Member of fiscal policy group says growth rates artificially high

BARRY O’HALLORAN Ireland’s recent growth rates might have been artificially inflated by a sudden increase in contract manufacturing that may not be delivering real economic benefits to the Republic, according to a member of the State’s fiscal policy body.

Addressing this year's Tourism Policy Workshop yesterday, Irish Fiscal Advisory Council member Donal Donovan said that around 2.5 percentage points of the near 5 per cent growth rates seen recently in the economy were down to "something unusual: contract manufacturing".

This is where businesses headquartered in the Republic transfer raw materials from one country, process them in a second country and then export them to a third.

‘Irish’ exports

Dr Donovan said that while none of these activities actually took place here, they were still counted as “Irish” exports.

“It has no employment effect in Ireland; it has a potential taxation effect because it is taxed here. It is not clear how it is taxed, but that would be its only effect on the real economy,” he told the conference.

He acknowledged that this practice has been around for some time, but said it had suddenly boomed for reasons that nobody had yet been able to identify. Dr Donovan said this had resulted in growth rates being overstated.

Quarterly report

However, even when its impact was stripped out, he said, the economy had still expanded by close to 3 per cent, which was a good performance.

The Fiscal Advisory Council, which advises the Government on economic policy, is due to publish its quarterly report on Monday.

Prof Jim Deegan, director of the National Centre for Tourism Policy Studies at the University of Limerick and a member of the board of Fáilte Ireland, told the conference that there was a question mark over the future role of State agencies attracting tourists.

Speaking before the conference began in Dromoland Castle, Co Clare, Prof Deegan said technology and industry trends had combined to create a market that was more splintered. He questioned whether a policy based on traditional promotion methods would be effective in the future.