When I was growing up in Ireland, I was always warned about ‘things being too good to be true’. The economic figures which are coming out with regard to the performance of Irish economy over the past number of months would indicate a very strong bounce back to near pre-pandemic levels. I am a very optimistic person, however there are dark clouds of uncertainty on the horizon which the Irish economy must implement robust and proactive strategies to ensure it can weather the potential storms ahead.
Ireland continues apace with the vaccine role out, with a very wobbly start, at the time of writing, 89% of the adult population have had at least one vaccine shot, which is one of the highest vaccine uptakes in the world. With this high percentage of the population vaccinated, Q2 has seen a strong increase in consumer spending, reported by Davy’s as being up by 6.5%. Supported by high levels of household savings, estimated at €883bn, as a result of savings and spending curtailments due to lockdown.
Recent figures published by Davy indicated that Irish GDP had grown by 10%, double that of the projected figure of 4.8%. This was primarily on the back of a buoyant exports by multinationals. The indigenous economy is also performing better than anticipated thanks to the ‘Covid bounce back’.
Unemployment is currently at 13.5% which is falling compared to the previous month of 16.2%, while in normal circumstances this is high, when adjusted for the Pandemic Unemployment Payment (PUP) the figure is estimated at a much lower 6.5%. As the economy continues its slow and cautious emergence from the lockdowns of the past year and half, it is hoped that the unemployment rate will improve substantially, but the initial indications are heading in the right direction.
The Irish Department of Finance reported the highest ever corporate tax take in 2020 of €11.8bn, up 70% on the figure taken 5 years ago. This is where uncertainty begins to show itself, the top 10 largest firms accounted for over half of this figure. 82% of the total corporate tax take was as a result of multinational companies operating in Ireland, which represents 20% of the Irish government’s total tax take. Not to state the obvious, but there is a huge reliance by the Irish economy on multinational companies, and in the eyes of most, an over reliance on this sector. A lot of eggs in one basket!
While President Biden has made his love of his Irish heritage very clear on the international stage, he is focused on achieving the goal of a Global Corporate Tax rate, which is also favoured by the EU. This is potentially a major damaging cloud on the horizon for Irish FDI, which the 12.5% Corporate Tax rate, has attracted for many years. The question arises does an increase of 2.5% to a proposed 15% really make a difference to multinationals already located and considering locating to Ireland. According to the IDA who are responsible for attracting FDI into Ireland, skills and talent are the number one reason why companies locate to Ireland. The challenges and responsibilities to ensuring a consistent and relevant pool of such people are much closer to home than international policies and global taxation issues.
House prices and rent in Ireland at the moment are rising at a significant rate. In short this is down to simply supply and demand. Due to the experience of the property collapse over a decade ago, house building was reduced substantially, and no anticipation was made for future demand. As a result of increased employment, reduced emigration, returning emigrants due to Covid and enforced working from home, demand for property has rocketed, with limited supply of housing units available for sale or rent within the country. This situation must be turned around to meet demand and to ensure there is affordable accommodation to house the skilled labour which is required to continue to fire the engine of growth for the economy.
In parallel to housing, Ireland must ensure that the correct skills and talent are available. This not only requires ensuring availability of skill sets for what industry currently requires, but anticipating what industry will need in 7 or 10 years’ time. This requires significant collaboration with national government bodies and regional bodies involved in education, apprenticeships and enterprise development and economic development to work together on unified strategies which complement each regions strengths. By ensuring the correct skills and talent is available nationally across all sectors is vitally important for Ireland’s multinational attractiveness. Perhaps more importantly this available talent pool will assist indigenous enterprises grow and become the multinationals of the future. Thus balancing the corporate tax take and reducing multinational dependency. Government stimulus has focused on increasing exporting among indigenous Irish companies which is amongst the lowest in the OECD. This requires focused actions, ongoing investment and genuine accountability by both government and the private sectors, to collaborate towards the common goal of ensuring Ireland has the most talented and the best people which industry requires.
There are many other challenges which Ireland has to face, but these are not unique to Ireland alone. Rising input costs for industry and materials for house building. Supply chain issues which are manifesting themselves in many forms as a result of Covid. There are also climate and sustainability challenges which have to be addressed. These are global challenges also, however these could be turned into opportunities, where Ireland could become a global leader in this area, if the will is there to do so. Clear leadership with consistent proactive policies and actions are required by this government and subsequent governments. There must be checks and balances put in place to ensure that there is accountability by government, government agencies and the private sector to ensure unity towards ensuring Ireland remains attractive, productive and remains the country of choice for multinationals to choose, despite global taxation policies.
It may well not be ‘too good to be true’. However, what is true, is that it is firmly within the hands of the Irish government and various arms of the state to ensure the correct strategies and proactive policies are implemented to ensure Ireland can provide what multinationals and indigenous businesses need to weather future storms of uncertainties.