Sunday, October 08, 2023

Irish Government may have nixed a key remedy for 'Leprechaun economics'

Tourism Ireland: "Gold" at the end of the rainbow County Donegal - Oct 30, 2015

[Leprechaun economics triggered über sham Irish economic growth in 2015 and it still endures up to the present. Phantom overseas exports that neither originate in Ireland nor have subsequent contact, trump the value of net custom-tracked Irish merchandise exports...In Irish folklore, the “luchorpán,” which means “little body," was a mischievous elf who hid a pot of gold at the end of the rainbow.]

In July 2016 American economist Paul Krugman dubbed the annual revision of Irish 2015 GDP (Gross Domestic Product) "Leprechaun economics." The 2015 GDP had jumped to a stunning 26.3% on the 2014 data.

IMF April 2023: Ireland at US$145,200 per capita GDP (Gross Domestic Product) was the highest in the world; the UK was at $56,500, but Ireland's true level was $33,500 per capita.😏

In response to the 2015 results, the CSO convened the Economic Statistics Review Group (ESRG), to broaden its deliberations on the challenges to interpreting Ireland’s national accounts due to the impact of globalisation.

Philip Lane, then governor of the Central Bank of Ireland (CBI) and now chief economist at the European Central Bank (ECB), chaired the ESRG, and members included representatives from the CSO, ESRI, UCC, Fiscal Council, TCD, Department of Finance, IIEA, IBEC, SIPTU, and the NTMA. The Group also received submissions from former CBI governor Patrick Honohan, the Revenue Commissioners, Eurostat, and the OECD.

In February 2017 the 'Central Statistics Office (CSO) Response to the Main Recommendations of the Economic Statistics Review Group (ESRG') were unveiled.

"An adjusted indicator, Gross National Income* (GNI*) of the size of the economy should be published, appropriately adjusted for the retained earnings of re-domiciled firms and depreciation on foreign-owned domestic capital assets."

The group said Recommendation 6: "Quarterly publication of underlying investment and underlying domestic demand measures that take account of the impact of IP relocations, Contract Manufacturing, Aircraft Leasing and Re-domiciled firms."

Deliverable: The CSO currently publishes a breakdown of investment by tangible and intangible assets on a quarterly basis. We will add to this detail by quantifying the flows of IP relocations and aircraft leasing activity in 2017, at current and constant prices, at the time of the annual National Income and Expenditure results in mid-2017.

See below the data for 2022, from the Central Bank of Ireland.

Modified GNI* was introduced as an indicator designed specifically to measure the size of the Irish economy by excluding Globalisation effects. There would be adjustments in these four areas:

– Intellectual Property product relocations

– Aircraft Leasing

– Re-domiciled Firms

– Contract Manufacturing in Exports and Imports data

Contract manufacturing, which the CSO calls 'Goods for Processing,' was to be an important part of the adjustmentsIt's phantom processing!

An April 2018 report from the Department of Finance noted that "In July 2017, the CSO published an alternative measure of the size of the economy, so-called ‘modified Gross National Income."

Contract manufacturing was dropped from the GNI* with no explanation.

The Department of Finance has said that "The rise in Contract Manufacturing since 2015 has significantly inflated Ireland’s GDP statistics, whilst indirectly inflating the Balance of Payment statistics as it is associated with an increase in the on-shoring of IP (intellectual property.)"

In April 2018 the IMF's (International Monetary Fund) ‘World Economic Outlook' commented "Ireland, Korea, and Taiwan Province of China are estimated to be the main beneficiaries of the new tech cycle in value-added terms. In Ireland, where the intellectual property of Apple Inc. resides, staff estimate the contribution in value-added terms of iPhone exports to account for one-fourth of the country’s economic expansion in 2017."

The IP and Contract Manufacturing are mainly virtual. Ireland does not export iPhones to China, which has been claimed!!

The intangible assets related to the iPhone (2015) and iTunes (2016) [this was moved from Luxembourg following a VAT change] virtually reside in Apple Operations Europe which in 2015 became tax resident in Ireland, the country of its incorporation.

CSO International Accounts 2017 and 2018

1) Custom-tracked international merchandise trade 2017 at net €45.862bn;

2) Goods for Processing (Contract Manufacturing) at net €59.093bn plus Merchanting at net €7.593bn. The total was valued at €66.686bn.

The ‘phantom exports’ have more than doubled in value since. Goods for processing are a mirage!

CSO International Accounts 2021 and 2022

1) In 2022 Contract Manufacturing and Merchanting (were valued at — €143.325bn in the Irish National Accounts even though there were no real transactions involving Ireland;

2) Net custom-tracked goods exports in 2022 were at €75.528bn;

3) The phantom Goods for Procession/Merchanting are almost double the net value of custom-tracked goods;

4) The CSO says "Merchanting occurs when goods are purchased and subsequently sold without transformation, by Irish merchants from abroad, without the goods entering or leaving Ireland."

This is another fiction.

5) Enterprise Ireland has said that exports by indigenous Irish firms in 2022 were valued at €32bn.

There are no data for related imports. If there was, most of the mythical Irish merchants from abroad would likely eclipse with a net €17.678bn.

This makes a joke of the GNI* as the adjustment was to be included.

It's unlikely that the CSO dropped Contract manufacturing from the GNI* while it is likely that the then Minister of Finance sanctioned the move.

In late 2021 economists at the Central Bank of Ireland noted: "Further increases in exports due to Contract Manufacturing and merchanting will continue to distort Ireland’s trade performance and inflate GDP in the National Accounts."

It's unlikely that removing this distortion would imperil windfall corporation tax receipts.

Household consumption: price levels in 2022 — 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%). Germany was (109%.)

Eurostat reported in June 2023 that actual individual consumption (AIC) consists of goods and services actually consumed by households, irrespective of whether they were purchased and paid for by households directly, by government, or by nonprofit organizations. It said the AIC per capita is an indicator of the material welfare of households.

Ireland in 2022 fell to (87%), meaning AIC was 13% below the EU average and a gap of 32% with Germany.

In 2022, nine EU countries recorded AIC per capita above the EU average. The highest levels were recorded in Luxembourg (38% above the EU average), Germany (19%) and Austria (18%). Meanwhile, 18 EU countries recorded AIC per capita below the EU average, with the lowest levels recorded in Bulgaria (33% below the EU average), Hungary (28%) and Slovakia (27%)

Quarterly Bulletin QB1 of the Central Bank of Ireland – March 2023, the economists wrote "Contract Manufacturing accelerated strongly in the second half of 2022, despite China’s limited business reopening and the increased level of onshoring by MNEs. With the global index of supply chain pressures falling in every month of Q3, the offshore activities of Irish-domiciled businesses surged dramatically in response to improved globalization and trade conditions. This is reflected in Contract Manufacturing growth of 37.6% (nominal) and 31.8% (real) over the full year of 2022. In real terms, the volume of Contract Manufacturing in 2022Q3 was more than double that of any period prior to 2020Q4, and greater than the total volume of Contract Manufacturing recorded in 2015. Real Contract manufacturing volumes for Q4 were 10.4% higher than in Q3 2022, and 46% per cent higher than Q4 2021."

Facts: Ireland's GDP per capita was €25,300 in 2022

Apple stashed profits in new tax havens after Irish scheme drew scrutiny

The fiction of Irish affiliates overseas

The Central Statistics Office (CSO) said in August 2023 "In terms of employment in Irish multinationals abroad by continent in 2021, Asia (441,881), the Americas (410,533), and Europe (including the Russian Federation) (363,433) accounted for 98% of total persons engaged. Employment in the Oceania & Polar regions and Africa accounted for the remaining 2.0%."

"Total turnover for Irish-owned foreign affiliates was €263bn in 2021, an increase of almost 11% compared with 2020 and the largest turnover ever reported."

For example, it's a fairy tale that Asia has Irish affiliates with over 440,00 employed — about 25 mainly American firms that became "Irish" for tax purposes that own the affiliates.

The CSO also supplied data for 2021 to the Organisation of Economic Cooperation and Development (OECD) that domestically controlled Irish enterprises with own affiliates abroad were at 12,710, up from 9,947 in 2020. The number of foreign enterprises was 2,244 in 2021.

According to the OECD, there were 278,860 Irish enterprises in 2020; 148,700 had no employees; 108,200 had 1-9 employees and 10+ were at 21,000.

There were 8,868 exporting enterprises in 2018 (i.e. with goods exports of over €5,000 in the year!). This includes 5,247 micro enterprises (1-9 employees), which exported €6.8 billion of goods. There were 7,024 enterprises exporting goods to the UK in 2018. This represents 79% of all exporting enterprises. Of these 7,024 firms, there were 3,378 who exported exclusively to the UK, which accounted for 16% of the total value of exports to the UK. The data were published in 2020.

The Department of Enterprise, Trade and Employment has said that 4,200 client companies of Enterprise Ireland, IDA Ireland and Údarás na Gaeltachta with 10 or more employees in Ireland, show the contrast with other countries. The sectors include Manufacturing and Information, Communication and Other Internationally Traded Services sectors.

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


For the 13th year in a row, Switzerland is the most innovative economy in 2023 according to the Global Innovation Index, followed by Sweden, the United States, the United Kingdom and Singapore.

Since 2021, the GII (Global Innovation Index) has been published by WIPO (the UN's World Intellectual Property Organisation based in Geneva) in partnership with the Portulans Institute (Washington DC), various corporate and academic network partners and the GII Advisory Board.

On comparator countries for Ireland, Finland has a 6th ranking and Denmark is at 9th, of 132 countries.

Ireland has a 22nd ranking and the judges said "Irelandʼs main innovation strengths are GDP/unit of energy use (rank 1), ICT services exports, % total trade (rank 1) and Intellectual property payments, % total trade (rank 1)."

However, the strengths come mainly from foreign firms while "Ireland ranks lowest in Market sophistication (51st), Human capital and research (28th) and Creative outputs (26th).

The Interactive R&D Scoreboard 2022 (top 1000 EU) in the European Union has a minimum spend of €3.1mn and there are 41 Irish entries.

The born-in-Ireland firms are Kerry Group; Bank of Ireland; Allied Irish Banks; Flutter Entertainment; Fineos Corporation; Glanbia; Trinityy Biotech and Smurfit Kappa. (Greencore only has a head office in Dublin).

The global R&D Scoreboard 2022 (World 2500) has 24 Irish companies with a minimum spend of €48.5. The born-in-Ireland firms are Kerry Group, the 2 banks and Flutter Entertainment.

The 2022 EU Industrial R&D Investment Scoreboard

World University Rankings 2024: trends in the industry — WUR expands industry pillar to include patents and in-country scores, the greatest gains are by Ireland, Hong Kong and the US.

Filing a regular patent application may cost between €4-6,000.

A Patent Cooperation Treaty (PCT) patent is international and according to UCC Innovation, the application usually costs €10,000-€12,000. A national application in the USA and Europe costs €12,000 to €15,000 followed by individual national filing costs in each European country (and translations where required) and will continue to increase if protection in further countries (Japan, Canada, Australia, China) is also sought. Also, once a patent is issued in any country, certain maintenance fees are required to keep the patent alive. The full patenting process through the patent's lifetime can easily reach €150,000.

In the last five years, Trinity College, Dublin, has created over 24 campus companies across all the main sectors of medical devices, pharmaceuticals and ICT.

ETH Zürich Alumni and researchers from ETH have created 545 companies — the most of any university in Europe. Einstein was a student there and later a lecturer.

A 25% relief on R&D costs for up to 1,700 by 2023 had little impact on real R&D in Ireland. Large firms get the biggest handouts while small firms aided by their accountants, also benefit.

OECD "In Ireland, SMEs accounted for 89% of R&D tax relief recipients in 2019, while the share of R&D tax support accounted for by SMEs amounted to around 28% this year. 71% of R&D tax benefits were allocated to large firms, comprising 11% of the population of R&D tax relief recipients in 2019."

I wrote in a previous post "The CSO doesn't say what R&D produces, in particular for 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."

ESRI still using Modified Gross National Income (GNI*)

The Economic and Social Research Institute (ESRI) published its Autumn Quarterly Economic Commentary on the Irish economy in early October.

In 2022 multinational-dominated sectors grew by 19.4% but this year the outlook has changed.

Kieran McQuinn, a research professor, said "Typically, developments in the multinational (MNE) sector tend to overstate underlying domestic growth in the Irish economy. However, at the present time, we believe Modified Domestic Demand (MDD) – a more accurate reflection of domestic activity – is growing at 1.8% in 2023, while GDP is set to decline by 1.6%.

Modified Domestic Demand refers to Modified Final Domestic Demand, which excludes large transactions of foreign corporations that do not have a large impact on the domestic economy.

However, is the ESRI still using the discredited GNI*?