Germany's Bundestag finance committee has warned that, beyond tax breaks for multinational concerns, Ireland has no discernible business plan to return the economy to long-term growth.
After a recent visit to Dublin the cross-party committee said there was also a troubling lack of concern about Dublin’s “Schattenbank” or “shadow bank” sector of letterbox finance firms.
The Bundestag committee, headed by Green MP Gerhard Schick, visited Dublin from June 16th to 18th and met Ministers Michael Noonan and Brendan Howlin, officials from the Central Bank, Nama, the International Monetary Fund, economists and Irish banks.
In their seven-page report, the visitors wondered if Ireland’s financial sector reform had missed the wood for the trees. Regulation of the domestic financial sector has been “strengthened massively, both in quality and quantity”, they noted, “but what of the rest of the financial sector?”
The Germans noted “little awareness” in Dublin of the potential risk in hosting hundreds of brass-plate companies with no staff or premises yet €1.7 trillion in assets – almost 11 times the State’s gross national product.
“The only admission that this could be a difficulty for such a small country came from one of the bigger insurance companies,” noted the MPs.
Other people they met assured the visitors the “shadow” financial sector “has no connection with the Irish economy”.
“That did little to soothe us because the risks could yet turn up elsewhere, for instance in Germany,” said the MPs in their report.
Turning to Ireland’s reputation as a tax haven, the German MPs went home feeling there is a will for change in Ireland but that external vigilance will be required on the follow- through.
“The Irish Minister for Finance Michael Noonan described the debate over Ireland as a tax haven as a great image problem that has to be solved to not damage Ireland,” they wrote.
ESRI economist John Fitzgerald reportedly told the visitors how the current tax regime was a loss-leader for Ireland.
Summarising his remarks, they wrote: “As the Irish State pays into the EU budget based on GDP, into which the value created by international concerns flows without generating any tax revenue for the state, Ireland is losing money every year through the current tax regime.”
In the eyes of the German politicians, Ireland’s tax regime “had failed to reach one of the goals of Irish economic promotion, namely to be less dependent on Britain”.
“Instead [Ireland] has moved from de facto full dependency on Britain to a shared dependency on Britain and the US in developing and securing employment.”
When it comes to modifying its tax code, the visitors from Berlin noted a certain reluctance for the Irish to see themselves as masters of their own fiscal fate. “The Irish insist that they have no control when inventive companies put together a Double Irish-Dutch sandwich,” said the German MPs in their report.
The cross-party committee appears to have taken on Irish concerns that long-term austerity-oriented policies would not be conducive to sustainable growth. But just as serious, “given the high unemployment, a high level of loans in default and a tax system that encourages avoidance, the Government and their international advisers have no business model” for the Irish economy.
The loudest critics of Ireland’s tax affairs can be found in Germany’s Social Democratic Party and Greens, but the volume diminishes as you head right on Germany’s political spectrum.