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How to think about Ireland’s remarkable growth figures

Never let it be said that we don’t cover good news here, at Gript. Or at least, good news of a fashion:

There tends in Ireland to be two competing, and equally nonsensical, reactions to economic growth figures: On the one hand, you get the kind of smug establishmentarian belly-stroking response, about how all the critics of the state can put those figures in their pipes, and smoke them, because by any reasonable standard Ireland is booming, and countries the world over are likely envious of the Irish economic miracle.

On the other hand, you get the cranky anti-establishmentarian response, about how growth figures are meaningless, and anyway, they only reflect massive profits for the big companies that Ireland cares for more than its own people, who are – they’ll have you know – only staying out of the poor houses by the skin of their last fivers.

The truth, as ever, is somewhere in the middle. On the one hand, it would be foolish to argue that the growth figures are meaningless: Any country, regardless of it’s domestic policy, would prefer a 4.9% growth rate to a minus 4.9% growth rate. Whatever the source of the growth might be, more growth equates to more job opportunities, and more money for the exchequer – which in turn equates to there being more money available to do the things we need to do to help those of our people who are struggling.

Growth is beneficial in another way, too: The more your economy grows, the less burdensome your national debt becomes, and the lower the rates of interest on that debt you will pay. Even if – for the sake of argument – all of Ireland’s economic growth is coming from multinational companies taking advantage of low tax rates, and even if little of it gets felt in your pocket, that growth is still of net benefit to the state, and therefore the citizens of the state.

The Government, therefore, has the right to take a small victory lap on this issue. If you look at Ireland’s economy in pure accountancy terms, then the figures published by the EU yesterday are, it is fair to say, a credit to the bean counters. Dismissing the Government’s record on growth ahead of the next election, and thinking that this doesn’t matter, would be an unwise thing for a voter to do. It’s an important element of the conversation.

And that’s the case for your smug establishmentarian, stroking his belly and calling you an economic illiterate if you are thinking of voting Sinn Fein. Sorry to say, but he has a point, chaps.

On the other hand, it is equally true that while all growth is good, Ireland’s growth is objectively abnormal, and objectively unequal. If that growth were evenly distributed, then each and every income earner would have seen roughly a 4% increase in their available income over the last year. That, clearly, has not happened.

That is because, in Ireland, much of our growth comes from multinational companies laundering (that’s my word, they would use another) their profits through Ireland and paying our relatively low corporate tax rates on them.

The problem with this is twofold: First, it is a highly unstable form of growth. Those of us old enough to remember the days of “we are where we are” and “no, there’s no IMF here, folks” will also remember that desperate phrase “small, open economy”. It was true then, and it remains true now. Ireland is unusually vulnerable to global economic shocks – or even changes in US regulatory or tax policy which encourage our multinational guests to think again about how they route their profits.

What’s more, the growth is of relatively less benefit to the state than “normal” growth because of how it is taxed: Consider for a moment how the state benefits when your income grows: Every extra penny you earn is taxed as income, and therefore the state gets perhaps a 40 or 50% share in that growth, depending on your personal tax rates.

With corporate growth, on the other hand, the state gets just a 15% share of that growth. The rest goes, mostly, to American Shareholders, and the net benefit to Irish people is very low.

Accordingly, the critics have more than a point too: Ireland’s economic strategy clearly delivers benefits to the state, but we simply do not benefit from 4% economic growth in the same way that larger, more coherent economies would. It is true to say that in Ireland, a rising tide lifts some boats.

So those are the things to consider. These figures are nothing to sneer at. But at the same time, don’t let those who wish to do it gaslight you into believing that every criticism of the country and the standard of living is false, just because the headline growth figures are good.

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