GDP, which is normally used for national income comparisons, grossly overestimates the resources available to Ireland due to the inclusion of depreciation on foreign-owned assets. Net national income (NNI) presents a more realistic picture.
The OECD publishes data on NNI per person, adjusted for differences in price levels. This measure shows that in 2024, Ireland, while it may not feel like it, was one of the richest countries in the world, slightly richer than the US.
Within the OECD, only Norway, with oil, and Luxembourg, with finance, were better off. The Netherlands and Denmark ran Ireland pretty close.
In recent years, the Department of Finance and the Irish Fiscal Advisory Council have estimated that about half of our corporation tax revenue is “windfall” in nature, unrelated to real economic activity in Ireland and, hence, possibly ephemeral in nature.
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If this exceptional tax is excluded, Ireland still appears as one of the richest countries in the OECD, though about 5 per cent behind the US, the Netherlands and Denmark
As big energy producers, the current energy price shock will raise the NNI of Norway and the US relative to Ireland and other OECD economies, changing the rankings. By contrast, if energy prices double over the coming year, we will be €7.5 billion worse off, or 3 per cent of national income.
Within the US, the profits from high oil prices will flow to the big oil companies and their shareholders, while most Americans, just as in Ireland, will suffer because of higher energy costs for consumers.
In a paper by the ESRI’s Dónal O’Shea and myself, we looked at where the growth in the economy has come from in recent years. If the exceptional tax is excluded, between 2013 and 2024 the economy averaged growth of 3.4 per cent a year, (4.1 per cent with the tax revenue included). Even when the exceptional tax revenue is left out, a lot of the growth came from the rapid expansion of foreign multinationals, contributing about a quarter of the growth. There were also successes for domestic business.
The most important contribution to growth between 2013 and 2024 came from professional services. Within this sector, Irish-owned businesses accounted for 18 per cent of the growth in the economy, twice the contribution of professional services multinationals (9 per cent). So Irish businesses in this area made an important contribution to overall growth. With the exception of legal services, much of the output of this sector is exported.
Manufacturing, IT and distribution were the other sectors making important contributions to Ireland’s economic growth, with multinationals playing the biggest role. In manufacturing, nearly all the growth came from the foreign-owned pharmaceutical sector. In IT, while foreign firms dominated, smaller Irish-owned firms also made some contribution to economic growth.
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The success of these big export sectors has relied on a big increase in the supply of people with the relevant skills, generally third-level qualifications.
Today, Ireland’s share of graduates working in manufacturing (57 per cent) is the highest in the EU. Because the domestic supply of highly skilled labour is limited, there has been a significant return of Irish emigrants, along with substantial immigration, filling the gap.
In a recent paper, Alan Ahearne of the University of Galway has highlighted the need to promote growth in domestic firms, to take over some of the running from multinationals. While some Irish businesses are already making a significant contribution to growth, we need more. It will be important to build on the success of small Irish firms in IT and professional services.
While luck has played a role in the Irish success story, good governance has also been vital. Without the long-term investment we have made in education, Ireland would be languishing in the economic rankings. Governments have made bad mistakes but, over time, the more grievous errors were remedied. Today’s problems with inadequate infrastructure are a symptom of economic success. But we need to anticipate and tackle the blockages to the investment our current and growing population need in housing, transport, and healthcare.
In a volatile world we can’t take continued Irish economic success for granted. We need to build resilience and adaptability, and wean ourselves off such heavy dependence on imported fossil fuels. We need to diversify into other markets, given the capricious nature of current US trade policy. While we haven’t yet seen a fall in the exceptional tax revenue from a handful of multinationals, we need to be ready for a day when that may come. This short-term bonanza must be invested wisely, rather than thinking it makes Irish consumers and business uniquely immune to world oil prices.
