Ireland needs a better economic strategy than ‘come here to avoid tax’

I was browsing Forbes, the magazine for billionaires, online about a year ago. There was a piece about Ireland's status as a tax haven. Apparently through some technological glitch, you could see that two phrases had been edited out and replaced with euphemisms. Thus "Ireland's tax favoured status" was struck out and replaced with "Ireland's hospitality".

And the statement that “US companies can pretend to be headquartered in Ireland in order to avoid US tax” was doctored to say that US companies can “set up shop in Ireland”.

This kind of thing is amusing, but it's also deadly serious. The Forbes piece is a perfect illustration of how vulnerable the perception of Ireland is to changes of language. Ireland is either a hospitable place where you can set up shop like a friendly village grocer or a cynical tax haven, and increasingly, in the US, it is routinely referred to as the latter.

An official White House report categorised Ireland as a tax haven in 2009 and last week's Senate hearings on Apple's creative accounting embedded the phrase in public discourse. If it takes hold, the consequences could be enormous.

Over the last half century, Ireland has worn more hats than a busy character actor: last bastion of Christian civilisation, emigrant nursery of the world, the green island, tragic trouble spot, richest country in the universe, wild west of European finance, basket case, resilient comeback kid. But behind all of these guises, there has been one constant: this is the place you come if you are a big corporation looking to avoid taxes.

It is not an exaggeration to say that this is the real national identity. What was the one thing the Government of the day insisted it would never, ever bow the knee on to the troika? What was the one shred of national sovereignty to which we would hold?

Not child welfare nor an education system nor a refusal to ruin ourselves by nationalising private banking debts, but the 12.5 per cent corporate tax rate. Pathetic as it may be, very low corporate taxation is the single thing by which we have come to define our existence as an independent republic.

This is a sad state of affairs but it is also a dangerous one. We have put all our eggs in one flimsy basket: the idea that our place in the world is as a conduit for corporate tax avoidance.

Moral questions
Leave aside the moral questions this raises. Just consider how dangerous it is for a country to bet its future on the belief that it can go on forever facilitating global corporations as they seek to deprive their home governments of income.

The danger is threefold. First, a country that has the magical manipulation of big monetary numbers at its heart is a country that struggles to know itself. Not in a mystical, spiritual sense, but in the most literal way. We don’t really know what “the Irish economy” is. Because of all the games of shadows, Irish GDP is largely a fictional construct.

We used to think that GNP was a real measure, but, as John FitzGerald showed in an ESRI paper last week, that is now heavily fictional as well because it is padded by the vast “profits” of brass-plate companies that contribute nothing to the Irish economy.

This jiggery-pokery has a huge effect on basic questions such as whether the economy is growing or shrinking. Thus, GNP officially grew by 1 per cent in 2010 but, if you remove the funny money, it actually fell by 2 per cent. In this way, we can’t grasp our own reality and are left at the mercy of spoofers spinning stories.

Second, making a fetish of facilitating corporate tax avoidance is dangerous because we have become incapable of imagining life without it. We do not ask the basic question: what if it stops? What if we lose this ability to offer tax avoiders sweet deals? This is not a far-fetched idea. Pressure is growing in the US and the EU to make wealthy corporations contribute to the correction of vast fiscal deficits.

Profits on patents
An editorial in last Sunday's New York Times, for example, calls for profits on patents to be taxed in the US – a move that would, at a stroke, end a large part of the tax advantage that Ireland offers companies such as Apple.

Some people in Ireland take comfort from the fact that much of this criticism is hypocritical, which it is. But big hypocrites look for little scapegoats and Ireland, small and now weak, would be easy to make an example of.

Lastly, the refusal to think beyond the lure of tax avoidance is dangerous because it has left us with no national development strategy. “Come here and pay low taxes” is a plan developed in 1958, the year I was born. I’m creaky and middle-aged and so is the strategy. It is long since time to realise that a policy born in the 1950s is not going to carry us through a 21st century crisis.