Ah well, don't say I didn't warn you:
The right wingers insist that the Irish economic 'miracle' was due** to their low corporation tax rate, which is nonsense.
The lefties insist that it was because they joined their beloved Euro (glossing over the massive EU subsidies when it suits them).
As it happens, the lefties are slightly closer to the mark - joining the Euro led to a significant reduction in real interest rates, which inevitably fed through into higher property and land values (as ably explained in a few short sentences here). The Irish had a property bubble even more extreme than in the UK (this despite a massive house building programme), which is now collapsing nicely (exacerbated by the self-same massive house building programme).
So the lefties are half-right for the wrong reason.
For full background, see the article in the not-exactly-rabidly-EUphobic FT, via Christina Speight.
* The headline in the print edition is "Ireland budget deficit triples ..."
Wednesday 3 September 2008
"Slump worsens* Ireland budget deficit"
** Update, OK, yes, their growth may have been partly due to the low corporation tax rate, because it attracted 'overseas investment'. This is far from saying that this strategy would work for the UK.
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13 comments:
Mark, why are the right-wingers wrong?
Lower corporation taxes have been one of the factors that have encouraged companies, such as Dell, to favour Ireland.
Shire Pharmaceuticals are not moving their headquarters because corporation taxes are too low in the UK!
even as we speak the Eurocrats will be figuring a way to parlay this into an Irish 'yes'
Mark, I know you do and defer to your greater knowledge on taxation.
However, there is surely a difference between being headquartered in a country to reduce taxation and choosing a country where you have actual operations..
S, agreed, there is a difference, and yes, a small number of businesses have relocated actual operations to Ireland (call centres, primarily).
But the corporation tax rate is way down the list when deciding where to relocate, see point 2 of my earlier post for a fuller list.
I mean, if 12.5% corp tax is so attractive, how come Tesco haven't shut down all their supermarkets and relocated to Ireland ... oh I see ... proximity to markets!
It doesn't matter exactly WHY so many companies moved the operations to Ireland - the fact is that they did. And the economy boomed as a result.
In the case of the big company I used to work for, there was actually a published "pecking order" of high-tax, mid-tax, and low-tax countries, which explained where new product manufacture would be placed - in the low-tax countries, obviously. iirc they were Ireland, Singapore, and for some reason I forget, Puerto Rico.
You don't need me to tell you which group the UK fell into, and why therefore all manufacturing here was effectively on notice - and in fact has now largely been closed.
Of course Euro subsidies and very low interest rates had an effect too.
The Irish joined the EU back with us in the early 1970s. They made their first corporattion tax cut in 1989.
The economic "miracle" happened in 1990.
When they cut CT further the growth rate increased further - averaging 7% since then. I think the correlation is too close (& to joining the EU to far) to seriously doubt which is the prime cause.
The reason our house prices are falling is because we have a credit crunch. The reason Ireland's are is because they have built so many of them. One is a problem of failure & the other of success. We have got used to house prices ever spiralling because government prevents an increase in supply but that is not an economically healthy situation. The prices of many commodities fall & it is not a bad thing.
Do 'lefties' really claim Ireland's economic miracle, which happened between 1989 and 2002, i.e. mostly before they joined the euro, was to do with the euro?
Also I think this post is essentially saying that Ireland didn't have an economic miracle, which I think is complete nonsense. Real GDP per head was less than half that in the United States in 1989 and only about 10% less by 2003. There are some issues which mean this overstates the catch-up, but it's still real.
M, yes the Lefties do.
And yes, I am saying that there was no "economic miracle", unless you define "catching up from a very low base, fuelled by huge EU subsidies; artificially low interest rates; an unsustainable housing boom; and a bit of tax-havenry" as a miracle?
Anyway, their property bubble is bursting nicely now and the EU tap is being turned off, so history will prove me right.
Could you point us to some articles where these super-intelligent lefties say that?
I'm defining a miracle as going from about the income level of Greece to mroe than Canada in 15 years.
"Super-intelligent lefties"?
I'm struggling there. You may as well ask me to find articles written by left-handed dwarves riding a monocycle while juggling teacups which say that.
Well I'm basing that on their amazing powers of seeing into the future. But ok, any lefties then.
M, the general tenor of the Euro-philes (who are predominatly lefties) is 'we should join the Euro then we'd do as well as Ireland'. I can't find anything specific on the spur of the moment.
Damn those lefties in your head!
Well keep looking in the real world. I can't find anything either, but I do find a lot about EU membership, tax breaks, US investment etc.
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