Wolfe Tones’ United Irishmen used to ask: “What have you got in your hand? A green bough. Where did it grow? In America. Where did it bud? In France.”
In terms of the Irish economy, people are beginning to wonder if the green bough might bud again, and if it does will it be US multinationals or European fiscal discipline that provides the fertiliser.
In July I wrote about my trip home. I spoke about the sense of “resigned stoicism” which I encountered. I tried to be positive – Ireland had survived worse – but in truth I felt pretty depressed. In response I got an email from Enterprise Ireland. As you would expect, they wanted to highlight the good news coming out of Ireland and they talked a good game.
And Enterprise Ireland are not alone. The Washington Post recently asked: “Can Ireland’s Celtic Tiger roar again?” Begging the question – and if it could, would we want it to? But the undeniable fact is that the figures are improving. Things are not looking up exactly, but they are certainly not looking quite so bleak.
In 2011, Irish exports topped €15 billion – that’s pre-GFC levels. Australia and New Zealand are playing a role: there has been 12 per cent growth in Irish exports to this region. But the story is not so clear-cut. The Post identified two Irelands: the Celtic Tiger industries and the rest.
The multinational companies attracted to Ireland in the late 1980s and 90s are doing well. They continue to benefit from a well-educated, English-speaking workforce and a low corporation tax. Ireland is a good place to do business. Indeed, the GFC may have even made Ireland more attractive: property prices are now more affordable and starting wages lower. A significant proportion of the heralded export figures are the result of the operations of those multinationals.
Dependence on foreign investment is not a bad thing, but there are potential speed bumps on the road ahead. Ireland’s low corporation tax has become totemic to Irish politicians, but it remains in the cross-hairs for many overseas. The EU has never been overly enamoured with the use of low tax to attract investment. The Troika have grumbled about the competitive advantage it gives Ireland.
The problem of multinationals such as Amazon and Starbucks not paying tax in Britain has taken on greater political significance this year. As austerity bites in Britain it is harder for British politicians to ignore the non-payment of taxes there. On top of that, a US congressional hearing has examined the non-payment of tax in America by US multinationals. It is also worth remembering that although these companies contribute to Irish export figures, they often pay very little tax to the Irish exchequer.
Many of the companies being examined and criticised in Britain and the US are benefiting from Ireland’s low corporation tax. Ireland is beginning to be portrayed as a tax haven. That is bad for Ireland’s reputation. Even worse, if the US forces these multinationals to repatriate their profits it will have a detrimental impact on Irish export figures.
But let’s not be overly doom-laden: the Celtic Tiger industries are doing well post-GFC. Even without the tax benefits, Ireland has the comparative advantage of a well-educated, young, motivated workforce.
The very article in the Washington Post that suggested the Tiger might roar once more also noted that the wider economy suffers from inefficiencies and a lack of competiveness and productivity. The Post argued the structural reasons for these economic problems: bright young things who might contribute to the economy are packing up and leaving; consumers won’t spend; and then there is the issue of debt.
About 25 per cent of the mortgages in Ireland are said to be in trouble – 12.3 per cent of private mortgages were at least 90 days in arrears. The figure of arrears is higher in the buy-to-let sector. This has been termed “creeping default”. To date the banks have been reluctant to foreclose – partly because the properties have little value. By the end of March, Irish banks had foreclosed on 1,400 homes out of a total of 916,000 mortgages.
David Duffy, CEO of Allied Irish Bank, says that is about to change. In a move that will not make bankers any more popular in Ireland, Duffy vowed: “There’s no rent-free option available any more.” Let’s remember that in 2009 the Irish government arranged a €7 billion rescue plan for AIB and Bank of Ireland.
So there are structural problems in the Irish economy, and the export figures can’t hide that. There is a burgeoning repossession crisis, and the fetishisation of a low corporation tax may not be tenable in the long term. I don’t think the Celtic Tiger will roar any time soon. But when it does, it’d be nice if it was a little less brash and a little bit wiser.
Fergal Davis is a Senior Lecturer in Law at The University of New South Wales. He is active on Twitter: @Fergal_Davis.