Tax planning by multinationals is distorting Ireland's economy and limiting the usefulness of traditional indicators such as gross domestic product (GDP), the Nevin Economic Research Institute (Neri) has warned.
While broader indicators such as employment growth show the Irish economy is undergoing a cyclical upswing, the trade union-backed think tank said certain sectors, most notably information and communications, were growing “very quickly in real terms”.
The gains in these sectors are at least partially explained by multinational tax planning, the institute said in its latest quarterly bulletin.
In response to the global clampdown on multinational tax avoidance, up to 15 companies have shifted their intellectual property (IP) assets here over the last two years, effectively inflating the true level of economic activity.
In its report, the institute said it expected the Republic’s economy to grow by 4.5 per cent in GDP terms this year, falling to 3.4 per cent next year and 3.1 per cent by 2019.
Unemployment rate
It also projected the rate of unemployment – currently put at 6.1 per cent – to continue to fall, albeit at a much slower pace, reaching 5.5 per cent by 2019.
Despite warnings from other organisations, Neri said there was “ very little evidence” of overheating in the economy.
The institute said there was a high degree of uncertainty around 2019 projections for the Irish economy given the lack of precedent for an event such as Brexit and the uncertainty surrounding the outcome of negotiations.
“In addition the economy should be close to potential output by 2019 which implies slower rates of baseline GDP and employment growth post-2018,” it added.
A significant part of Neri’s latest report was devoted to what it described as Northern Ireland’s “low-skills equilibrium” – a situation where firms are predominantly engaged in low-value production providing low-skilled and consequently low-paid jobs.
Firms may want to innovate and grow but lack the higher-skilled workforce to do so, the institute said. However, the problem differs from the skills gap in the Republic in that when workers invest in their own skills, the North’s economy lacks the high-skilled jobs that would reward them.
"The shortfall in key skills is a problem in many indigenous enterprises in both parts of Ireland, " Neri director Tom Healy said.
“There is an urgent need for public policy to invest in raising skills and shift the long-term profile of demand for skills as part of an enterprise/industrial strategy to reboot the domestic economy,” he added.
