Friday, May 21, 2010

Ireland's growth - miracle or mirage?

We just blogged the fact that Jersey's national statistics are something of a chimera: much of the national income recorded in Jersey is simply profits booked by banks and other multinationals, and doesn't put food on the table of ordinary Jerseyfolk.

Now we see a former IMF chief economist, Simon Johnson, and a researcher, Peter Boone, saying the same thing about Ireland (which, we are heartened to see, they correctly identify as a tax haven.) As their article on the New York Times site notes:

"The Celtic Tiger’s impressive reported growth over the past decades was in part based on its aggressive attempts to help major corporations in the United States reduce their tax bills.
. . .
The remarkable success of this tax haven means that roughly 20 percent of Irish gross domestic product is actually “profit transfers” that raise little tax for Ireland and are owned by foreign companies. Since most of these profits are subject to the tax code, they are accounted for in Ireland where they are lightly taxed; they should not be counted as part of Ireland’s potential tax base."

A better cross-country comparison would examine Ireland’s financial condition ignoring these artificial profit transfers. This is easy to do, he notes: a nation’s gross national product excludes the profits of foreign residents. For most nations, gross national product and G.D.P. are nearly identical, but in Ireland they are not.

"When we adjust Ireland’s figures accordingly, the situation is dire. The budget deficit was about 17.9 percent of G.N.P. in 2009, and based on European Commission projections (and assuming the G.N.P.-G.D.P. gap remains the same) it will be roughly 14.6 percent in 2010 and 15.1 percent in 2011, while the debt-to-G.N.P. ratio at the end of this year is expected — by our calculation — to be 97 percent, and 109 percent at the end of 2011.

These numbers make Ireland look similarly troubled to Greece, with a much higher budget deficit but lower levels of public debt."

Tax havenry impoverishes other nations, elsewhere. It also seems to impoverish your own country -- or at least most citizens.


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