Irish Economy: Today we do a reality check on Ireland's ephemeral services export boom.
We do not aspire to be among "nattering nabobs of negativism" -- a term coined by the late William Safire, when he worked as a wordsmith for President Richard Nixon - - and this reality check is important as the end of tax avoidance schemes such as the Double Dutch Irish Sandwich, would mean that an official fairytale promoted by ministers, the Central Bank and even the Economic and Social Research Institute, will need to be revised.
Last February 5 ministers signed an official compendium of aspirations for trade and tourism, titled: 'Review of the Trade, Tourism and Investment Strategy 201-2015' [pdf]
'Strategy' along with 'world class' are part of the official lexicon of bromides and Enda Kenny, taoiseach, has had a tool-kit available over the past year in defence of the corporate tax system, adding in recent weeks, 'ethical' and 'ethically' -- George Orwell understood the use and abuse of words in politics and in his celebrated novel, Nineteen Eighty-Four, the character Syme is working on the definitive eleventh edition of a dictionary of Newspeak, a language of words that would not become obsolete before 2050. "'Don't you see that the whole aim of Newspeak is to narrow the range of thought? In the end we shall make thought crime literally impossible, because there will be no words in which to express it," Syme says to Winston Smith.
The February report says:
Ireland is a strong performer in services exports, which grew by 11% in 2012 and account for 50% of total Irish exports. This reflects the growth in ICT and e-business sectors with a number of Irish services companies and large foreign-owned multinationals operating and exporting from Ireland.
Ireland is also home to the service operations of many manufacturing firms as well as financial services, leasing and computer services firms. Some important services sectors within the Irish economy include:
- Computer Services: accounting for 40% of total services exports in 2012, realising a 49% growth over a five year period."
Impressive indeed and Computer Services exports have sextupled since 2000 -- but these figures reflect accounting entries not economic activity in Ireland - - Microsoft had 99,000 employees worldwide in June 2013 and less than 700 at its Irish operations company was responsible for 24% of global revenues!
Irish economists have in the past claimed that the surge in services exports reflected a move "up the value chain."
In 2012 total services exports valued at €90.2bn overtook merchandise exports for the first time and also there was a surplus in services trade for the first time, which enabled Ireland to report marginal GDP growth in that year rather than a contraction.
In 2013, total services exports were valued at €94.6bn and there was a surplus of €6bn, making a positive net exports contribution compared with a negative in goods.
In 2013, we estimate that Google, Microsoft, Oracle and Facebook combined, were responsible for about €41bn of services exports and adding €6bn for other firms in excess company charging would give a total estimate of €94bn or 50% of services exports being tax-related or effectively fake.
Google books over 40% of its global revenues in Ireland; Facebook 50%; Microsoft about a quarter and Oracle 27% in its fiscal 2013.
As most of the revenues are offset with royalty and business services charges, the loss of these exports will not have a significant impact on the economy.
However, it will not be easy to spin away big changes in trade, productivity data and innovation metrics - - some of the foreign analysts who bought into the spin, will have to be convinced that the past was as durable as a Leprechaun's gold!
In Q1 2014, Google's revenues grew 19% year-on-year and Facebook's were up 72%.
So these ephemeral exports will continue to outpace real world ones until tax rules change.