In late 2016, I travelled to a white-picket fences-style housing estate outside New York to meet the economist Ashoka Mody. 

Mody was lecturing at Princeton, the Ivy League university, but I made the journey to talk to him about the Irish economy – how it collapsed into a bailout and how it had recovered on the back of international investment. Few economists knew more about the situation than Mody. 

After all, he had been the IMF’s point man in Ireland, working with the government to oversee years of austerity, cost-cutting, and tax hikes. During his time here, Mody came to understand how Ireland operated, from the political dynamics that framed the socio-political discourse to the nuances that hampered or encouraged decision-making. 

Mody, who served as head of mission for the IMF during the bailout, was no longer monitoring the Irish situation on a day-to-day basis when we met. But he knew more than most about the fundamentals of the economy and the political situation underpinning it. 

Mody has long been on Ireland’s side. He broke ranks with the establishment and was critical of the Troika for the severity of the austerity regime enforced on Ireland. But he has not been afraid to voice his concerns about the vagaries of our fiscal policy also. 

Mody was impressed by the Irish recovery. But he was also aghast about the structures being utilised by hedge fund and property titans to minimise their tax exposures on the vast sums of money they had made through their acquisition of distressed Irish assets. “It is clearly time,” he said, “for Ireland to grow up.”

I could not help but think of that conversation in recent days after the government revealed that corporation tax receipts for November, typically a bumper month, reached €6.3 billion, a 27 per cent or €1.3 billion rise on the same month last year.

The results came after three months of falls in corporation tax, leaving some commentators to suggest that the financial corporation tax gold rush was coming to an end. 

The November corporation tax haul followed falls in receipts of €1 billion in both August and October this year, and a €250 million decline in September.

Yet, in November, the month that matters most, the numbers recovered strongly. But the sheer volume of corporation tax receipts paid in Ireland has not gone unnoticed by the likes of Mody. 

On social media, he declared: “A country I have loved, with astonishing beauty, tradition of beautiful writing and haunting music, deep human capital, insisting on a parasitic tax policy.”

He was responding to a post by the influential economist Gabriel Zucman, who said that Ireland’s corporate income tax revenue per capita was €4,500 and rising. “It pays off to siphon off profits from all over the world!” Zucman said. 

Judging by the huge sums of corporation tax being paid by a small number of companies, it is hard to disagree with Zucman and Mody. 

Yes, we have seen major changes to the global regime for taxing multinationals in recent years but one thing seems consistent: Ireland continues to benefit from its sympathetic relationship with a small number of global titans. 

The double Irish has gone, but it has been replaced with the green jersey tax structure. Plus, legacy issues remain. As Thomas so thoughtfully outlined last week, Dell’s lucrative EMC cloud division is continuing to shift $8.6 billion and counting in profits from sales booked in Cork to a zero-tax Caribbean jurisdiction, using a green Bermuda corporate structure.

We all know it is not sustainable, but the sums of money involved are staggering nonetheless. Without the so-called windfall taxes from multinationals, Ireland’s economy would be in a vastly different place, swinging from happy surpluses to significant deficits. 
And this is what makes the report by the Fiscal Advisory Council last week so important, and so worrying. 

The council focused on the recent budget, stating that the government opted to introduce another large, but “untargeted” budget package of €12 billion. This is in line with other post-Covid budget packages but it is about three times larger than pre-Covid budget packages, which typically amounted to €3 to 4 billion.

The watchdog said that the government employed “fiscal gimmickry to flatter its numbers”, that measures introduced in Budget 2024 lacked transparency, and that it used many techniques to present lower spending than is likely. “Many of the measures labelled as “non-core” or presented as one-off in nature look likely to persist beyond 2024. This includes the Ukrainian supports and Covid spending in health. Some of the cost-of-living measures introduced, such as mortgage interest relief, also look likely to stick around.” 

It added: “A widely anticipated health overrun for 2023 was ignored in the budget figures. And a new category of capital spending labelled ‘windfall capital investment’ is clearly just additional capital spending but was treated as outside of both ‘core’ and ‘non-core’ spending.”

Stephen addressed many of these criticisms in his column last week, particularly around our lack of long-term planning.
He wrote: 

“Where the government falls down badly, and the Council barks loudest, is in the area of planning over the medium term, particularly in getting us ready for the return of the fiscal rules which govern the return paths of debt-to-national-output ratios, fiscal deficits, and other measures, to what the rules deem as balanced.

“For example, the fiscal rules say you can’t run a budget deficit over three per cent of national output – defined as gross domestic product, a nonsense number. As it happens, we are doing so well economically and our GDP number is so large that the fiscal rules would not really bind us overly.”

Stephen, Thomas and I also discussed these topics on a podcast last week when we examined how important corporation tax was to the public finances, and the volatility around those receipts.

“Ireland has become a de facto shareholder of Microsoft, Apple, Pfizer, Oracle, Abbvie, and a few other companies that have actually based intellectual property in Ireland,” was how Thomas summed up the situation here. 

The remarkable turnaround in Ireland’s economy over the past decade has been built on the back of a small cohort of multinationals. However, the better they do, the more pressure will come on Ireland as other countries want their share, a point that Mody made back in 2016 – and again last week. 

*****

JP McDowell is  the managing partner of the Irish operation of law firm Fieldfisher. Last week, he talked to Tom about being a fourth-generation lawyer, working on big corporate deals, and how the firm plans to grow.

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