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Ireland demonstrates sucess of telling EU tax federalists to get lost

Nigel Morris-Co...

Economists are lining up to say that the Republic of Ireland's astonishing 26% growth in GDP has no meaning, in the great scheme of things. They are wrong and this is why: Ireland attracts high-value added businesses because of its commitment to low income and corporate taxes that most of the EU, the USA and Australia want it to change.

When Ireland fell foul of the global financial crisis that originated as a result of bad economic management and failed regulation of the financial sector in the USA, it needed help. The EU agreed to help provided Ireland backtracked on its plans for low income and corporate taxes. Ireland agreed, increased its taxes, paid back the EU support money earlier than expected and returned to its preferred tax policies. The figure for last year is the first full year since that change.

Of course, it is starting from a very low point: Ireland was a serious basket case, largely one has to argue, because its economy had been both kick-started and supported by a seemingly endless supply of EU grants and other funds for several decades. There were serious structural weaknesses. It had, prior to the collapse, been convinced of its own success because salaries were rising and house prices were rocketing. But the simple fact is that these were artificial, largely supported by money no one was earning. Ireland was already in deep trouble but no one was paying any attention.

When the financial crisis hit, the artificial jobs disappeared and with them the jobs of the many who made those with easy money think they were living the high-life: there was suddenly mass unemployment of the many Europeans who had flocked to, in particular, Dublin to serve in coffee shops and wash up in restaurants earning salaries that far exceeded those at home. As they left, along with the bankers and computer tech and customer support staff, housing prices fell. Gradually, the country returned to its broad roots where hard working people earned a decent wage and were not taxed beyond what they could afford.

But once more, the easy money has returned: American corporations are re-opening offices. Ireland is once more racing up the tax avoidance charts for US advisers.

Paul Krugman, a broad-left economist, is scathing about the Irish figures. He says that the story is bizarre. Exports are up 34%. Yes, but that's not only exports of hard goods, it's exports of "invisibles" and that includes e.g. chargeable customer service calls. Imports are up 22% - well, yes, but that's not surprising in a country which makes almost nothing and is seeing the return of consumerism.

But Krugman is right to question how what amounts to transfer pricing deals are included in GDP: he says that a number of US companies put subsidiaries in Ireland which then commission manufacturing of goods somewhere offshore, buy those products from the manufacturer, sell them to their US parent - and book the profit on that trade in Ireland despite the fact that the goods never go anywhere near the Emerald Isle. I warned of this in my 1996 book "How not to be a money launderer," especially in relation to trade in services, but no one listened then and I guess no one will listen now. After all, I'm not an economist: I'm just someone who applies common sense and says "instead of looking at the money, look at the people. How will people abuse the good things you are doing?" Ireland has done good things with low taxes: others are abusing them and Ireland chooses not to draw attention to it.

But economists such as Krugman are wrong to claim that the figures do not make sense: they make perfect sense.

Ireland may be well placed to continue such growth after Brexit as Ireland will be both a low tax economy and a gateway to Europe.

The downside for Ireland is that it's paper money, it's inflationary money, it's fictional money for the Irish are not adding value, they are not receiving investment in any sense except construction in an already over-populated Dublin and they are at risk of another major crash when someone notices that the figures are right but lacking in substance.

So the economists are wrong: the figures have enormous meaning. They mean that Ireland is positioning itself with little or no safety net in the event of another crash. Its low tax policies are perfect for its domestic population: the money brought in and turned around, without adding material benefit to Ireland, is a poison pill and currently it's one that Ireland is only too willing to swallow by the handful.