Leprechaun economics

CormacButler 141Ireland made headlines last month with 'leprechaun' economic figures. According to its Central Statistics Office (CSO), Irish wealth grew by 26%. These days it is not uncommon for banks, particularly in Ireland and Italy to issue financial statements that show glowing health when the reality is something completely different. In the UK, HBOS and BHS potentially misled the markets as to their financial position. Rather than clamp down on such practices governments instead seem to have taken the view 'if you can't beat them - join them'. The head of the Irish CSO, Padraig Dalton, said that , the data bears little relation to the reality on the ground. Ireland is not alone, Greece famously cooked its books in 2010 leading to an EU bailout and in recent years Argentina attempted to hide rampant inflation by playing with the figures. Unlike Greece, Irelands' inflated profits are not deliberate, it is a simple case of Ireland being forced to follow flawed Eurostat rules - a flaw that will please Brexit supporters.

The side effects of pretending to be richer than you actually are numerous. In 2010 the markets caught up with Ireland and Greece putting them in a position where without EU aid they would have defaulted. Irelands' recent leprechaun economics now means that it must effectively pay tax on its phantom profits. The government must find an extra Euro 280 million to contribute to the EU budget. The EU bases its budget on each country's ability to pay.

Ireland's questionable corporation tax policy is largely to blame for the artificial profits. US companies basically prefer to relocate their head office to Ireland so as to avail of the lower corporation tax rates. They repatriate the profits they earn which means that the Irish people don't benefit from the supposed increase in wealth. Needless to say, apart from the Irish government, some of the bankers and legal professionals who advise US companies of Irelands' lax tax regime will see their pockets bulging but few Irish politicians will boast about the 26% increase. For many in Ireland, the supposed recovery and newfound wealth has not found its way to them, instead it has gone abroad, leaving the Irish government with an extra 280 million European union tax to pay.