been damaged by the defections, particularly those of party chairman Colm Keaveney and former minister of state Róisín Shortall.

Mr Gilmore said that all members of the party were aware that when the Coalition was agreed in March 2011, Labour was facing a difficult challenge.

Responding to criticism by the defectors, he said: “The Labour Party and I are not going to be deflected from that. In the midst of battle we are not going to have bouts of nervousness and second opinions about that task.”

Asked was he surprised that the party had lost six parliamentarians in 20 months, he replied: “There are some people in the Labour Party who are more comfortable in Opposition than . . . Government.” He said the overwhelming majority of the parliamentary party had the “courage and conviction” to fulfil its mandate.

Mr Gilmore rejected suggestions of any Cabinet reshuffle in the short term, or of him moving from foreign affairs and trade. There have been suggestions that the portfolio was too peripheral and the leader of the smaller party in Government needed an economic ministry. The Tánaiste said he could think of no more central ministry than that of foreign affairs and trade, especially over the next six months during our EU presidency.

Mr Gilmore said the big factor in 2012 in terms of big political developments was the stability treaty referendum.

“People had the opportunity of looking at the alternatives . . . to send the IMF home. They made the decision [to back] the broad strategy we are pursuing.”

The second major development was over bank debt and what he described as the Government’s “determination” to deal with the issue.

He was confident of a deal being struck. “I believe there is going to be a commitment and understanding in Europe that the EU needs a winner to come out of [a bailout] programme. Ireland is the best placed to do that.”

The Irish Times also reports that Facebook is moving all its non-US revenues from its credits business – understood to comprise mainly games credits – to a new Irish subsidiary, according to accounts just filed.

Facebook Payments International Ltd was incorporated in March 2011; accounts just filed for its operations up to December 31st, 2011, show it did not trade during that period.

However, the accounts say the company was established with the intention of “transitioning the Facebook credits business from Facebook Ireland Ltd in 2012. The entity will be responsible for all revenue and related costs of the credits business of Facebook outside of the US.”

Targeted adverts 

Facebook Ireland Ltd bills third-party customers for targeted advertisements on its website but also earns income from a credits system. Its revenue jumped to more than €1 billion during 2011, from just €229 million in 2010. Despite this huge revenue jump, it lost €18.37 million in 2011 before taxation, having made €1.9 million the previous year.

The main reason was the corresponding leap in charges it had to pay to its immediate parent, Facebook Ireland Holdings, an unlimited company owned by Facebook entities in the Cayman Islands.

Facebook Payments International is owned by Facebook Ireland Holdings and has its registered office at 5-7 Hanover Quay, Dublin 2.

Filings to the Securities and Exchange Commission in the US by Facebook show that it derives a substantial amount of its revenue from games credits by way of arrangements it has with Zynga, another multinational with important elements of its global structure based in Ireland.

Substantial payments 

Zynga Game Ireland Ltd reported a pre-tax profit of $4.8 million on revenues of $369 million, with the relatively small profit arising after substantial royalty and other payments were made to other Zynga subsidiaries.

It paid royalties of $191 million to Zynga Game International Ltd, a Zynga subsidiary with its registered address at the offices of AL Goodbody on North Wall Quay, Dublin. It licences the right to Zynga games to the non-US market.

Despite having revenues of $191 million in 2011, it reported a pre-tax loss of $35 million. The company had no employees. It paid royalties of $50 million to its US parent and contributed to research and development costs of $174 million, the accounts say.

The Irish Examiner reports that from pharma to social networks and from trade to tax, companies in Ireland last year experienced the good, the bad, and the ugly. Kyran Fitzgerald takes a look back at the big issues that firms were faced with over the last 12 months

Ireland is one of the most trade-dependent countries in the world and our exporters are seen as key agents in the country’s recovery strategy.

But on occasions, the figures have flattered to deceive. This really should be no surprise. Our economy was fuelled — indeed, rocket-fuelled — in the late nineties and early noughties by foreign direct investment, much of it tax driven.

The benefits of such investment are real. Just look at Westport and Kinsale, two towns currently benefiting from major pharma industry investment projects driven by Allergen and Eli Lilly respectively.

Our IT services sector is booming. Visit Dublin’s Grand Canal Dock or Sandyford and you will observe young workers by their hundreds, many of them foreign.

Huge shipments of pharma products overseas have boosted the trade figures considerably, helping the Government in its task of distinguishing the country from other financially struggling European economies further south.

In trade terms Ireland is rocking — or so it appears. The country boasts the highest trade surplus relative to GDP in the EU. In August, the surplus reached an all-time high of €9.074bn, this at a time when the country’s key markets are all either stagnating or in recession.

Irish trade figures are notoriously volatile, of course. The purchase of an aircraft by a Dublin-based leasing company or a large merchandise shipment by a multinational can skew matters over a monthly timeframe.

What has been of greater significance has been the transformation in our current account position. Put simply, the current account tells us whether Ireland is paying its way in its dealings with the rest of the world.

In the third quarter of 2012, Ireland recorded a current account surplus of €3.05bn following a surplus of €3.235bn in the second quarter and a deficit in the first quarter of just over €1bn.

Over the long run, current account surpluses are what really matter. A budget surplus can arise from a frothy bubble economy, while a deficit could be largely down to a slump in confidence and the need to pay off debt, which is the case at present.

We should be pleased about the current account surplus, but should beware of getting carried away.

During 2012, discussion on two key possible weaknesses in the country’s position moving into 2013 picked up apace.

Firstly, there was much debate about the ‘patent cliff’, the effects on the economy as a result of products coming off patent. This began to happen in 2012 and there must be real concern that we will be faced with announcements of job cuts this year.

Certainly, the IDA strategy of focusing on biopharma will be put to the test. To date, the signs have been relatively positive. Let’s hope this remains the case.

Davy Stockbrokers has moved to dismiss suggestions that the patent cliff could result in tens of billions being wiped off our export and GDP figures. It points to the fact that many manufacturers pay out almost equally large sums in royalties to overseas parents and affiliates.

Which brings us to the second, and perhaps more pressing point.

This is the increasing pressure coming on large IT corporates, with a big presence in Ireland, from countries including the US, France, and, interestingly, the UK.

Britain, our key trading partner, is now losing patience with multinationals which engage in tax arbitrage.

The government fastened on the coffee chain Starbucks, in particular. It emerged that the chain had paid almost no corporation tax.

This, in turn, sparked a popular outrage which did considerable damage to the brand. The group backtracked and offered to pay some of the money. The damage was done.

Starbucks was seen as having undercut struggling competitors through means less fair than foul, albeit means that were perfectly legal.

The searchlights, meanwhile, have been beaming on those key players in the Irish ‘knowledge’ economy, Google and Facebook.

As reported recently, Google Ireland paid just €70m on corporation tax on sales of €47bn over the period 2005-11.

The French government was prompted to slap a tax bill of almost €1.7bn on the company relating to its activities there.

In truth, the behaviour of both parties is open to criticism — the French move looks like a tariff barrier under another guise, but governments can be forgiven for seeking to clamp down on such avoidance, particularly as they are losing out on sales tax revenues due to the growth in online activity generally.

Google, however, employs 2,500 people in Ireland on fat salaries. It invested €227m in three Dublin office buildings in 2011 and has just completed a €75m data centre.

Facebook employs almost 300 staff on remuneration averaging almost €60,000 a head, yet the social networking company only paid €3m in corporation tax on revenues of just over €1bn.

The Irish Government finds itself increasingly squeezed between key EU and international trading and investment partners on the one hand, and a multinational sector which is not slow to apply the pressure on the Irish State when needs must.

It will be fascinating to see how and if the Dublin authorities can wriggle out of this one in the years ahead.

Away from the world of transfer pricing and creative accounting, a steady recovery is underway.

The food and drink sector is viewed as core, given it tight links to the wider economy. A euro of food export revenue has three or four times the domestic impact of its pharma equivalent. This has been a year of consolidation following a year of rapid growth — over 12% — in 2011.

The visit of the newly crowned leader of China, Xi Jinping, to a farm in Clare early in the year was a real high point.

This was followed up by a trade mission led by Agriculture Minister, Simon Coveney. The rise and rise of Irish whiskey was another theme, along with progress, within the dairying sector in preparing for the lifting of milk quotas in 2015.

Kerry Group’s decision to establish its second global research and development& hub near Naas was another massive development.

In March, the Research Prioritisation Group produced a major report which identified 14 areas of priority for State-backed research, with a much greater emphasis on research of practical commercial use.

The report was timely given the growing question marks over the efficacy of a spend on science that reached €20bn over the past decade — one which has been maintained in the face of cutbacks.

In an interesting blog post on Irisheconomy.ie entitled ‘Research Prioritisation Report’, Aidan Kane expressed concern about the "increasingly centralised model of state planning for innovation", which, he felt, created "further opportunities for rent seeking by both industry and academics."

He warned of the danger of ‘group think’ and consensus seeking, one that is contrary to the very spirit of innovation.

We arguably need a lot more such questioning.

To conclude, Irish exports ended the year on a positive note.

IIB Bank economist Austin Hughes cautiously predicts growth in volume of 3%. He accepts that tax arbitrage makes it very difficult to find out what is going on, but he rejects the idea that all of our recorded growth is illusory.

Against the odds, Irish firms such as Kilkenny’s Connolly Mills in China are continuing to carve out new markets.

2013 will start off difficult. The hope is that things will ease a bit as the year progresses.

Foreign news reviews and more comprehensive coverage of Irish news is available in our Daily News Digest in the Global category on Finfacts Premium.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.

© Copyright 2011 by Finfacts.com

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