Once upon a time, Danny McCoy was a full-time economist. And a prominent one. He worked with the ESRI, and he worked with the Central Bank. He also worked as chief economist with Ibec before becoming chief executive of the business representative lobby group back in 2009. He has also been a consultant to the European Commission, served as a non-executive director to semi-state companies, and has held lecturing posts at University College London, University of Oxford, Trinity College Dublin, and Dublin City University.

However, as our interview draws to a close, I am more interested in the roles he would like to hold as opposed to the ones he has held.

So, as our podcast came to a close, I ask him what job he would like to occupy in the cabinet – with the exception of minister for finance and minister for public expenditure and reform.

His answer is the state’s newest department: The Department of Further and Higher Education, Research, Innovation and Science.

“I think that actually is the most exciting one because it starts to bring education and enterprise together. And I know it’s one that is felt that hasn’t actually taken off. But I believe it has huge potential and would have been a kind of dream department for many generations,” he says. “And the money is there, particularly the National Training Fund, which has a surplus of €1.5 billion or €2 billion. Get that department humming, right, I think this would be a golden generation moment. It’s a bit like the Oppenheimer film in that you send people off to think a little bit deeper away from their day-to-day issues. I think that could be a game changer.”

McCoy has been in one of the most influential lobbying positions in Ireland for 13 years and is an expert at understanding the intersection of business and politics.

He has been a vocal critic of government in the past: not on this occasion, however, arguing that the current government has sought to do its best in extraordinary situations. Yet he believes it can do better.

“The solutions are in our hands. Some of those things mean leaning against our instincts. We need a bigger state from where we are right now. We need to pay more taxes to have the society we require,” he says.

More taxes and a bigger state might sound odd coming from the business lobby, but McCoy is well prepared to argue his case.

A long way from Kansas

Ireland is something of a paradox. It is a wealthy country with an abundance of financial resources. But it has a chronic infrastructure deficit.

As I put it in my column last weekend: “Essentially, as the Exchequer numbers show, the state has plenty of money coming in. The issue, however, is that it is increasingly clear that there is a capacity deficit in how to spend that money in the most appropriate way.  We have the funds. But we lack the capacity to deploy that money in a way that is effective and appropriate.”

This is something that McCoy has been articulating for some time.

Ibec’s pre-budget submission covers a wide variety of issues – from proposed changes to personal taxation rates to the business case for a national infrastructure fund.

The theme of the document identifies the paradox: “Harnessing Abundance”.

Under normal circumstances, economists would normally be calling for a cautious budget, one that does not stimulate inflation. However, according to McCoy, we do not live in a normal economy and some inflation might not be a bad thing.

“When it comes to budgets in regular economies, you are really talking about where are you at in the economic cycle. So, a budget like now people will be saying, look, there’s inflation, you shouldn’t try to overheat, and that this should be a cautious budget on a cyclically adjusted basis,” he says.

“We’re so far from Kansas. Everybody can see that we don’t have the necessary infrastructure. We can see that in housing, but we can see it in water, we can see it in electricity. But also we don’t have enough people in the public sector. We don’t have enough regulators. We don’t have enough police. We don’t have enough Navy. And so, we really have this capacity problem right now.”

“We actually need effectiveness, we need to get those people in the right positions, and the right kind of infrastructure,” he says.

The capacity of the state

One of the big points of clash between the government and Ibec is how to spend the fruits of Ireland’s budgetary surpluses – €8 billion last year and forecast to top €20 billion by 2026. The Minister for Finance Michael McGrath is proposing a Sovereign Wealth Fund. The NTMA wants debt reduction. Ibec wants the money pushed towards a National Infrastructure Fund.

Others want more caution: the Fiscal Advisory Council warned on Wednesday that the government risked undermining its credibility and “repeating Ireland’s past mistakes” if it pressed ahead with plans to breach spending rules each year until 2026.

McCoy, however, takes a contrary view from the fiscal watchdog, arguing that such caution would lead to longer-term infrastructural and societal problems.

“We know people are going to grow older. We’re going to have pension problems in the future. We need to decarbonize the economy. We need to put that kind of investment in place. But we actually have more immediate stuff – housing, childcare, elder care. And I think that if we don’t put the money in place for that kind of short-term piece, we will struggle,” he says.

“There’s no amount of money that can be put aside that will actually compensate for some of the immediate pressures that are coming both to our economy, but potentially to our society, and maybe even to our democracy.”

If Ireland is to address that infrastructure deficit, McCoy argues that the state needs to offer certainty about future capital investment.

“They [investors] need to know that you won’t turn off the sluice gates in two years’ time. So even when things may take a dip, you don’t stop the infrastructure spend. And so we’re saying to the government to take this largesse, commit it over the next six years, seven years, to a national infrastructure fund that will get spent regardless of the economic cycle. That will allow people to plan to come into Ireland, and those who are in Ireland to plan long-term as well,” he says.

McCoy highlighted how the state stepped up during Covid: “I’ve actually been thinking about that Covid era as well. Have our GPs made so much money during Covid that are now withdrawing from the labour market, because they’re stressed and tired? I’m not saying they shouldn’t have got the money. It’s just interesting to see the consequences of something like Covid where we pump a lot of money into the system, but we actually get withdrawal of labour from various critical phases. How do we actually counteract that?

“The state has to have a greater role in our society, not because I’m calling for a big state. It’s just the fact that it shrunk in front of our eyes over the last decade. We really have had practically a million extra private sector workers and the same amount of public sector workers. And for some commentators, that’s nirvana. But the reality is that when you get rich, you want to have your public services personified. You want to have more teachers, for class ratios to be smaller. You want to have more guards to feel safer. It’s that kind of narrative.

“If you don’t get to that level of adequacy in terms of capacity infrastructure, you’re going to have more difficulty in the future in terms of sustaining the elderly population.”

Wealthy versus money

The economist Colm McCarthy has argued on this site that the state is not rich and should not have a sovereign wealth fund. “Why are we talking about a sovereign wealth fund when we do not have sovereign wealth?” McCarthy asked.

McCoy has a different interpretation of the wealth of the country. “This is the belief that the government is the state. Now we tend to use the words interchangeably. The state is everybody. It’s the government arm, it is the corporate arm, and it’s the households we are the state, whether we show up as a worker, as a voter, or whatever. When you take a look at the group accounts, we don’t have any debt of any significance at all, with a huge net asset position. We’re a wealthy country with a very low debt,” he said.

“The government has €200, €250 odd billion debt, the households have a net clear position of €1.2 trillion. There is no state debt of any significance,” McCoy says.

It begs a question. If we have all this money, why is there a deficit in infrastructure? McCoy’s answer is informative: “I think because we’re nouveau riche. Also, because we don’t psychologically believe that we’ll all be able to stay on this island; there are historical aspects to us not putting money into infrastructure – we don’t believe the population will stay the same size it is today, that it will shrink. We’re surprised it’s actually increased dramatically. And we just don’t have that ambition to actually put money into physical things. We’ve no tradition of this of any extent.”

“It’s like radiation”

Eurogroup President Paschal Donohoe has argued passionately about the potential disconnect that can be created between the world of tangible assets and intangible assets. Capital has strayed from a physical construct to a fluid concept, becoming less visible and more intangible. The idea of capital is now the idea itself; a piece of code or a logo or a patent or a brand.

McCoy understands that disconnect – people cannot see the wealth that is being created. But he believes that this intangible economy has benefits for Ireland.

“The public sector is competing against this massive private sector right now. And it’s losing and has been losing for the last 10 years. So we’ve got this private affluence and public squalor developing. So, we need to call it as it is, Ireland is a resource economy. The tragedy for us is that we’re used to tangible oil, when you can see the oil field. We have something much more valuable, but intangible. It’s like radiation, we just can’t see those corporate balance sheets, but they’re giving us huge amounts of money,” he said.

He accepts that this causes difficulties for politicians – and the public: “People have a relative concept of wealth. In absolute terms, though, in any statistics we look at Ireland the poorest in this country, are as wealthy as average in a lot of the nations around the world. But people actually mark themselves against who they can see in their society. So we’ve got huge inequality here at the moment. The tax system is trying to take care of it.”

However, he has identified a bigger issue that could a further societal disconnect: interest rates.

“This is a bigger driver of a gap between the haves and the have-nots. And so I think the last year with the interest rates rising is something that’s putting that inequality on speed right now,” he said.

“I think its full ramifications haven’t been seen yet. The whole intergenerational issues about who has a house and who doesn’t – it’s not just having a house, it’s the fact that you can actually [make further money] now from your wealth.”

He said that Irish households have somewhere around €75,000, on average, on deposit: “Those deposits were negative or zero, but now suddenly are in the two to three per cent zone. So we’re going to see that inequality, that social split becomes much more significant.”

Danny McCoy on Ireland’s corporate tax dilemma

“Old money, so to speak, driven by tangible assets, like fossil fuels, finding oil, finding natural gas, would run out. We’re actually living, in our world, from corporate tax revenue from intellectual property embedded in corporate balance sheets. And by extension, it is renewable. If you’re a hub for those kinds of companies, there is no particular reason why our wealth source runs out at all, theoretically. So with that in mind, this thing could go on for quite some time. It probably won’t, for mistakes we’ll make in terms of taking it for granted, believing it’s always going to be there.

I actually have a contrarian view to the government’s view about corporate tax. The government says we can only rely on half of this corporate. The rest is windfall. I think we would be much smarter to say the whole lot of it is windfall. Because it’s a profit tax. And anybody in business knows the last thing, the residual, is profit. It’s the last thing you rely upon, stuff happens, revenue falls, costs go up. You can’t predict profitability at all, it’s a residual. So why not work on the basis that all corporate tax revenue is not to be relied upon. And so put all of the corporate tax into your sovereign wealth fund or your national infrastructure fund, and actually confront society.”