Domestic economy may get boost from multinationals
Pharmaceuticals and ICT industries could do well out of pandemic
CSO figures for Q1 show, as they often do, a contrast between the multinational-dominated and domestic sectors. But now it is more pronounced than ever.
Can the multinational sector provide some support to activity, employment and tax revenue in the months ahead, as much of the domestic economy struggles back to life ? There is a chance that it can, to some extent at least.
The latest Central Statistics Office national accounts figures for the first quarter show, as they often do, a contrast between the multinational-dominated and domestic sectors, though now it is more pronounced than ever.
The headine figure showing a 4.6 per cent rise in gross domestic product year on year does not tell the story of what is to come, with a massive drop inevitable in the second quarter.The start of the shutdown is reflected in a quarterly fall in the distribution, transport, hotel and restaurant sector of 12.7 per cent and a year-on-year decline of over 9 per cent. In contrast, the multinational-dominated industry sector showed a 22 per cent annual rise in output, driven by sectors such as pharma.
The domestic sector will only get worse in the second quarter. Can industry and digital services hold on? Some export markets will be affected. But much of this sector has remained open through the shutdown. In a comment on the figures, Goodbody economist Dermot O’Leary said that with Ireland being a location for industries such as pharma and ICT which may do well out of the pandemic, the “ two-speed” nature of the economy would continue.
Exchequer figures for the first quarter showed some resilience in income tax, reflecting the continued employment of people in the highly paid multinational sectors. These big companies are big corporation tax contributors too and here revenues to the exchequer surged in the first quarter.
The latest national accounts data shows that the relocation of IP assets to Ireland, one of the likely reasons for this tax surge, continued apace in the first quarter. Rule changes mean that some of the profits from newly relocated IP are subject to tax from day one – previously they could be sheltered for some years by capital allowances. If further buoyancy in corporation tax was to feature this year, it would be very welcome.