Falling corporate tax revenue as profit levels decline at the global giants operating in Ireland is a bigger risk to the Irish economy than the current wave of job cuts at technology companies, according to a new assessment of the Irish economy by stockbroker Goodbody.
Chief economist Dermot O’Leary acknowledged concerns about new foreign direct investment in Ireland in the short term, given that 80 per cent of inward investment comes from the United States and Britain, “two economies at risk of recession in 2023″ and a similar proportion of new investment last year was focused on two sectors – pharmaceuticals and technology.
“While we do not discount further announcements on consolidation over the course of 2023, we are confident that the sector will continue to grow over the coming years, with Ireland being an important part of those growth plans for some of the largest and most profitable companies in the sector,” the Goodbody report states.
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“The bigger risk from this development stems from the expected fall in tax revenues as profitability wanes,” Mr O’Leary said, referring to the outsize impact on Ireland’s corporate tax take of a handful of the biggest tech and pharma companies. Between them, the top 10 contributors to Ireland’s record corporation tax account for about 55 per cent of the total tax paid, the Goodbody report says.
The report says that the crossover of those companies that have announced job cuts globally and those with operations in Ireland is quite limited to date.
“Our analysis shows that the potential job losses in Ireland from this wave of announcements is small in the context of the wider labour market to date, amounting to less than 3 per cent of IDA-supported employment,” Mr O’Leary said.
“Just 7 per cent of tech companies were associated with the IDA-announced layoffs in 2022, resulting in a similar proportion of the IDA workforce in that sector being at risk of layoff. However, vacancies remain high in the sector and there has been an ongoing surge in work permits issued for the sector over the past 12 months.”
On the broader economy, it says modified domestic demand – considered the most accurate measure of the performance Ireland’s very open economy – is now expected to slow to 0.7 per cent in 2023, down from 5.6 per cent in 2022. But it says Ireland can avoid the recession that threatens the wider euro zone and the UK “due to a record household savings haul and the ability for Government supports due to the best budget position in the euro zone – Ireland’s ‘war chests’”. And it expects growth in modified domestic demand to bounce back to 2.3 per cent in 2024.
Inflation is expected to fall to 5.6 per cent this year and to 2.8 per cent next year, Goodbody says. It expects the slower growth in the economy to ease the pressure on labour markets.
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The report says that housing is now the number-one political priority for Government, noting that figures for activity on new housing projects in Ireland were now “well below” annual requirements.
“Increased Government support will be required to ensure that housing supply does not fall any further below targets. This Government support should be used to secure funding for additional private units,” Mr O’Leary writes. The Goodbody report states that housing starts in 2022 were down 17 per cent when measured against 2018 figures, and 55 per cent lower in Dublin.
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“While completions did grow strongly in 2022, this slowing in new activity is expected to feed through to lower new supply in 2023 and 2024. As a result, new supply will move further away from the Government’s targets under Housing for All.”
On the positive side, it sees the rate of growth in house prices more than halving this year to 3.2 per cent from an already slowing 8 per cent last year before edging back to 4.1 per cent in 2024. In 2021, house prices jumped by 14.2 per cent nationally.
