How the Irish economy grew by a quarter | In the subject

Das kleine Irland ist ein Extrembeispiel.

Having a statistical agency justify itself is not a good sign. The Office for Statistics should consider key economic indicators in line with international law, “said Jennifer Banim, of Ireland’s Central Statistics Office, in a press release.

The surge in GDP caused the euro crisis to reduce the national debt of the country of Ireland from 100% to 80% of economic output. But private consumption shows that this figure has little to do with Irish growth. This is an increase of only 5% over the previous year.

International growth has been driven by international corporations that have chosen Ireland as their location for tax reasons. Transferring patents, licenses and other invisible assets to the Irish branch. The company’s subsidiaries in other countries then pay royalties to the Irish company. This reduces profits in countries with higher tax rates. Profits soar in Ireland with lower taxes.

As a result, the Island Republic generates high trade surpluses each year. At the same time, export earnings do not flow into the country but to foreigners. Statistics know a way to this problem. You look at gross national income (GNI) instead of gross domestic product. In this calculation, only the value added by the residents is taken into account. For example, foreign income is not included in GNI. Ireland’s GDP was 255 billion euros last year, while GNI was only 202 billion euros.

But GNI grew by about 20% last year. This is because of American tax laws. US-based companies should declare their global profits there. That is why pharmaceutical companies, for example, have moved their headquarters to Ireland – thus becoming citizens who declare their profits and add value there, which leads to increased economic production in terms of national income.

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Since Ireland usually has only an administrative headquarters, many of the exports reported in the statistics do not physically pass through the country. You do not have to build warehouses on the island to get good GDP figures.

Last year, the balance sheet shift provided a one-time boost explaining the huge increase in GDP. This is because the relocation of the company’s headquarters has led to a surge in investment in invisible assets. Factories do not have to be built for revenue from licenses or patents. The capital stock of the Island Republic increased due to the change in the balance sheet. The second major source of investment is virtual. Companies that lease aircraft take advantage of lower tax rates. The island does not need to be used to calculate GDP for any aircraft registered there.

Little Ireland is an extreme example. It reveals weaknesses in financial statistics that are not easy to solve. But one thing is clear: good GDP figures alone will not make a leap.

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