How to cut taxes and get rich
If you want economic success, says Sam Smyth, the Irish style of fiscal conservatism is a good model to follow Dublin Reticence is no more a national characteristic of the Irish political class than coyness is a natural attribute of British shadow chancellors. But Bertie Ahern has resisted boasting about the phenomenal success of the Irish economy while Oliver Letwin uses it to bait Gordon Brown. Like the Scots, the Irish are never happier than when beating England at anything, but when the Republic of Ireland's economy is shown to be outperforming the British, the most puzzling question is: why hasn't the Taoiseach (Prime Minister) called for a national day of rejoicing?
Yes, Bertie Ahern is a modest man with an occasional extravagance that runs to three pints of Bass, but he is a two-term Taoiseach — leading a coalition of Fianna Fail and the Progressive Democrats — seeking a third in two years' time, so why is he so bashful about a truly remarkable achievement? A more assertive prime minister would remind a domestic audience that back in 1987 the Economist described Ireland as the 'Poorest of the Rich' and illustrated the report with an image of a beggar on the street. In 1995, when he was leader of the opposition, Ireland was struggling to make 19th place on an OECD table that ranked it fourth just four months ago.
Indeed, last May the OECD put Ireland ahead of Britain, in terms of Gross Domestic Product (GDP) in a table where the measure of income per head is adjusted for price disparity in the different countries to reflect what your income can buy. Another list ranked Ireland second to Luxembourg, and Britain seventh, in terms of wage earners' spending power in EU member countries. A recent UN table ranked the Republic of Ireland seventh in the world for inward investment after assets of $25 billion were delivered to Dublin last year.
Maybe Bertie Ahern is as ill at ease as many of his fellow countrymen at being constantly held up as an example to the latest EU recruits of how they too can prosper if they become exemplary Europeans. Ireland is also the fastest growing centre for fund management handling — 400 billion euros this year — and as visitors to Dublin's Temple Bar can testify, our teenage binge drinkers can go head to head with the best, even the Brits, on a 500-yard competitive pub crawl.
Still, it would be churlish for Mr Ahern not to give credit where it is due and Charlie McCreevy, who has served with his leader in cabinet for seven years, is the most successful, innovative and radical minister for finance in the history of the state. And if any individual can claim to he the progenitor of the mythical Celtic tiger, it is Mr McCreevy, who went against the advice of his departmental mandarins and proved that cutting corporation tax would actually increase the yield for the exchequer.
The Republic of Ireland has a corporation tax rate of 12.5 per cent; it is 30 per cent in the UK. The Industrial Development Authority (IDA). Ireland's job-creating agency, says that the tax regime is not the most important factor in persuading multinational companies to invest — a flexible, young, well-educated, English-speaking workforce is the number one lure — but a low corporation tax comes a close second. The IDA says that a stable political environment, where the mainstream Fine Gael and Labour parties support the current coalition government's corporation tax policy, is the third reason they believe Ireland has attracted so many foreign companies. The Green party, Sinn Fein, and other adolescent and ancient socialists have suggested increasing corporation tax, but few take them seriously and they are unlikely in the foreseeable future to be in a position to influence taxation policy.
Some 20 per cent of the multinational companies seeking to set up shop in Europe come to Ireland. Software, pharmaceutical companies and manufacturers of health care products, the service industries that now provide many more high-paying jobs than manufacturing, have been streaming into Ireland over the past 15 years. The IDA also says it has been streamlining its approach to cut out the bureaucracy that has hampered the UK and other older, larger countries in attracting the multinationals.
IBM, Dell, Hewlett Packard, and Intel were established in Ireland before the dotcom boom and they stayed through the bust. Apple opened its first assembly plant in 1980 but moved that process to Singapore, Malaysia and China, and upgraded its Irish operation. Intel, the biggest manufacturer of microchips in the world, has invested $7 billion in Ireland over the past 14 years. By the end of the 1980s, many of the companies specialising in information technology had set up shop and expanded their Irish operations through the phenomenal expansion of the mid-1990s. Key US-owned multinationals use Ireland as their European base to service their customers around the Continent. Pfizer was already manufacturing pharmaceutical products in Cork before it developed Viagra, and three weeks ago it announced a 240 million euro investment for a factory in Dun Laoghaire, near Dublin.
Prudence was never a quality attributed to the national stereotype, but in 2003 investment as a proportion of the Irish Gross National Product (GNP) — a more accurate indicator of actual income than GDP because of the unusually high number of foreign investors who export their profits — was 28 per cent compared with 16 per cent in the UK and 19 per cent for the EU. Irish people find it difficult to comprehend their recent good fortune. Analysing a report by the Economic and Social Research Institute last week, Brendan Keenan, the doyen of Irish economic journalists, asked rhetorically 'where did it all go right?' The volume of output is expected to increase by 10 per cent over 2004 and 2005 and this comes on top of a 50 per cent increase during the boom of the 1990s. The forecast for growth this year is 5 per cent, more than anyone would have predicted even six months ago, and the government will be better off by £1.5 billion —a significant sum in a country with a population of four million.
Emigration to the UK and US was once the social safety valve that kept Ireland governable. Now it is a destination of choice for immigrants from the Baltic and other east and central European states which became members of the EU at the conclusion of Ireland's presidency last June. And this is the forecast for the next two years: virtually full employment, low inflation, growth inching back to Celtic tiger rates over the next 18 months, and more foreign investment won than either Germany or the UK.
Indeed, where did it all go right? But Bertie Ahern's appointment of his minister for finance. Charlie McCreevy, as an EU commissioner could be the beginning of it all going wrong.
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