Sunday, September 03, 2023

Irish wealthiest in World in 2023! Brits ahead in GDP per capita

IMF April 2023: Ireland at $145,200 per capita; UK at $56,500; Irish adjusted $33,500

The IMF (International Monetary Fund) says that Ireland's gross domestic product (GDP) per capita is the highest of 195 countries. This is based on Purchasing Power Parities (PPP).

"Not Pygmalion likely!" or better still the original "Walk! Not bloody likely" ("bloody" was a contemporary taboo) from the character of Eliza Doolittle in the 1914 'Pygmalion' play by the Irish playwright George Bernard Shaw (1856-1950).

However, the gold at the end of the rainbow is an illusion.

In 2021, the US Treasury named Bermuda, the Caymans, Ireland, Luxembourg, the Netherlands, Singapore, and Switzerland, the top 7 corporate tax havens. Their share of US multinational corporations' foreign profits had risen from almost 30% in 2000 to over 60% in 2019.

Almost a quarter of a century ago, Ireland became the world's most profitable country for US corporations.

While American companies provide jobs, the distorted headline GDP results in high international rankings whether it's economic or social issues. It fools foreigners and is seldom corrected in Ireland.

The reality is that Ireland is in the second tier of Advanced Economies.

Ireland with a population of 5m was the most profitable foreign country for US multinationals in 2018, measured by the net income of US majority-owned affiliates (MOFAs), followed by the Netherlands and Luxembourg. Ireland had the same feat in 2020 as it had 20 years before. With 150,000 employed in US-owned firms in Ireland, the income was double that of the UK where almost 1,500,000 are used.

The quarter century of active corporate tax haven activity began through an inadvertent loophole by the Clinton Treasury to simplify the filing of tax returns. It enabled a “check the box” on a tax form to signal something was irrelevant for tax purposes and should be a “disregarded entity.”

When multinational companies began treating foreign subsidiaries in places like Ireland and Luxembourg as disregarded entities, the Treasury Department tried to reverse the rule in 1998. However, the politicians bowed to the demands of the big companies in Congress to refuse to reverse the loophole.

Between 1999 to 2002, US multinationals (MNEs) increased profits in countries with no taxes or low rates by 68% while sharply reducing profits recorded in countries where they engage in substantial business activity, a study published in the American journal Tax Notes showed.

According to Tax Notes' Martin Sullivan, chief economist, Ireland was the world's most profitable country for US corporations. A study found that profits made by US companies in Ireland doubled between 1999 and 2002 from $13.4bn to $26.8bn, while profits in most of the rest of Europe fell.

Big American MNEs had an effective rate of tax of 2 to 4% in Ireland. The Double Irish scam transferred billions in profits tax-free via the Netherlands to Irish shell companies in Bermuda and the Cayman Islands. Apple transferred directly to the United States while paying a meagre tax rate.

In 2012, the G20 (Group of Twenty of Advanced and Emerging Leaders) called on the Organization for Economic Cooperation and Development (OECD) to reform the international corporate tax system through the Base Erosion and Profit Shifting (BEPS).

Few expected that almost 140 countries would sign up to the reforms.

The Tax Foundation has noted that Pillar One of BEPS contains “Amount A” which would apply to companies with more than €20bn in revenues and a profit margin above 10%. For those companies, a portion of their profits would be taxed in jurisdictions where they have sales; 25% of profits above a 10% margin may be taxed. After a review period of seven years, the €20bn threshold may fall to €10bn.

Amount A is a limited redistribution of tax revenue from countries where large MNEs operate to countries where they have customers. US companies constitute a large share of these companies.

Pillar One also contains “Amount B” which provides a more straightforward method for companies to calculate the taxes on foreign operations such as marketing and distribution.

"After months of negotiations, the European Union (EU) has unanimously agreed to implement Pillar Two. The EU Directive will need to be imposed into each country’s national law by the end of 2023. Companies with an annual turnover of at least €750mn will begin to pay the 15% minimum rate starting in 2024. This includes wholly domestic groups that meet the revenue threshold — OECD News; Chartered Accounts Ireland.

The OECD says the BEPS practices cost countries $100-240bn in lost revenue annually, which is the equivalent of 4-10% of the global corporate income tax revenue.

Paul Krugman, the economics columnist of the New York Times, called this "Leprechaun economics"

Angus Maddison (1926-2010) was a renowned English economic historian who put figures on the distant past including China where he visited. For the new Irish Free State in 1922, which would later become the Republic of Ireland, he estimated that the GDP (Gross Domestic Product) per capita was 56% of the United Kingdom's.

The 1820 value was 1,398 in US$2011; 2,829 in 1870; 4,361 in 1913 and 4,141 for the Irish Free State.

The Free State was ahead of Spain, Portugal, Finland, Greece and Italy in Western Europe.

However, by 1970 the gap with the UK had grown to 58%.

Ireland joined the European Economic Community in 1973 as the poorest member.

In 1997 the Irish and UK per capita GDP were just over £29,000.

In 2022 the UK per capita GDP was 44% of the Irish level.

In the British census of Ireland in 1841 the population was at 8.175mn. The area that would become the Irish Free State and the Republic of Ireland had a population of 6.529mn. The area had a population of 5.112mn in 1851 following Potatoe Famine deaths and high emigration.

The population in 2022 was 5.149mn.

In the years 1946-1961 over 500,000 emigrated, mainly to Great Britain. During those years the population remained below 3mn. The first population census was taken in 1926 and 2.972mn were recorded. The count was lower in 1961 at 2.818mn.

Net emigration was -408,800 in 1951-1961; -134,500 in 1961-1971 and +108,800 in 1971-1979.

Net immigration returned in the 1980s


Globalization came to a shattering halt in 1914 and its second phase began in the 1950s, with Italy and Greece among Europe's star economic performers for almost a quarter of a century, with average real (inflation-adjusted) per capita economic growth of 5.0% and 6.2% respectively in 1950-1973 compared with 5% in West Germany, 4% in France, 3.1% in Ireland and 2.4% in the United States, according to calculations by Prof Angus Maddison.

The UK's growth rate was the lowest of 16 Western European countries.

In 1956 the Irish taoiseach/ prime minister, John A. Costello, faced down the forces of conservatism including Ken Whitaker, the secretary of the Department of Finance and his own Fine Gael minister of finance, Gerard Sweetman, to begin the process of attracting foreign direct investment to halt the then haemorrhaging of emigrants.

The issue of promoting exports and foreign ownership had been first raised in 1945 but Fianna Fáil, the biggest political party opposed it.

Economists Frank Barry and Mary Daly commented "Fine Gael and Labour had long advocated liberalising the restrictions on foreign ownership of industry before Fianna Fáil finally yielded."

In October 1956 the Export Profits Tax Relief was enacted with a 50% tax remission.

Costello's speech in Dáil Éireann (the Lower House of Parliament) has been called by Frank Barry and Clare O'Mahoney as "one of the most important economic policy speeches in the history of the state" "Regime Change in 1950s Ireland: The New Export-Oriented Foreign Investment Strategy."

Éamon de Valera, the 70-year-old leader of Fianna Fáil criticised the Government’s handing over Irish resources to foreigners "festooned with tax reliefs."

In succeeding years the remission was extended to 100%.

In 1958, Hans Liebherr, a German industrialist, developed a production site in Killarney, Southwestern Ireland in 1958. The crane factory still exists. The Europe Hotel & Resort opened in 1961 and was the first of the three 5-star Irish hotels built by Liebherr.

Shannon Free Zone at Shannon Airport was established in 1959 and was the world's first free trade zone. It began attracting American firms.

In January 1963 Ireland began cutting trade trade tariffs.

Also in January 1963 Charles de Gaulle, president of France, rejected the application of the United Kingdom, for membership of the EEC. Ireland's application was affected because most of the international trade was with the UK.

In 1965 there was an Anglo-Irish free trade agreement.

The period 1950-1973 became known as the Golden Age.

However, a commodity boom in the early 1970s and the quadrupling of the price of oil by Arab producers in 1974, put the brakes on the sunny scenario.;

France in 1967 had an unemployment rate of less than 2%. In 1970, the German rate was at 0.5%.

Overall, between 1945 and 1974, government debt fell by 83% points of GDP.

Since 1974 France has not had an annual budget surplus.

Italy has only reported one annual budget surplus (in the 1920s) since 1909/1910.

Since 1970/71, the UK government has had a surplus (spent less than it received in revenues) in only five years.

In 1976 Britain faced a financial crisis. The Labour government was forced to apply to the International Monetary Fund (IMF) for a loan of nearly $4bn.

Britain had a 'Winter of Discontent,' losing 4.6mn workdays in 1979. Also in 1979 in Ireland, a total of 1.5mn working days were lost, which was the second-highest figure on record.

The eighties were grim in Ireland but there was a big boost in 1987 and 1989.

In 1987 the International Financial Services Centre was established in the former northern dock area, under the Custom House Development Authority.

Intel, the American semiconductor giant decided in 1989 to build its European manufacturing operations in Leixlip, County Kildare, west of Dublin.

Several US multinationals announced plans to open affiliates in Ireland.

1990 to present

Dr Garret FitzGerald (1926-2011), a former taoiseach/ prime minister, wrote in the Irish Times that our living standards rose by one-half during the brief Celtic Tiger period from 1993 to 2001. But this was due to two special factors - both of which were essentially temporary in character.

The first was the impact on our national productivity of an exceptional inflow of new US investment. For a number of years Ireland, with only 1% of Europe's population, attracted up to 25% of all US greenfield industrial investment in our continent. The new technology and skills that this inflow brought contributed to a 4% annual increase in output per worker at the national level i.e. productivity.

The second factor, which played an even larger role in boosting our living standards during this time, was the huge increase in the total number of people at work, and the corresponding drop in the proportion of dependants in our population. Several factors contributed to this: the exceptional inflows of young workers emerging from the educational system and of women transferring from "home duties" to the labour force, and also the flow of unemployed people returning to work and of recent emigrants coming back to jobs here.

Within a decade these inflows into our labour force reduced from 230 to 115 the number of dependants that every 100 workers had to support, either directly within their families or indirectly through taxation.

The 12.5% tax rate

In 1956-1980 while export profits were exempt, the standard rate of corporation tax applying to all non-manufacturing activities remained at between 40 and 50%.

A new tax of 10% was introduced in January 1981 for manufacturing projects and it was extended to services in a few years.

In 1996, to comply with EU rules, the Irish government agreed on a rate of 12.5% on corporate profits across all activities from 2003. This meant that the rate of corporation tax applicable to activity in the bulk of the business and financial services sector fell gradually from 40% in 1994 to 32% in 1998 and 12.5% by 2003.


"So, this first-in-class ranking is clearly misleading. Where, then, could Ireland be more accurately ranked?" Patrick Honohan, ex-governor of the Central Bank of Ireland and emeritus professor of economics, Trinity College, Dublin.

The days of crazy Irish economic data are coming to an end. It will take time but the penny will drop. We Irish likely fooling people for a laugh but in recent years an Irish ambassador in Washington DC bragged that Irish companies were among the top 10 investors in in the United States.

He was not aware of redomiciled companies.

Medtronic, the medical devices firm, has had a facility in Ireland since 1982 but in 2016 the American company became Irish for tax purposes but it's an American firm. Accenture was born in Bermuda and later became Irish but it's also American as it was related to Arthur Andersen, the former accounting firm.

In my last post, I highlighted that the Irish National Accounts had a value of €143,000bn on mythical overseas contract manufacturing and merchanting. That's why it's called Leprechaun economics.

Facts: Ireland's GDP per capita was €25,300 in 2022 — the net value is €33,00 in 2023 as current prices are also changed for Purchasing Power Parties. The 2022 GDP was only using the current prices.

The headline data are an embarrassment and it's used by politicians. For example, the nonsense that in 2022 the growth rate was 12.2%.

Since 2017 the Central Statistics Office has made adjustments to have a Modified Gross National Income (GNI*) on 1) leased global aircraft that may be 20% of the global fleet or 60% according to the main business lobby group 2) redomiciled companies, mainly American that become Irish for tax purposes 3) R&D depreciation.

I have added €143,000bn to the adjustments - see above.

1) Prof Honohan put Ireland at ranking 21 for countries with more than 1mn population. In 2022 Actual individual consumption (AIC) in Ireland fell to 13% below the European Union (EU) average.

Actual individual consumption (AIC): all goods and services consumed by households.

Germany's AIC is almost a third higher than Ireland's and the apparent highest GDP per capita in the world coincides with an AIC of 87 while both Spain and Portugal are at 85.

2) In 2022, price levels for household final consumption expenditure differed widely across the EU.

The highest price levels were recorded in Ireland (146% of the EU average), Denmark (145%) and Luxembourg (137%). Meanwhile, the lowest levels were recorded in Romania (58%), Bulgaria (59%) and Poland (62%). 

3) Ireland's household net adjusted disposable income: OECD's: Better Life Index- 19 from 41  countries.

4) Government data related to 2021 show that for 4,200 client companies of Irish public enterprise agencies (engaged in manufacturing and traded services and employing more than 10 people in Ireland). Irish-owned firms spent €29.8bn in 2021 in the economy. The expenditure breakdown was Irish materials (Energy, Water, Waste & Construction sectors included) €14.3bn; €9.4bn on payroll and €5.9bn on Irish services.

Foreign firms bought less on Irish materials. The direct expenditure by foreign firms amounted to €33.5bn. Spending on payroll was €20.1bn; €8.5bn on services purchased in Ireland and €3.9bon on materials purchased in Ireland.

The foreign spend was at €6,400 per capita. There are other positives and negatives such as the housing crisis in Dublin.

Fulltime jobs in foreign firms in 2022 (not foreign-owned retail) were at 280,000 with 209,000 in American-owned firms.

Fulltime jobs in agency-supported Irish firms were at 190,00O.

Irish employment was at 2.61mn in March 2023.

5) The population of the 20-country Euro Area is 343mn. In 2022 Irish-owned exports to the other 19 countries, had a value of €8.9bn.

This is an abysmal performance when all the countries use the same currency.

6) The European Patent Office (EPO) listed Ireland's top 10 organisations for patent applications in 2022. 

There are 5 universities and 5 companies. Four of the 5 have American roots and China has one firm.

In 2022 there were 1,140 applications and 416 grants.

Denmark was 2,662/ 774 and Finland was at 2140/ 854.

The Patent Cooperation Treaty (PCT), assists applicants in seeking patent protection internationally for their inventions across the world. It is administered by the United Nations' World Intellectual Property Organisation (WIPO).

The PCT has 157 contracting states.

In 2022 there were 804 Irish applications and the grants are about 27%. Denmark had 1,497 applications and Finland had 1,768.

PCT top applicants (2019-2021) from Ireland were: Eaton Intelligent Power Limited (US) 470; Janssen Sciences Ireland Unlimited Company 74; Depuy Ireland Unlimited Company 65; Connaught Electronics Limited 60; Analog Devices International Unlimited Company 55.

Eaton has a head office in Dublin and is called a redomiciled entity that has become Irish for tax purposes.

Again the universities are the main indiginous filers.

7) OECD says the share of employer start-ups (0-2-year-old enterprises) among active employer firms is lowest in Belgium (10.8%) and Ireland (11.1%).

Denmark is 22.9; Finland 26.9; Germany 21.7; France 25.5; Sweden 29.8.

This is a measure of entrepreneurship.

8) The Irish Venture Capital Association tracks fundraising quarterly and a lot of the funding is raised overseas for redomiciled firms.  

9) The Knowledge Development Box (KDB) was introduced in the Finance Act 2015. 

The goal was to attract R&D facilities to Ireland. It has been a failure (too restrictive?) and Beps Pillar 2 will make it redundant.

10)  In the EU Global 2500 list of Research & Development (R&D) there are 24 Irish-related entrants.

There are 21 foreign-owned firms. The Kerry Group is the only Irish-owned industrial company on the list and Bank of Ireland and Allied Irish Banks.

The minimum spend was €48.5mn. Kerry was at €308.6mn.

In the EU1000 rankings, the addition of the 24 entrants on the 2500 added 10 more foreign firms and 7 Irish firms.

The tally was 34 foreign-related firms and 7 Irish firms.

The minimum spend was€3.1mn in the EU1,000 category.

BIG Tech dominates of course and they are categorised as from the US.

The CSO's Business Expenditure on Research and Development 2021-2022 had foreign-owned enterprises spending  €2.70bn on R&D in 2021, accounting for 69.6% of all R&D expenditure.

Small enterprises (<50 persons engaged) had a spend of €635.8m in 2021, accounting for 16.4% of all R&D expenditure. Medium-sized enterprises (50-249 persons engaged) spent €814.7m on R&D during the same period, representing 21.0% of total R&D expenditure.

In 2019 the R&D intensity rate for Ireland (0.91%) was below the EU27 average of 1.48%. Ireland ranked 13th in the EU27 in 2019, compared with a ranking of 12th in both 2017 and 2015.

In 2021, of the 1,931 enterprises engaged in R&D activities in Ireland, 1,266 (65.6%) were small enterprises, 469 (24.3%) were medium enterprises and 195 (10.1%) were large enterprises.

The CSO doesn't say what R&D produces, in particular the 1,635 (89.9%) in small and medium firms.

In 2019 the OECD noted that less than 10% of small and medium firms in Ireland exported.

For example in 2020 the share of Irish small firms exporting goods was 4.6% and 10.5% for medium firms.

In Denmark it was 14.3% and 26.1% and in Finland it was 8.8% and 22.2%.

11) Ireland's number of exporters in 2020 was 11,600. In 2021 Denmark had 26,800 and Finland had 20,080 exporters.

The population of Denmark is 5.857mn; Finland 5.541mn and Ireland 5.180mn

Last year Irish-owned goods and services exports amounted to €32bn.

Total exports were valued at  €688bn.

12) "There were 6,719 enterprises who exported goods to the UK in 2017, 78% of the total number of exporters. 3,214 enterprises, almost half of the enterprises that exported to the UK, traded with the UK only. The value of this export trade was €2.4 billion, or 15% of total UK exports."

13)  Almost half the population has private health insurance as a lot of them haven't confidence in the public system. The average premium in 2022 was €1,466.

Overall, spending on health is high, particularly in light of a relatively young population. At the same time, health care is expensive in comparison with other European countries.

The Swiss healthcare system ranks 1st overall out of the 32 countries evaluated in the 2022 World Index of Healthcare Innovation, with a score of 66.49, ahead of Ireland (2nd) and the Netherlands (3rd)!!

14) In the Global Financial Centres Index published in March 2023 New York, London and Singapore topped 120 centres.

Dublin's International Financial Services Centre (IFSC) had a 48th ranking and in 2008 it was in single digits.

Dublin got a 57th spot in the Fintech Rankings.

15) EU-Startups this year gives a 14th rank to Dublin. London, Paris and Berlin lead.  

The FT1000 7th ranking of Europe’s fastest-growing companies has 405 tech entrants. Ireland has a poor record.

16) In 2021, around 38,700 UK VAT-registered businesses exported goods to Ireland.

Official statistics on Friday added almost 2% to the size of the UK economy, in a surprise move that showed the country recovered much faster from the pandemic than previously reported. 

The FT reported on Friday, September 1, "The Office for National Statistics revisions, which also mean that Britain is no longer the worst performing economy in the G7, will come as a relief to the UK government as it struggles with inflation pressures and a cost of living crisis."

17)  Last month the Central Statistics Office (CS0) issued a report titled Outward Foreign Affiliates Statistics 2021.

It said "Irish-owned foreign affiliates employed more than 1.24mn people in 2021."

Irish employment in Asia in 2021 was 442,000.

This was partly Leprechaun economics and genuine Irish affiliates overseas, but there was no distinction.

This was my own comment last year:  Ireland's low number of multinational firms and poor exporting record

18) The IMF World Economic Outlook classifies 41 economies as “advanced,” based on such factors as high per capita income, exports of diversified goods and services, and greater integration into the global financial system. The remaining countries are classified as “emerging market and developing” economies.

This year there are 41 advanced economies, 95 emerging market and middle-income economies, and 59 low-income developing countries.

Without Andorro, Hong Kong, Macao, San Marino and Puerto Rico, the realistic number is 36 here:

The PPP (Purchasing Power Parities) conversion to international US dollars for Ireland was at 0.79 giving an adjusted $33,500 in 2023. Before adjustments, the headline level is $145,200 per capita. 

The economist, David O’Rear, who covered the Asia-Pacific region for The Economist Group for 18 years, explained why relatively poor countries see huge jumps from market prices to the PPP, such as Lithuania and Croatia (above): "PPP was designed to reestablish exchange rates between highly similar economies, using a basket of goods. It later was modified to provide an alternative exchange rate, which it was not meant to do. Most particularly, we are poorly served by those who would use it to define the size of an entire economy (rather than just consumer goods). And, as almost all foreign trade is at market exchange rates, economies with very large trade volumes relative to their domestic economies, regularly choose not to artificially manipulate their exchange rates to reach an imaginary PPP level."

The World Bank is responsible for the International Comparisons Program (ICP), which is updated every six years. It was established by the United Nations and the University of Pennsylvania in 1968. The last PPPs generated by the ICP was in 2017 and 176 countries participated based on a global survey of prices. National average prices for about 1,000 common items are tracked.

GDP measures use market exchange rates while the PPP exchange rate — is the rate at which the currency of one country would have to be converted into that of another country to buy the same basket of goods and services in each country.

It's not a very reliable system. 

Advanced Countries opt for gathering data from urban areas or capital cities. Poorer countries tend to track both. 

Within an urban area, there can be different prices for the same goods and services. For example in food, some people shop at supermarkets, and others in market stalls. Broken rice was once the meal of poor farmers who picked up what was left after the rice milling process but it has become a popular dish in Vietnam.

This also applies to transportation costs. International trade and tariffs are also ignored.

In real life, foreign machinery may contribute to the making of some of the items in the basket. 

Again taxes are also ignored. For example in the EU, Luxembourg levies the lowest standard VAT (Value Added Tax) rate at 16%, followed by Malta (18%), Cyprus, Germany, and Romania (all at 19%). The EU's average standard VAT rate is 21%, six percentage points higher than the minimum standard VAT rate required by EU regulation.

China has standard VAT rates which are 13%, 9%, and 6% while reduced rates of 5%, 2%, 3%, 1.5% and 0.5% also apply. Thailand has a standard VAT rate of 7% (reduced from the standard 10% until 30 September 2023).

Market competition is not considered. Price levels between different goods in different financial markets may differ due to the competitiveness of that country’s demand for that commodity.

Finfacts: Two-thirds of developing countries are dependent on commodities

The 12 main countries of South America are in that category and thus exporters are key for them.

An estimated 1.6bn people in Asia and the Pacific lack effective access to social health protection, according to a 2021 report issued by the International Labour Organization (ILO). Less than half the region’s workforce has their income security legally guaranteed when sick while just 45.9% of women are protected in case of loss of income during maternity.

In Asia also, long work hours are common and statutory hours are mainly ignored by rich and poor countries.

The South Korean government was forced in March 2023 to rethink a plan that would have raised its cap on working hours to 69 per week, up from the current limit of 52.

Eurostat and the OECD have calculated PPPs and price level indexes for GDP and some 50 product groups, including health and hospitals, on a regular and timely basis.


October 08, 2023: Irish Government may have nixed a key remedy for 'Leprechaun economics'