Who said the euro zone economy is not growing fast enough? Ireland in 2015 recorded a GDP growth of 26.3 percent. No Western country has achieved such growth in this century. The economy of a small, oil-rich country – Azerbaijan increased in 2006 by 34.5 percent. due to rising oil prices. Unfortunately, in the case of Ireland, the frantic pace of growth is not quite as tangible basis. Maybe because it was the effect of the so-called. tax inversion, a phenomenon in which companies from abroad move their headquarters because of low taxes. This shows that GDP growth may not be a tool for the assessment of certain economic policies of the government.
“When the statistics cease to function” – commented the Nobel laureate in economics from Paul Krugman, when the Irish statistics office announced data on GDP growth. I actually – Ireland jump in the rankings of GDP per capita – indicator, which examines the relative wealth of nations – but few people in Ireland in general will feel that over the last year have become richer.
This high GDP growth, measured in accordance with the European standard, however, will have real consequences – said Irish Finance Minister Michael Noonan. According to him, thanks to the economic growth will drop the ratio of debt to GDP. Currently, Irish debt is 93.8 percent. GDP. Soon it may already be “only” 79 percent. GDP. This means that Ireland will be able to borrow more and on better terms.
The Irish Finance Minister, there is no doubt as to such high economic growth. “I think that the data provided by our statistical office show that the Irish economy continues to grow. People live better, there are more jobs than at any time since the outbreak of the financial crisis, “- he said in a statement.
But actually it is not so. Bloomberg wrote that the so-called. inversions, or relocation of headquarters of US companies to Ireland for tax reasons, could cause an artificial inflation of GDP growth since the profits of foreign companies are included in Irish GDP.
However, there is an alternative explanation, which also may make sense. Well, at the end of 2014 years the Irish government has decided to close the tax gap, which has long been used by US technology companies and pharmaceutical. The practice of exploiting this vulnerability is called “Double Irish”. This consisted in the fact that the company assumed its subsidiary in Ireland, and the second company in tax havens. Take the example of BVI, a company that has patents on the technology, and more specifically on some prescription drugs. The Irish company subsidiary collected the profits of international business and transmit them to the BVI units in tax havens as a license fee for the use of intellectual property (the company deployed in tax havens were the owners of patents). A small part of the profits taxed in Ireland at a very low rate of 12.5 percent. (The least in the European Union), and some companies, such as Apple, have negotiated with Ireland even lower rates. This matter is now the subject of investigation in the EU.
When in 2015 the practice of “ Double Irish ” became illegal, the company moved its entities with rights to patents from tax havens to Ireland. Low taxation in Ireland makes it the best location for the company if it wants to make its headquarters was located in one of the developed countries.
The Irish economist Seamus Coffey on his blog explains how the movements of international companies contributed to the GDP of Ireland
“One explanation is that a number of international companies moved its intangible assets to Ireland. This in turn leads to an increase in the value added in Ireland alone – since the company no longer needs to pay patent fees to entities located in tax havens. ”
Coffey goes on to explain that, for example. The industrial sector recorded in 2015 of 97.8 percent. increase in added value. This meant that in 2015 this value was higher by 50 billion than in 2014. Coffey suggested that the increase in the most likely comes from the pharmaceutical companies.
The Irish government, however, did not record a significant increase in the value of collected value added tax (VAT). Coffey explained that a large part of the increase – more than 30 billion euros – was used for the depreciation of fixed assets, probably for the same patents that were transferred to Ireland.
The same thing takes place in another area that is increasingly using Ireland as a tax base, namely in the field of aircraft leasing. Company lease out their planes in Ireland for tax reasons, but profits from the lease are used to cover depreciation costs. Seamus Coffey notes:
“We are therefore dealing with large increases in added value, but it does not translate into an increase in wages or profits. Salaries in non-agricultural sectors increased from 67.7 billion euros in 2014 to 71.5 billion in 2015. “
In other words, the Irish are not much richer and the Irish government is not flooded with new tax revenues. Of course, it improves the ability of Ireland to take out new loans, which enjoys the Irish finance minister. It is worth noting that Michael Noonan took a tax dealings “Double Irish” largely under pressure from the European Union and the United States. It’s still a big relief for Dublin that international companies do not run away from this country.
Ireland is a relatively small economy, therefore a single tax change could make this small country become a growth leader “in one day.” It does not make sense to the last high economic growth present as a result of austerity and economic export-oriented, because the macroeconomic data, including those dot. Export can be easily distorted by large corporations. Of course, the data on. Growth also contains the real growth – probably higher than the increase in the euro zone – but it will not be easy to calculate without precise knowledge of the phenomenon of transfer of patents.
The case of Irish economic growth is a warning to those economists who would like to see in the rate of GDP assessment tool “success” policy of the government concerned. Even in the case of larger countries, the methods used to estimate the size of the economy are imperfect. Never because GDP does not take into account increases and decreases in the actual wealth of a nation or the “real” economy. Many economies in the world is undervalued due to the fact that work there big gray area. Others turn – such as Irish in 2015 – may be unintentionally inflated. The numbers lie, even if it were calculated by the best intentions. Indicators such as the feeling of happiness may be better tools for assessing the effects of economic policies than traditional indicators of GDP.
& gt; & gt; & gt; Read also: Economists speechless. Last year, Ireland’s GDP soared by 26 percent.
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