The Financial Times today reports that tax avoidance deals raise questions over Ireland’s growth spurt in the first half of 2014.
The FT says that "a chorus of economists say Irish official data have become so distorted this year by an upsurge in offshore activity from a small number of pharmaceutical companies that it paints a misleading picture of the health of the economy.
The distortions are likely to be seen again when third-quarter data for Irish economic activity are released on Thursday. This means that doubts about whether Ireland’s economic turnround is as robust as its boosters claim will persist."
In the second quarter -April to June- the Irish economy grew at a reported annual rate of 7.7%. Prof. John McHale, the chairman of the Irish Fiscal Advisory Council, says the second-quarter data “has to be taken with more than the usual pinch of salt” because of overseas contract manufacturing.
43% of rise in H1 2014 GDP from manufacturing overseas - Irish Fiscal Council
In January 2009 in the early months of Ireland's economic meltdown, Dell announced the closure of its main EMEA (Europe, Middle East and Africa) plant at Limerick with a loss of 1,900 direct jobs and possibly another 2,000 at suppler firms. However, Finfacts later reported that the output of Dell's new PC plant in Poland was being booked in Ireland for tax purposes - it remained one of Ireland's biggest manufacturers.
Last Friday the CSO (Central Statistics Office) reported that industrial production jumped 38.5% in the 12 months to October but its estimate of employment in industry to September showed a fall in jobs.
Again it shouldn't be news that in respect of the period 2000-2013 that exports grew a real 72% but net jobs in the international tradeable goods and services sectors actually fell.
We at Finfacts reported that news and after services overtook goods exports in 2012 ministers and the rest of conventional wisdom hailed the achievement of success in "climbing up the value chain." Michael Noonan, finance minister, said rising services reflected "competitiveness."
The Department of Jobs, Enterprise and Innovation said: "Computer services is the largest services export category, with exports in this category hitting €36.5bn in 2012, representing an increase of 15% over 2011. Computer exports account for 40% of the value of Irish services exports in 2012."
Richard Bruton, the minister, claimed credit for the Double Irish tax-related rises in computer services: "“Today’s figures also show that the ICT sector, which is a particular target in the Government’s plans, is performing extremely strongly with a 15% increase in computer services exports in 2012. Since we have taken office more than 11,000 additional jobs have been created in ICT, and today’s export figures show that we are well-placed to continue this jobs growth."
In February 2014, four government ministers launched a report on trade. It said:
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."
This was economy with the truth on a grand scale.
In early 2012 Finfacts published a report suggesting that at least a third of services exports were fake and resulted from Double Irish tax transactions and the total is now about 50%.
It suited ministers that because of distortions arising from the significant FDI sector, most international commentators on the Irish economy fell for misleading headlines - Mario Draghi, ECB president, quoted Ireland's double digit fall in unit labour costs as if they were real.
The Irish Exporters Association alternately chose Google and Microsoft - diverting about 40% and 25% of global revenues to Ireland - as the 'Irish Exporter of the Year' while the Department of Finance (DoF), Central Bank and the ESRI - an independent publicly funded think-tank - treated services growth export as real.
The claims of fake services exports and that about 40 American firms are responsible for 75% of Ireland's headline exports were also too incendiary for The Irish Times.
What is different now is that the Irish Fiscal Advisory Council has called time on fairytale economics and the old routine of drowning out dissent from the likes of Finfacts is no longer viable.
Not only is GDP distorted but tax inversions are distorting the once more reliable GNP - in 2013 a reported Balance of Payments surplus would have been a deficit but for these redomiciled companies.
With the closure of the Medtronic takeover of Irish domiciled Covidien, these "Irish" companies employ about 600,000 - 4 times employment at FDI exporting firms (Accenture doesn't like being called a tax inversion as it was first incorporated in Bermuda after being spun out from Arthur Andersen. It became "Irish" in 2009 but remains a US company in operational terms).
Finfacts 2014: The idiot/ eejit's guide to distorted Irish national economic data
Distorted data impacts several economic indicators; it makes exporting seem easy and based on virtual data, international groups such as the Organisation for Economic Co-operation and Development (OECD) and European Commission can produce metrics that make ministers happy but are effectively fake.
It must be true when the European Commission says that R&D investment by Irish companies in 2013 was more than double the world average!! It's in fact a fairytale.
A recovery is underway but let's have real data (adjusted for key caveats) not propaganda for politicians and their boosters.
Finfacts 2014: Forty American firms account for two-thirds of Irish exports