The Irish Economy

Reading a summary of the financial position of Facebook Ireland recently, once again brought home to me the extent to which the activities of such well-known profitable companies clearly display a crass regard for any true ethical obligation with respect to tax liabilities. According to the Financial Times, Facebook used a complex tax avoidance scheme to limit its corporation tax bill to €1.9 ml. in 2012 (based on a turnover of €1.79 bl.) That would work out as just a little over .1%! However of the €1.79 bl. turnover a truly incredible €1.75 bl. relates to administrative expenses for the use of intellectual property. This money (i.e. royalty payments) is paid into a special holding company Facebook Holdings that is incorporated in Ireland but registered elsewhere for tax purposes. So the money in turn passes through this company on its way to subsidiaries based abroad. Many of these appear to be located in the Cayman Islands where no tax is payable. Of course Faceb...

I was watching an interesting programme presented by Ian Kehoe (from The Sunday Business Post) showing how the recent resurgence in the Irish economy owes a great deal to a considerable amount of overseas capital investment, especially with respect to sales of distressed property. As is well known the Irish property boom came to a shuddering halt in 2008 leading to massive falls in value with respect to both residential and commercial property. Many of the largest loans on these properties were sold to NAMA (an Irish state organisation that has arguably now become the largest property company in the world). Likewise, many other assets however still exist on the banks' balance sheets, which they are anxious to sell to the highest bidder. And as Irish developers no longer possess the financial means, these assets are being quickly sold principally to the US (on both coasts) the UK and other international investors. Some of these assets have been bought up also b...

The US Senate hearings on the tax avoidance activities of Apple last week places uncomfortable attention on Ireland’s relationship with this key multinational company. This followed a Public Accounts Committee into the affairs of Google who again are effectively using Ireland as a means of legally paying virtually no tax in the UK. And they are by means alone in this regard. For example an article in the Wall Street Journal back in 2005, highlighted the manner in which Microsoft used two subsidiary companies operating within a law firm in Dublin to again substantially reduce their overall tax liability. Then when questioning the extremely high cost of prescribed drugs In Ireland, one can also point to a growing concentration of the pharmaceutical sector. 9 of the top 10 multinationals are now in operation here with - I strongly suspect - tax avoidance on their global operations a major consideration. One of the key consequences of all of that due to a growing unhealthy level of dep...

The earliest days of the New Year sadly only act to confirm my w orst fears regarding the state of the public sector in Ireland (and in particular health facilities). Like an ever repeating broken record, we hear accounts at the beginning of January regarding the gross over-crowding of our public hospitals. Though we are told that lessons have been learnt with new plans in place to ensure that the same problems do not arise the following year, unfortunately it is always the same old story (with however matters even worse than before). Of course the HSE will immediately point to the cuts in the health budget as a ready excuse. However the problem is really much worse than this with the truth being that we have an health service now in Ireland that in many ways has become increasingly dysfunctional. There are many reasons for this sorry state of affairs pointing to key weaknesses in the Irish personality in dealing with administrative failure. Firstly there is a huge lack o...

Since I last wrote several significant developments have taken place making it clear that the present crisis both in Ireland and in Europe is much deeper that initially realised. Indeed there is an even growing risk now that the whole financial system - not just in Ireland - but in the Eurozone generally could spiral out of control with disastrous consequences for its citizens. And unfortunately this risk is aggravated through a lack of effective action at the EU level (where intervention is most necessary). To be honest I was deeply shocked at the manner in which the EU reacted to the growing Irish problems last week. Though I have been a persistent critic of the terrible mismanagement of our economy (especially since 2000) at least I could not fault the Government for its determination to play by European rules. So for example, despite considerable domestic criticism, Brian Lenihan consistently maintained the Government's intention to fully redeem all senior bondholders in o...

Things are not looking good at present in Ireland with an enforced economic bailout from the EU/IMF Stability Facility in the new year looking ever more likely. Unfortunately the damage already done to the economy during the totally reckless latter phases of the Celtic Tiger has been so great that in truth it is hard to see how any credible response can now be made to deal with the financial implications. As I had always feared, losses from the banking system have been much greater than recognised. Indeed I suspected that the government was engaging in an unconvincing game of bluff in hiding the extent of such losses. From an initial position that the banks "would cost us nothing" it is now admitted that the losses will be in the order of €50 bl. (which unfortunately is likely to be a severe underestimate). The projections with respect to property prices on which these figures were made were far too optimistic. Furthermore there is a considerable amount of - yet - unreco...

It struck me recently that the prolonged recessions (lasting up to a decade a length) have been a consistent feature of the Irish economy since independence. Furthermore these recessions have occurred on a fairly regular 30 year cycle. When we obtained our Independence in 1922, the country became ravaged by a very damaging Civil War. Manufacturing industry was practically non-existent with the country almost totally dependent on agricultural production. Though little progress was made during this first decade of freedom, surprisingly, in a qualified fashion, the economy started to revive during the era of the Great Depression. The high tariff barriers now in place enabled the replacement of - formerly - imported commodities by new domestic firms. Also the Government, recognising the lack of private capital took the initiative in setting up several large state-owned enterprises. Then we escaped the worst ravages of the 2nd World War through our neutral stance. However during the ne...

I must admit that I enjoy reading the economic columns of David McWilliams. Whereas I do not generally agree with him with respect to the fine detail implications of his proposals, he invariably however manages to make interesting suggestions assisting valuable reflection. In this morning’s Sunday Business Post article, he addresses the present situation in Iceland, where apparently interest rates on long term bonds have now fallen below corresponding recent - and still rising - rates in Ireland. And given that a short time ago Iceland was looked on as the undisputed financial basket case of Europe, this indeed is a disturbing revelation. One has to admire the resilience of the Icelanders in dealing with their problems. Though they did require IMF assistance, they refused to bail out their banks with the losses therefore falling on depositors and lenders (rather than as in Ireland on the shareholders). Also in allowing depreciation of their currency, they have thereby ma...

It is now some months since I last wrote regarding the Irish banking crisis and unfortunately the situation has worsened since then with debts accumulating at an even faster rate than previously expected. Also because of our accompanying severe fiscal crisis, international confidence has steadily receded. This in turn has led to sharply rising interest rates in the bond markets, which could yet prove a vital tipping point for the economy. Realistically speaking, there is no easy solution to our problems. The present Government lacks true legitimacy (with Fianna Fail having presided over the very crisis that it is now trying to solve). However there is little reason to suggest that the main opposition parties would bring about any real improvement. A new Government is likely to entail a coalition arrangement of Fine Gael and Labour. Enda Kenny the leader of FG and - likely - larger party after the next election is thereby in line to become Taoiseach. However he seems to lack suffic...

Once again Anglo Irish Bank is in the news - for all the wrong reasons. This week it is about to announce the largest corporate losses in Irish financial history which could be - if reports are right - as high as €14 bl. Having already received in the region of €4 bl. last year in Gov. capitalisation, it looks like a further $7 bl. or so further handouts from the Government will now be additionally required to keep the bank functioning. And it would take a great deal of optimism to believe that this will be the end of the story! Not surprisingly when the public hears of the horrendous losses made by this one bank (that has no branch network) the cries go up to close it down immediately so as to avoid further losses. However though understandable at one level such a policy is not realistic. The losses that arise relate to the excessive loans extended during the Celtic Tiger to fund - in the main - highly extravagant commercial property developments both here in Ireland, the UK and the U...