Colossal jump in GDP unlikely to be repeated, committee told
Fiscal advisory council members address committee on budgetary oversight
Economist Seamus Coffey says the anomaly in gross domestic product is likely to impact the upcoming budget arithmetic. Photograph: David Sleator
The colossal 26 per cent jump in Irish economic growth last year is unlikely to be repeated, according to economist Seamus Coffey, who described it as a “level shift”.
Nonetheless, he said the anomaly in gross domestic product (GDP), dubbed “leprechaun economics”, would remain an issue and was likely to impact the upcoming budget arithmetic.
The University College Cork lecturer said he did not think it was feasible to adopt a “bespoke measure of Irish national income” on foot of the aberration as it would preclude international comparison.
He suggested this was down to the actions of one company and not a string of tax inversion deals or a shift in aircraft leasing assets as has been claimed.
“When you run the numbers it’s hard not to conclude that this is Apple. It’s Apple not being able to pay no tax anymore, redomicilling its IP or its non-domiciled headquarters here,” Mr Donnelly said.
Mr Coffey said, however, the council did not have the numbers to ascertain whether this was true.
“There’s no doubt, however, that the scale of the change in capital stock is huge and there are not many companies – even if you added them together – that could give you that level of growth,” he said.
“We simply don’t have €300 billion of factories, roads or houses so it had to be a huge increase in intangible assets.”
In its recent pre-budget submission, the council estimated the actual level of economic growth, based on several domestic indicators, was probably closer to 5 per cent last year.
It also suggested the State’s debt burden was better illustrated in the ratio of debt to gross Government revenue, which was 97 per cent rather than the debt- to-GDP ratio, which fell to 78 per cent.
Mr Coffey said the council’s aim was to find measures that captured the improvement in these indicators.
If the bulk of multinational profits go to foreign shareholders, “they’re not improving the Government’s ability to service its debt and that’s the key message we’re trying to get across”, he said.
Mr Donnelly queried Ifac chairman John McHale on why the council did not have view on whether the tax base should be eroded in the upcoming budget with the Government planning to reduce the universal social charge (USC) among other measures.
Prof McHale said the council’s remit only extended to assessing the Government’s fiscal stance and it would not be appropriate to start making recommendations on the composition of the budget as that would open it up to accusations of bias.
Mr Coffey said the council was not unduly worried by the underperformance in income tax and VAT, which are both running behind official targets.
He said the receipts from the four major tax heads were well up and there were issues around timing and the stockpiling of pre-plain packaged cigarettes, which explained the numbers.
However, Mr Coffey cautioned against basing budget plans around the current spike in corporation tax, which was exhibiting a high degree of volatility.