IRELAND TRADES IN ITS PROPERTY BUBBLE FOR AN EXPORT BUBBLE
Aug 23rd, 2010 by Conor McCabe
Great post by Michael Taft over on Irish Left Review, about the well-known exports tax scam known as the “Double-Irish”.
Well worth checking out.
The story of the tax scam has gone around the world and some at this stage, but I’ve yet to see or hear of it on Irish TV or radio, or in the print media.
Following on from my own little dabbling on this story, last week I put up some numbers relating to financial service exports in Ireland, Italy, the Netherlands, and Spain.
The figures are very rough, but we can still use them to illustrate a couple of points.
We know the figures for the amount of people involved in financial services (and software) export businesses in Ireland, as IDA Ireland lists them in its 2009 annual report.
In 2008, there were 63,932 people employed in that sector, and according to the World Trade Organisation, exports in financial and services sector amounted to $22.7 billion.
Now, I know the figures don’t match up, but bear with me here. When we put one into the other, we get $355,065 in export sales generated per employee.
This is just an exercise , and the inclusion of software in financial services workers by IDA Ireland means that the figure should be higher than $355,065, but ball-park this is what we are talking about.
Unfortunately, I don’t know how to get my hands on the employment figures for financial service exports for Spain, Netherlands, and Italy. Any help there greatly appreciated.
But, I do have, via the World Trade Organisation, the value of financial service exports for 2008 for each of those countries.
In order to have the same productivity as their Irish workers - that is $355,065 in export sales - then the following numbers have to apply.
Spain: financial service exports = $7.3 billion. Total employment = 312,000.
This means 20,559 working in financial exports in order to generate sales of $355,065 per worker. That’s around 6.5 per cent of all employees in exports, and 93.5 per cent working solely within the Spanish financial services market. No contact with the rest of the world.
Netherlands: financial service exports = $6.3 billion. Total employment = 165,000.
This means 17,753 working in financial service exports in order to generate sales of $355,065 per worker. That’s around 10.75 per cent and 89.25 per cent working solely within the Netherlands financial services market. No contact with the rest of the world.
Italy: financial service exports = $6.1 billion. total employment = 393,764.
This means 17,180 working in financial services exports in order to generate sales of $355,065 per worker. That’s around 4.3 per cent of all financial service employees in exports, with 95.7 per cent working solely within the internal Italian financial market. No contact with the rest of the world.
As my friend Donal says, there should be Ph.Ds written on how Ireland is able to achieve such productivity in financial services. Students from around the world should be queueing up to work in the IFSC in order to understand how Ireland achieves these financial miracles.
Of course, there is a reason why this is not happening.
It is because they are a fiction. A complete lie. A tax scam which was covered back in 2007 by the trade journal, International Securitization and Finance Report.
The article is in the May 2007 edition, available here.
Have a read. It’s quite enlightening and non-judgemental. It just tells you how to avoid paying tax by playing the Double-Irish.
There is also the changes that came about from the last Finance Bill. The “closing” of the transfer pricing loophole was publicised widely enough, as was the measure to comply with Sharia law to get more Islamic finance.
But looked at as a whole the Bill was designed to significantly increase the type of investment that is behind a lot of those dodgy figures. They are providing tax incentives to boost investment. Haven’t we been here before?
The bill ensured that funds could be transferred into Ireland more easily, while a number of specific rules were altered to boost finance investment.
This is a comprehensive piece from the Sunday Business Post on the Bill and how its designed to encourage more of this investment through tax breaks.
http://www.sbpost.ie/newsfeatures/lenihan-fights-for-foreign-investment-47238.html
According to Brendan Kelly, director of Ibec lobby group Financial Services Ireland (FSI)
Based on this piece we can see why Honohan has been talking up our ‘dynamic exports’. From the governments point of view, with property in a tailspin, its the only show in town.
“The story of the tax scam has gone around the world and some at this stage, but I’ve yet to see or hear of it on Irish TV or radio, or in the print media.”
Could you write an op-ed piece ‘on-spec’ to help the IT fill its summer pages? (Actually, there are two pieces waiting to be written by those with some qualification to do so: one on effect of ‘Double Irish@ on the state’s finances; and one on the media silence.)
It would be good if Michael Taft or someone from TASC could get an op-ed piece in about it.
Your calculation seem a bit off. Are you saying Ireland has $22.7 billion exports with 63k working in that sector. And then you seem to be saying the export value for Spain is $7.3 billion, yet you come out with a far higher employment figure which makes no sense. Surely since 7 is approx one third of 22, then so would their workforce be in that sector, which means for Spain you should get 63/7 or 9k people which actually seems a bit low but at least is consistent in how the figure was derived.
Likewise for the other calculations.
Oh I know! The figures make absolutely no sense. That’s my point.
Opps, the second part of my own calcuation is wrong too. It should be since Spain’s financial sector exports are one third of ours then their employment would be, so that should be 63/3 = 21k rather than dividing by 7. The 21k figure looks a bit better
[…] Looking into the figures we see the problem. Consumer spending is, for all practical purposes, going to remain static (a 0.4 percent increase). Government spending (consumption) will fall by another -3 percent. Investment is still in negative territory at -3.3 percent. The only thing heading north is exports but the problem here is that not only are exports from the modern, multi-national sector somewhat detached from the domestic economy (there will be little job creation or tax revenue from this sector of exports), there may even be trouble with the numbers as Conor McCabe points out here. […]
One has to question the validity of the wto figures.
I am not sure of the cost of labour in spain,N/l & italy.
However the production value of each employee is
Italy 15,491 Spain 23397 N/l 38181.
How do these businesses survive of the firures are correct.
We in Ireland have a tendancy to put a negative spin on everything Irish.
sorry about the spelling
How do these businesses survive if the figures are correct.