Budget week has been a reminder of the astonishing power of half of Ireland's two-tier economy, a bifurcation that developed as the presence of multinational technology and pharma companies here grew.
At one level, Ireland has what might be termed the normal national economy of a small European state. We have a mix of large and small businesses across a wide range of areas, plus agriculture, and a major tourism sector. During the pandemic, most of this indigenous economy has contracted and struggled, in common with the rest of the world.
The other tier is the economy that’s roaring along with the pedal pressed to the floor, despite – and even, due to – the pandemic. That’s the one comprising financial services, and more significantly, the big tech and pharma multinationals, whose profits ballooned in a locked down world dependent on the virtual and vaccines.
Without the tech and pharma sectors, it's difficult to see how Ireland would be anywhere but somewhere in the lower half of EU countries
Thanks to this latter sliver of the Irish economy, Irish tax revenues in 2021 are €4 billion greater than was expected in earlier forecasts. The same overrun is predicted for next year.
While the domestic tier faltered, the booming tech/pharma tier kept Ireland financially afloat through 2020 – even, ironically, buoyant – with an economy that actually grew (grew!) by 6 per cent through a pandemic that crushed economic growth in most countries (including in alter-ego, domestic-economy Ireland).
State coffers
So, despite the decades of globally contentious low-tax rates for multinationals, regularly joined to sweet deals with additional perquisites, this sector still poured money into State coffers, giving Ireland one of the top-performing pandemic economies anywhere.
Two points come to mind. First, that the complaints were wrong, about the previous low-tax regimes and deals only benefiting corporations. Instead, many of these companies have brought enormous financial benefits to Ireland as a whole.
They’ve provided stability and incredible growth which otherwise would not be there. Without the tech and pharma sectors, it’s difficult to see how Ireland would be anywhere but somewhere in the lower half of EU countries, trying to grapple with a pandemic and Brexit, from a weak, painfully exposed financial position.
That’s not to say the past or current tax situation is warranted, acceptable or need continue. It’s simply a statement of fact, looking at how things worked out even despite Ireland’s low tax environment. And, that is setting aside the salaries paid, and the income taxes generated from same, that go into the “other” economy.
The second point is that the new tax overhaul, which will push those multinationals on to 15 per cent instead of 12.5 per cent tax (whoop de doo!), seems unlikely to be an onerous burden. And is too low. Way too low.
Ireland could raise taxes further and still retain its strengths in attracting inward investment. And should. And should have argued just this, for all
Yes, increased taxes pose challenges – those companies certainly can go elsewhere with expansion or new development plans. But Ireland's advantages remain the same: a skilled, educated workforce, a location that appeals to non-Irish employees (for now, though cost of living shifts are a serious threat for all workers), easy access to the US and Europe, a handy timezone position between east and west, an English-speaking country in the euro zone, and a politically neutral country.
Ireland could raise taxes further and still retain its strengths in attracting inward investment. And should. And should have argued just this, for all. In (finally) supporting a 15 per cent tax floor, we lost an opportunity to fight for what is right globally, rather than for what overwhelmingly benefits us.
Financial privilege
We could have led from our global position of foreign-investment-induced financial privilege, stood up for fairness and financial equity, and argued for a global tax agreement that required these huge, wildly profitable companies to pay a level of tax that might even barely approach what ordinary people pay.
Freighted with the basic expenses of just getting by – rent, mortgages, childcare, transport, health, education – working people lack the large profit cushion on their income that is so liberally dispensed to the world’s most powerful companies, firms richer than any have ever been in history.
A group of prominent world economists and thinkers have called out Ireland for covering its assets, rather than considering any place, or anybody else.
"Proposals for a global effective minimum tax of 21 per cent (or even better 25 per cent, as we advocate) have been rejected in the pursuit of the lowest common denominator of 15 per cent, a success for Ireland, a loss for the rest of the world . . . the lion's share of the additional revenue is expected to be received by a small number of rich countries," wrote a group of including Joseph Stiglitz, Thomas Piketty, Gabriel Zucman, Eva Joly, José Antonio Ocampo and Jayati Ghosh, in a letter to Le Monde.
We are in that small number. We should be ashamed. Ireland, and the other wealthy nations of the world, should have done – must do – better.
