18 April 2006

Ireland's dispossessed are real threat to Celtic Tiger

Times Online

European Briefing by Carl Mortished
April 19, 2006

THERE were two Easter parades in Dublin last weekend. The first military parade for more than three decades to mark the 1916 Easter Rising against British rule was well attended (it didn’t rain) and even the doubters proclaimed it tasteful and inclusive, with Britain’s Ambassador on the reviewing stand.

It was a triumph for the Taoiseach Bertie Ahern’s strategy of pulling the ceremonial rug from under Sinn Fein, a party whose recent electoral success in the Irish Republic poses a threat to the political and financial establishment. Mr Ahern wants to steal Sinn Fein’s republican clothes — but even Sinn Fein realises that the real Irish debate has moved on.

The question today is not whether politicians stand metaphorically shoulder to shoulder with the rebels of 1916, but whether they are a part of the new Ireland of tax havens, million-euro homes and rampant consumerism.

Sinn Fein’s Easter march, held a day before the official Sunday parade, was an unprepossessing affair. A few hundred-strong, clad in cheap tracksuits, black berets and dark glasses, they looked embarrassing as they drummed and whistled their way past chic boutiques, bemused tourists and sated shoppers.

The Sinn Fein banners bore the usual 1916 nationalism, but the marchers’ unspoken complaint is that the Celtic Tiger has passed them by. Ireland is rich — unemployment is 4.5 per cent, half the European Union average, and its income per capita is higher than the UK’s and on a par with Sweden’s. Yet the new wealth of this land of tax accountants, offshore assembly plants and financial intermediaries does not trickle down easily to the poor.

More worrying is evidence of Ireland’s dependence on the screwdriver plants of foreign multinationals to create jobs and pay bills. A recent study by economists at Trinity College, Dublin, of the effect of globalisation on the Irish economy revealed that American companies accounted for 77 per cent of the Republic’s total exports, with domestic-owned firms accounting for less than a tenth of the total. Moreover, in 2002 foreign multinational investors paid €2.6 billion in corporation taxes to the Irish Government, 56 per cent of the total paid by companies in that year and almost 10 per cent of all tax collected.

That would hardly matter if one believed that Microsoft, Hewlett-Packard and GlaxoSmithKline were in thrall to the unrivalled skill and productivity of Irish workers or, at the very least, retained an extraordinary affection for Ireland’s climate and cuisine.

The study, by Philip Lane and Frances Ruane, suggests that foreign investors may be drawn for pecuniary reasons. The foreign multinationals earned a yield of 17.5 per cent on their Irish investments in 2003, more than twice the rate of profitability scored by Irish firms investing money overseas. The economists reckon that the enviable rate of return scored on Irish investments is in part due to an overstatement of profits, “the result of the tax-planning activities of multinational corporations, in recognition of Ireland’s status as a low-tax regime”.

To put it bluntly, US corporations are exporting profits to Ireland, transferring by a simple process of book-keeping the locus of added-value in the sale of a computer, reckoning that Ireland’s 12.5 per cent corporation tax rate makes it a more rewarding profit centre than the US or most European countries, including Britain.

This is not sustainable and the Irish Treasury’s golden goose could be strangled more quickly than Common Agricultural Policy subsidies. Even among Irish-American senators in Washington, such a huge subsidy to a foreign government will not stand. What will happen to Dublin’s smart set, the bankers and lawyers and the shoppers at Brown Thomas, an establishment so chic that it makes Selfridges look tawdry? They will survive, but for Mr Ahern, the real worry must be the one in ten who vote Sinn Fein. Their numbers will grow.

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