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News : Irish Economy Last Updated: Dec 17, 2013 - 11:09 AM

Irish Economy 2014: Ibec raises forecast; Calls for cuts in income & business taxes
By Michael Hennigan, Finfacts founder and editor
Dec 16, 2013 - 5:20 AM

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No room for nuance here as with ministerial 'talking points': Net job creation officially at 1,200 per week but half are in self-employment without employees (signs of the difficulty in getting real jobs or a surge in entrepreneurship?) and farming jobs is the biggest growth category (it appears that numbers were undercounted in prior periods). The numbers on the Live Register and in publicly funded activation programs rose to 491,000 in November 2013, up 5,000 in the month.

Irish Economy 2014: Ibec, Ireland's main business lobby group, today has raised its economic forecasts for the coming year and it calls for cuts in both income and business taxes, which would be paid for by public service pension reform.

The GDP (gross domestic product) growth forecast, has been raised from 2.3% to 2.8%, as investment in the economy is expected to increase by 15.5% (previous projection 9.7%) while consumer spending will rise by 1.3% (previous projection 1%). GNP (gross national product) is forecast at 2.3%.

Exports are forecast to grow by 4%.

The report says: "Pharma accounts for about half of all merchandise exports and in recent years the trend for the sector has almost exactly matched that of total goods exports. Following some improvement in goods exports in 2010 and 2011 they have since lost ground. Services exports, on the other hand, continue to perform exceptionally well with the volume of outbound trade jumping 40% over a three-year period. While the services data can be somewhat volatile, the sector, which already accounts for over 50% of exports, will continue to be the main driver of export growth over the coming years."

Services export growth are driven by tax avoidance and do not reflect activity in the economy  -- how long will this fantasy be maintained? Google booked 41% of its 2012 global revenues in Ireland; Facebook booked 48% and in 2011/12, Microsoft diverted 24%. Add in Apple and a number of others and these virtual output/exports it adds up! 

The report says the Government should reduce incomes taxes through both a reduction in the marginal rate and changes to the income tax bands in order to support employment and make Ireland an attractive investment location. It should also ensure that the business tax offering remains competitive in light of potential OECD-led changes to international tax rules. In particular, it should enhance the tax offering for intellectual property - - it's foolish to believe that a tax giveaway in this area would significantly raise R&D activity. The effective corporate tax rate for American firms in Ireland is 2.5%

Ibec says: "Much more reform is needed to safeguard the public finances, the current public sector pensions liability of about €120bn is unsustainable. The recent changes introduced for new entrants, such as the move to career average earnings rather than a final salary basis, should be extended to all. We must ensure that the public finances into the medium-term are on a sound footing."

This is a dead duck and the folks at Ibec know that -- when even the link with current earnings wasn't cut during a brutal recession, why would the politicians and the rest of the public service embark on self-sacrifice now?  

So Ibec, how else would you fund those tax cuts? That old reliable, revenue buoyancy?

Fergal O'Brien, chief economist, said: "The bailout exit is very significant and will further bolster consumer and business confidence. The prospects for 2014 are good and the recovery will gain further momentum next year. Growth should accelerate to nearly 3% and this will lead to about 50,000 new jobs. The GDP growth estimate for 2013 of under 1% is not a true reflection of real economic activity; the 2.5% employment growth this year is a much more accurate indicator of the current health of the economy."

Report [pdf]

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