Keith Rankin’s Chart for this Month: Ireland’s Economic Growth?

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Beggar-thy-Neighbour: Ireland GDP share. Graph by Keith Rankin.

Analysis by Keith Rankin. April 19, 2016.

Beggar-thy-Neighbour: Ireland GDP share. Graph by Keith Rankin.
Beggar-thy-Neighbour: Ireland GDP share. Graph by Keith Rankin.

The unauthorised release of the Mossack Fonseca papers has focussed our minds on the tax-avoidance of the privileged to an unprecedented extent.

An important part of the problem is corporate tax-avoidance. When this happens, trans-national companies account for disproportionate portions of their global incomes as having been earned in a small number of countries which just happen to have low corporate tax rates. This means that the contributions to global GDP of corporate tax havens will be substantially overstated (assuming these countries do not produce massaged statistics). The best known such country that has adopted a strategy of economic growth through what amounts to huge corporate subsidies (in the form of discounted company tax) is Ireland.

The chart shows Ireland’s gross domestic product (GDP), as reported by the International Monetary Fund, from 1980 to 2011. (2011 is the latest year for actual data for countries’ GDP as a percentage of gross world product.) The decade from which Ireland adopted this policy was the 1990s.

The chart shows an astonishing 57 percent increase in Ireland’s share of the world economy in the nine years from 1993 to 2002. Given world growth at this time, this represents a measured doubling of economic output per person in Ireland in a single decade. I’m pretty sure inflation-corrected wages in Ireland did not double!

Most of this extraordinary ‘economic growth’ (which averaged ten percent per year from 1995 to 2000) was substantially an accounting artefact; trans-national companies understating their costs in Ireland, and overstating their revenues. (The unemployment rate in New Zealand was the same as that in Ireland in both 1998 and 2003, yet New Zealand showed growth rates from 1993 to 2002 very much lower than did Ireland. Yes, Ireland did have lower unemployment between 1998 and 2003, reflecting the service sector stimulus in Ireland arising from so much money sloshing around.)

Ireland’s party’s is not over yet. The latest annual economic growth statistic for Ireland is a whopping 9.2 percent. Contrast India’s ‘miracle’ growth of 7.3 percent, China’s 6.7 percent, and 1.6 percent in the Euro area which Ireland is a part of (refer tradingeconomics.com).

It’s as obvious as night follows day what is happening in Ireland. No need to leak; it’s all in the national accounts. It’s cheating on their public obligations by tax-avoiding (and largely money-hoarding) corporations. Ireland is facilitating this by pursuing a ‘beggar-thy-neighbour’ fiscal policy, characteristic of tax havens everywhere.

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