Bizarre economic statistics

Charles Babbage

The economy grew by an enormous 26% last year, according to the latest figures from the Central Statistics Office.
The figures are the strongest performance by Ireland in recent decades and compare to an estimate of GDP growth of 7.8% for 2015.
However, much of the rise is as a result of aircraft purchases, corporate restructuring and companies re-locating assets to Ireland.
These changes have not resulted in a significant increase in employment.
The country's Gross Domestic Product expanded by 26.3% in 2015 compared to 2014, while Gross National Product was up 18.7%.

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The question is can some sort of reasonable measure be identified for the Irish economy for planning purposes? It used to be thought that GNP was fairly suitable, but on these numbers it seems not. With "normal" statistics so far off then it means the discussion on economic options becomes difficult as people just quote the stat that suits.

Amirani

It's not just Ireland, it's any relatively small economy in a globalised world.

GE Capital Aviation Services causes a huge bump in Irish GDP/GNP but makes no discernable difference to the US equivalents.

If you're looking for more relevant statistics then you need to look at employment growth, changes in tax revenues etc. GDP is a very crude measure that doesn't really show anything outside of broad comparisons.

Amirani

Net National Income at Market Prices shows 6.5% growth for 2015.

andrew

It's almost hilariously large. I thought the Irish times article about it today was initially a WWN article. Students looking at national income data for the next few decades are universally going to have a "what the heck...?!" moment.

Good explanation of it here and here btw.

sondagefaux

There's a good analysis in the Irish Times of why multi-national corporations' activity has distorted the figures.

There is one piece of very good news from the article:

[font=Georgia, "Times New Roman", Times, serif]A definite positive stemming from the 26 per cent explosion in GDP is the Government s debt to GDP ratio, which is now below 80 per cent. It had been up at 123 per cent at the height of the financial crisis.

[/font]
[font=Georgia, "Times New Roman", Times, serif]The new metric has extremely positive implications for Government s sovereign debt rating and it compliance with EU fiscal rules.[/font]
[font=Georgia, "Times New Roman", Times, serif]As Investec analyst Philip O Sullivan noted the one big winner from these revisions is the Irish sovereign.[/font]
[font=Georgia, "Times New Roman", Times, serif]Thanks to the stroke of the statisticians pen any diminution of the fiscal space available to the Minister for Finance Michael Noonan post-Brexit has likely been reversed, he said.[/font]

[font=Georgia, "Times New Roman", Times, serif]The EU rules are that Ireland should maintain a current deficit of no more than 3% of GDP and has 20 years from 2018 to move to debt-to-GDP ratio of 60%, although both these targets can be modified or abandoned temporarily if the Irish economy doesn't do as well as expected or if it enters recession (shrinks).[/font]
[font=Georgia, "Times New Roman", Times, serif][font=Verdana, Arial, Helvetica, sans-serif]The deficit is already under 3% and the government's target is to close it completely by 2018. The dramatic reduction in the debt-to-GDP ratio means that Ireland could adopt a more expansive fiscal policy over the medium-term (cut taxes, increase public spending - as has been done for a couple of years already) and still meet the targets.[/font][/font]
[font=Georgia, "Times New Roman", Times, serif][font=Verdana, Arial, Helvetica, sans-serif]Despite this, the one-off and artificial nature of the increase in GDP and GNP shouldn't be seen as an opportunity to go back to the spendthrift days of the early 2000s. The best approach would be to increase capital spending next year to offset any contraction that might happen because of Brexit, while keeping to the modest tax reductions and current spending increases that were planned already. [/font][/font]

The figure isn't a big deal in its own right. Nobody ever claimed that the GDP/GNP figures were an accurate reflection of economic welfare.

That's where most of the media hysteria is misinformed.

I'd be more interested to know what price the spike in the GNI figure is going to cost the Irish taxpayer in terms of an EU budget contribution.

We already pay about €2 billion per annum to the EU. If there's a substantial, but practically meaningless, increase in GNI, I think we have a right to be quite irritated by having to pay heavily for an accounting trick.

Unfortunately, nobody seems to be asking that question of Ministers today.

Bit cynical

The Fiscal Compact borrowing rules are based on figures such as this. Whatever party is in power will borrow up to the limit set out by the Fiscal Compact. The rules themselves will be used as full justification for borrowing decisions and the decisions themselves will not be questioned by opposition parties.

This will not help our pleading for special circumstances in the Brexit negotiations.

andrew

Another good article. Interesting suggestions: a separate parallel set of accounts for ireland; also, different treatment of aircraft leasing and other similar firms, to treat them more like the financial firms they actually are.

CIARAN_BOYLE

Has anyone considered how much of a tax benefit this accounting trick will bring the exchequer? Or will it bring any?

A Tyrant Named Miltiades!

A Tyrant Named Miltiades! wrote: »

I'd be more interested to know what price the spike in the GNI figure is going to cost the Irish taxpayer in terms of an EU budget contribution.

We already pay about €2 billion per annum to the EU. If there's a substantial, but practically meaningless, increase in GNI, I think we have a right to be quite irritated by having to pay heavily for an accounting trick.

Unfortunately, nobody seems to be asking that question of Ministers today.

Some answers to this question today.

The Minister for Finance has confirmed that Ireland's contribution to the EU budget will increase BY approximately 280 million euro.

It's a fcuking joke.

http://www.rte.ie/news/business/2016/0720/803620-economy-and-eu/

Ireland's contribution to the European Union's Budget will increase by €280m as a result of the controversial re-calculation of the country's economic statistics, the Minister for Finance Michael Noonan has confirmed.

Not offset at all by the increased Corporation Tax revenue?



If so, then we can hardly complain.

Having an inflated GDP figure offers us both benefits and costs.

Benefit
- Additional Tax Revenue.
- 'Fiscal Space' given the Growth & Stability pact is based on GDP, Debt-to-GDP, Deficits are GDP based. We can take advantage of the stupidly low bond rates and build some infrastructure with the 'free money' available.

Costs
- Increased contributions to the EU budget. But by a smaller figure than we A) receive directly in taxation and actually benefit from.

If the EU agrees to use GDP (a well defined metric) then we must indeed use it. That means that some portion (though importantly not all!) of the marginal gains that we earn through GDP boosts must be used to contribute.

Imagine someone complaining because they earned €10k more (relative to previous year) last year but had to give €1k more (again relative) over in Taxes. That is what we are seeing here.

Deleted User

Deleted User wrote: »

Not offset at all by the increased Corporation Tax revenue?

Of course it will be offset to some extent by increased corporation tax revenue.

But tax inversions are not lucrative from the Exchequer's point of view. Here is an illustration of that.

Aercap moved 35 billion euro of productive assets onto its Irish balance sheet in 2015, inflating our GNP by that amount, yet on its bottom line, it made a net loss in Ireland, due to an inversion deal. We know that very large inversion deals inflate our GNP (because they are redomiciled, so appear in GNP data for the purposes of EU budgets) without the full tax benefits.

The Financial Times put it best,

The Irish have written some notable works of fiction — James Joyce and Flann O’Brien produced imperishable classics. Now there is a new addition to the national oeuvre — the official narrative of the country’s economy.

GDP/GNP is a useful indicators in conjunction with other economic data, but they are not a reliable indicator of the economic welfare of a country, given the tendency for aggressive tax planning by MNCs. It's something the EU might want to reassess, since such practices don't particularly benefit any of the Member States.

A Tyrant Named Miltiades!

A Tyrant Named Miltiades! wrote: »

Of course it will be offset to some extent by increased corporation tax revenue.

But tax inversions are not lucrative from the Exchequer's point of view. Here is an illustration of that.

Aercap moved 35 billion euro of productive assets onto its Irish balance sheet in 2015, inflating our GNP by that amount, yet on its bottom line, it made a net loss in Ireland, due to an inversion deal. We know that very large inversion deals inflate our GNP (because they are redomiciled, so appear in GNP data for the purposes of EU budgets) without the full tax benefits.

The Financial Times put it best,

The Irish have written some notable works of fiction — James Joyce and Flann O’Brien produced imperishable classics. Now there is a new addition to the national oeuvre — the official narrative of the country’s economy.

GDP/GNP is a useful indicators in conjunction with other economic data, but they are not a reliable indicator of the economic welfare of a country, given the tendency for aggressive tax planning by MNCs. It's something the EU might want to reassess, since such practices don't particularly benefit any of the Member States.

Yup agree with all of that {apart from the FT criticizing Ireland and the CSO from using the rules on GDP to calculate the GDP of the country. The CSO didn't write the rules on calculation.... }.

But until the EU reassess, it is not up to us to do anything but follow those rules to the letter that we are asked to. GDP is a well defined metric. If it is no longer fit for the purpose that it is used for (which it probably isn't) then benchmarking against other metrics is probably a good idea. However we don't set those rules.

Look at the marginal increase in the figure we're being asked to pay. Look at the marginal figure in the increased revenues. That tax inversions are not always lucrative does not mean that their aggregate effect is not.

Complaining about giving away a percentage of something that we got by doing nothing other than being 'creative' in our taxation policies is crazy imo.

Deleted User

Deleted User wrote: »

Complaining about giving away a percentage of something that we got by doing nothing other than being 'creative' in our taxation policies is crazy imo.

First of all, if our tax policy is causing us to pay a higher relative contribution (contribution per 1 euro corporation tax) to the EU budget than comparable economies, that's something that should be examined.

I don't have those data, but it's something that I'd be suspicious of, in light of the amount of large inversions in such a small country.

Neither do I have the time or inclination to go through the accounts of every example, but I doubt Aer Cap is an isolated incident. Aggressive tax planning implies implies minimising even the 12.5% corporation tax, e.g. by dressing-up profits from the Irish subsidiary to a first-tier 'Irish' subsidiary which is actually controlled in Bermuda or some other tax haven.

The really aggressive guys who are moving around tens of billions of euros in one fell swoop, are far too intelligent to pay even 12.5% tax.

i think you are really overestimating the benefits of this, and I suspect the very fact that this discussion involves the dreaded initials 'EU' is automatically going to put people on the defensive, unnecessarily.

This isn't about the EU per se. It's about Ireland's unrealistic GNP figures making our EU contribution disproportionately large.

This is a problem which exists right across Europe, to some extent, but is probably felt harder in a low-tax, small liberal economy like ireland's, where aggressive tax planning can play havoc with our GNP and GDP figures.

A Tyrant Named Miltiades!

A Tyrant Named Miltiades! wrote: »

First of all, if our tax policy is causing us to pay a higher relative contribution (contribution per 1 euro corporation tax) to the EU budget than comparable economies, that's something that should be examined.

But we earned more money than them because of it...

Our net position due to the policy is positive.

A Tyrant Named Miltiades! wrote: »

I don't have those data, but it's something that I'd be suspicious of, in light of the amount of large inversions in such a small country.

Neither do I have the time or inclination to go through the accounts of every example, but I doubt Aer Cap is an isolated incident. Aggressive tax planning implies implies minimising even the 12.5% corporation tax, e.g. by dressing-up profits from the Irish subsidiary to a first-tier 'Irish' subsidiary which is actually controlled in Bermuda or some other tax haven.

Ireland's effective tax rate is extremely close to the headline rate.

A Tyrant Named Miltiades! wrote: »

The really aggressive guys who are moving around tens of billions of euros in one fell swoop, are far too intelligent to pay even 12.5% tax.

Ireland's effective rate ~= headline rate.
http://www.budget.gov.ie/Budgets/2015/Documents/Technical_Paper_Effective_Rates_Corporation_Tax_Ireland.pdf

A Tyrant Named Miltiades! wrote: »

This isn't about the EU per se. It's about Ireland's unrealistic GNP figures making our EU contribution disproportionately large.

It's not an unrealistic figure. It is the figure for GNP.

How do you calculate GNP? Tell me how they've calculated it wrong? What should the GNP figure be?

I wholly subscribe to the (age-old) idea that GNP is not a good indicator of our economy's performance and changes, but that is not a problem of GNP per se. It is a problem of how people have interpreted GNP to look for something that it cannot offer us.

If we require a new metric (which I think we do) to give us the information that some believed GNP did, then let us develop and explain it.

It won't be GNP of course. Perhaps AIC is what you're after?
http://ec.europa.eu/eurostat/statistics-explained/images/3/31/Volume_indices_of_GDP_and_AIC_per_capita%2C_2015_%28EU-28%3D100%29vJune.png

http://www.finfacts.ie/Irish_finance_news/articleDetail.php?Irish-standard-of-living-below-EU28-Euro-Area-and-Italian-averages-470#

A Tyrant Named Miltiades! wrote: »

This is a problem which exists right across Europe, to some extent, but is probably felt harder in a low-tax, small liberal economy like ireland's, where aggressive tax planning can play havoc with our GNP and GDP figures.

'Felt harder'? Do you mean that the disconnect between the figures and the indications for the broader economy is larger? That the usage of GDP/GNP as indicators is less reliable?

We knew that years ago. Nothing has changed recently, only more evidence was added to the unsuitability of the metrics.

The impacts are 'noisy'.

Deleted User

Deleted User wrote: »

But we earned more money than them because of it...

You cannot attribute the totality of Ireland's corporation tax take to our tax policy. If Ireland had a 30% corporation tax headline rate (which nobody is advocating) you would still have foreign and domestic firms operating here and paying tax here, to some extent. There are plenty of reasons for firms to establish here, tax is one of them; it isn't the only reason.

But wait, it gets worse.

Our net position due to the policy is positive.

Oh wonderful! So as long as EU contribution < Corporate tax collection, stop complaining?

Does this really need elaboration? I think you just need to think about what you just wrote.

For clarity, I am complaining about how the volatile GNP data, caused by corporate inversions, causes a disproportionate transactional spillover for our EU budget. The fact that we bring in more than we pay for our EU budget is mind-bogglingly irrelevant to that.

Ireland's effective tax rate is extremely close to the headline rate.

Yes, I've read that paper too. It's an average figure, you need to dig deeper, considering what we know about aggressive tax planning and inversions.

To illustrate:

100 Irish firms earn 250,000 each in profits, they pay the headline tax of 12.5%
1 redomiciled corporation pays 2.5% tax on 10 million euro , due to aggressive tax planning.

[LATEX]Corporation\,\,Tax[/LATEX]

[LATEX][[0.125 \times 250,000]100]+[0.025 \times 10,000,000] = 3,375,000[/LATEX]

[LATEX]Total\,\,Profits[/LATEX]

[LATEX][100 \times 250,000] + 10,000,000 =35,000,000[/LATEX]

[LATEX]Effective\,\,Corporate\,\,Tax\,\,Rate[/LATEX]

[LATEX]\frac{3,375,000 \times 100}{35,000,000} = 9.6\%[/LATEX]

Of course, it gets even easier to manipulate the figures if you simply take a non-weighted average of the percentages companies pay individually.

[LATEX]\frac{1252.5}{101} = 12.4\%[/LATEX]

There's no difference between what you're saying here, and some greasy politician quoting the above hypothetical figures and saying "well it's been shown that our effective tax rate is around 10% to 12.5%

It is meaningless, it doesn't get to the point under discussion, since the point under discussion involves colossal amounts of assets and revenue, in a fairly small number of firms, with complex accounting techniques which allows them to avoid taxation, perfectly legally and legitimately.

The fact that the corporate tax rate is close to the average effective tax rate, using the DoF's methodology only demonstrates that the vast majority of Irish firms are not using Irish domiciles which are not tax-resident. This is hardly a big surprise.

I am simply suggesting that since we allow this to happen, and I'm not necessarily complaining, we should concurrently allow our governments to avail of a similar get-out when it comes to EU budgetary arrangements, which are a relatively crude exercise in comparison with tax planning methodologies employed in multi-billion euro MNCs and their subsidiaries.

How do you calculate GNP? Tell me how they've calculated it wrong? What should the GNP figure be?

Oh for Heaven's sake Emmett. It's unrealistic in the sense that it doesn't reflect economic welfare of the State, which is what I said.

Outside of Eurostat, there is a fair amount of latitude in how GDP and GNP are calculated, worldwide. I am suggesting that the Eurostat accounting methods are amended to better-reflect domestic economic activities, or else the mechanism for calculating EU budget contributions might be amended.

Deleted User

Solid block of text there.

This applies to it all of course still. In fact you even rewrite both posts into your own above.

Deleted User wrote:

I wholly subscribe to the (age-old) idea that GNP is not a good indicator of our economy's performance and changes, but that is not a problem of GNP per se. It is a problem of how people have interpreted GNP to look for something that it cannot offer us.

If we require a new metric (which I think we do) to give us the information that some believed GNP did, then let us develop and explain it.

April Gifted Bassoon wrote:

But until the EU reassess, it is not up to us to do anything but follow those rules to the letter that we are asked to. GDP is a well defined metric. If it is no longer fit for the purpose that it is used for (which it probably isn't) then benchmarking against other metrics is probably a good idea. However we don't set those rules.

You posted a quote from the FT, this one

The Irish have written some notable works of fiction — James Joyce and Flann O’Brien produced imperishable classics. Now there is a new addition to the national oeuvre — the official narrative of the country’s economy.

And remarked that they had 'put it best'.

What exactly is fictitious about the CSO's calculation of GDP or GNP?

The only 'fiction' (which of course anyone with a Leaving Certificate level of Economics has known for decades[/y]!) is that GDP/GNP were good indicators of the economic accounts of the state. That the EU chooses to base targets on GDP is for the EU to change.

The CSO calculated Ireland's GDP and GNP as rules and best practice advised them to.

Regarding you suggesting that I'm attributing all tax revenues to the policies, I can't quite recall making that assertion. Could you find it for me and then perhaps I'll attempt to defend it? (more likely I'd retract it, but of course I never suggested it so I doubt I'll have to)

Deleted User

Deleted User wrote: »

What exactly is fictitious about the CSO's calculation of GDP or GNP?

Emmett will you please not lean so heavily on the pedantry. I didn't describe it as fictitious, I thought the FT illustrated with some brevity and (mild) wit that it does not reflect reality.

Your modus operandi appears to be a pedantic insistence that other posters justify your interpretation of their words, or an insistence that we reply to a point you thought you made well, but which is in fact irrelevant, e.g. GDP/GNP are not strictly contiguous with economic welfare... I said that in my first post, before you even appeared. If someone doesn't reply to a point, take it as not contentious, or irrelevant.

Of course, when you are presented with a point, and ignore it (such as the method for devising the aggregate effective tax rate) , it's brushed aside by requoting your own posts. Irrelevant.

But the best bit

That the EU chooses to base targets on GDP is for the EU to change.

It's on GNP and of course it bloody is. That's the whole point I'm making. Perhaps we should change it. What an epiphany like.

A Tyrant Named Miltiades!

A Tyrant Named Miltiades! wrote: »

Emmett will you please not lean so heavily on the pedantry. I didn't describe it as fictitious, I thought the FT illustrated with some brevity and (mild) wit that it does not reflect reality.

This is Politics forum proper. Not the Café. I expect that what people actually write is what they mean. I think that's a fair assumption.

You wrote "they put it best". I took issue with that. Hardly pedantry to ask you to stand over such a claim?

A Tyrant Named Miltiades! wrote: »

Your modus operandi appears to be a pedantic insistence that other posters justify your interpretation of their words, or an insistence that we reply to a point you thought you made well, but which is in fact irrelevant, e.g. GDP/GNP are not strictly contiguous with economic welfare... I said that in my first post, before you even appeared. If someone doesn't reply to a point, take it as not contentious, or irrelevant.

Well no. Not at all. I took issue with you suggesting that the FT's nonsensical quote 'put it best'.

I then asked you about that, and we seem to have diverted off course before returning to broadly accepting the exact same things (in so far as we both managed to post them).

A Tyrant Named Miltiades! wrote: »

Of course, when you are presented with a point, and ignore it (such as the method for devising the aggregate effective tax rate) , it's brushed aside by requoting your own posts. Irrelevant.

Well no. Actually I didn't bother replying to the wall of text as soon as I spotted that you were asking me to defend statements I never made (line 1).

Deleted User wrote: »

Regarding you suggesting that I'm attributing all tax revenues to the policies, I can't quite recall making that assertion. Could you find it for me and then perhaps I'll attempt to defend it? (more likely I'd retract it, but of course I never suggested it so I doubt I'll have to)

I thought that by not quoting the post you might notice that I wasn't addressing any of the points.

A Tyrant Named Miltiades! wrote: »

But the best bit
It's on GNP and of course it bloody is. That's the whole point I'm making. Perhaps we should change it. What an epiphany like.

You might want to tell the EU that....

MAKING THE BEST USE OF THE FLEXIBILITY
WITHIN THE EXISTING RULES OF THE STABILITY AND GROWTH PACT

Here's a quick Fact Sheet which might be helpful

Excellent explanation of the outlandish change here

http://www.irisheconomy.ie/index.php/2016/07/27/that-26-growth-rate-two-weeks-on/

IP, and not Tax Inversions seems to be the root of it all.