IT’S a country where record tax revenues are being stashed for future generations, the population has reached the highest level in nearly two centuries and there’s virtually full employment.
More than a decade on from having to rely on a massive bailout following the global financial crisis, Ireland’s economy is thriving, with headlines talking of the enormous tax boom “getting even boomier”.
Last week the Irish government announced plans to set up a sovereign wealth fund – similar to that of Norway – to channel around €65 billion in budget surpluses expected between now and 2025 into tackling long-term pressures such as pensions.
In stark contrast, new figures from the Office of National Statistics have revealed that the UK economy is at the bottom of the G7 growth league – and in the first quarter of this year, it was 0.5% smaller than it was in 2019 pre-Covid.
Greater integration with the EU and reducing reliance on trade with the UK have been central to Ireland’s success – and it has also benefited from Brexit in recent years, economists say.
MP Stewart Hosie, SNP economy spokesperson, said: “Nations like Ireland and Norway, both similar sizes to Scotland, are thriving and showing why independence can be so powerful and game-changing.
“Westminster has carelessly squandered the wealth generated in Scotland over the years in stark contrast to what Norway has done in the future-proofing of its finances and guaranteeing the security of public services by investing its money wisely.
“With the full powers of independence, we can join the list of small, thriving, European nations, and rectify the errors of successive UK governments in not investing Scotland’s money.”
Irish economic analyst Jim Power told the Sunday National that during the global financial crisis, the country had been “disproportionately affected” due to the exposure of the banking sector, but the last decade has been “pretty extraordinary” in terms of economic performance.
“Some of the statistics are phenomenal – tax revenues last year hit €83bn which is by far the highest level of tax revenue we have ever collected in this country,” he said.
“Employment has increased dramatically – at the end of last year we had 2.574 million people in employment which is by far the highest level of employment ever.
“We have an unemployment rate of 3.9% of the labour force which is virtually full employment. It has been a story of really strong growth.”
One key element of this has been the pursuit of a model of economic development based on attracting foreign direct investment over the past 50 years, Power said.
A corporation tax rate of 12.5% – half the UK’s current level – has attracted multinational giants to set up their European headquarters in the country, such as Google, Apple, Facebook, IBM and Pfizer. The concentration of tech firms in one area of Dublin has led to it being nicknamed “Silicon Docks”.
“That policy has been very, very effective and I think being the only English native speaking country with the exception of Malta in the European Union helped,” Power said.
“In a sense, Ireland has actually benefited from Brexit so far.
“Personally, I think Brexit was the barmiest idea that any UK politician has ever come up.”
Power said record tax revenues have also been fuelled by an “incredibly progressive” income tax system in Ireland.
“The more you earn the more you pay and about 83% of income tax is paid by the top 25% of earners here,” he said.
“We have really benefited from that during Covid, those sectors which are highly paid such as the multinational sector, the public sector, financial services, professional services – those sectors the workers continued to earn, they paid most of the tax anyway.
“Whereas those sectors that were most adversely affected by Covid such as hospitality, non-essential retail, personal services, they are relatively low paid workers and they don’t pay much income tax.”
Ireland has also had a focus on migration and has one of the EU’s youngest and fastest-growing populations. Last year it reached 5.1m people, the highest since 1851 when the country was devastated by famine.
However the success is not without its challenges, with Power pointing to a crisis in housing supply now constraining economic growth and significant problems facing the health service, in common with many other countries.
Ireland has also not escaped the impact of the cost of living crisis, with a headline inflation rate of 7.2% in April. The government has provided support for households, such as a package worth €1.2bn announced in February.
With just 10 multinationals paying 57% of total corporation tax, there’s also concern that the boom times may not last forever – which is why the Irish government is now planning to set up the sovereign wealth fund.
“If tech companies were to get into a lot more trouble for example, that could impact us,” Power said. “They are saying about €12bn [of tax revenue] is vulnerable, but the Department of Finance projects it is going to continue to grow over the next few years.
“They are trying now to plan for the eventuality that yes this could go wrong and that’s why they are setting up the sovereign wealth fund.”
Power said while Ireland’s national debt was still high it was cheap debt, so the government had taken the view it will make more sense to save the surplus revenues and earn higher returns.
“In a nutshell, the reason why we have this issue about how to deal with the surplus we are projecting over the next few years is because of economic growth,” he said.
“That is the thing which certainly distinguishes Ireland from the UK at the moment – growth here has far surpassed the UK.
“Economic growth generates tax revenues and in turn those tax revenues fund public services and so on.”
Power said the example of Ireland’s success showed a small country can be successful – but he said there was “no doubt” a central part was the country’s increased integration into the European Union.
“I would have been seriously critical of the EU over the years in various areas, but on balance I think the EU is improving in terms of its flexibility and the regulatory environment and so on,” he said.
“Our trade reliance on the UK has fallen dramatically – this year I would expect Ireland’s exports to the UK will account for not more than 8% of our total exports.
“The EU and the United States will dominate.
“We had a history of being over-reliant on England specifically, when the English economy was very volatile over the years and that created enormous problems for us.
“We’ve reduced our reliance on the UK and become more and more integrated in the EU – and of course the very strong level of multinational investment has been really important.”
