Setting the Irish ‘miracle’ straight

You know what annoys me? People who think that Ireland’s economic development success was only based on a tax cut.

Crap.

Have a look at the 2005 annual report of the Ireland IDA.

I looked for you are here’s what I found:

• Total employment in IDA supported companies has increased to 132,728. The number of new jobs created during the year was 12,623. This was offset by job losses of 9,211 giving a net gain of 3,412, the highest gain since the year 2000.

Translation: The IDA has financially supported 132,728 jobs since its inception. See below for more on this.

• IDA supported companies spent €15.5 billion in the Irish economy in 2005 from their sales of €75 billion (exports of €71 billion) and paid €2.5 billion in corporation tax.

Translation: Taxes are lower in Ireland yes. But firms IDA attracted to Ireland paid 2.5 billion pounds in 2005 alone. That’s about $5 billion Canadian dollars. Economic development must lead to more taxes paid not less! Think about New Brunswick for a minute. Ireland is a country not a province but let’s say that New Brunswick attracted just 1/4 of the companies that Ireland did and created just 33,000 new jobs at 37k pounds. Using the same tax levels and structure (a leap but bear with me) that would mean over $1 billion per year in new corporate taxes (not including the massive amount of personal tax and HST). So, you would wipe out the majority of the $1.4 billion Equalization right there – with just corporate tax.

Certainly, you can shoot holes in this simple analysis but the theory underneath is valid. Ireland has a corporate tax rate of 12.5%. I think New Brunswick’s is slightly higher (not including of course the Federal tax rate). So, again, in theory, if you mimic Ireland’s success – adjust it for the scale difference between Ireland and NB and convert the taxes paid into dollars, you have $1 billion in new corporate taxes paid.

Now I have speculated in the past that corporations doing business in New Brunswick must somehow be paying their corporate taxes elsewhere – or a bulk of them. I have never got a straight answer on this when I have asked the question. For example, UPS has a 900 person operation in New Brunswick but I suspect pays no corporate tax here. Where do the Irvings pay corporate tax? How about the McCains? How about Walmart? Intuitively the amount paid by corporations is really low (and compared to other jurisidictions this bears out).

But I digress.

• IDA provides world-class business and technology parks in key towns throughout the country in support of its regional strategy. IDA spent €69.4m in 2005 on property developments, almost all outside Dublin and including the development of a number of major sites and business parks, to provide the basis for future growth in regions throughout Ireland.

Translation: This is amazing. The IDA actually builds business parks and buildings in some of the most poor areas of Ireland and then goes out and attracts businesses into them. They spend almost $140 million in 2005 alone on this endeavor. Yes, they are five to six times larger than New Brunswick in population but why don’t you ask BNB if they spent $30 million building new business parks and buildings in New Brunswick last year.

Average Salary in New Investments €37,000 (close to $70k Canadian).

Translation: Nuff said.

Cost per Job Sustained
Sorry this is so small but I wanted you to see the actual chart in the IDA annual report. Look closely, this provides the “The cost per job sustained is calculated by taking into account all IDA Ireland expenditure to all firms in the period of calculation. Only jobs created during and sustained to the end of each seven year period are credited in the calculations.”

That’s right all you AIMS folks that don’t read IDA annual reports. The Irish Development Agency paid, on average, 19,941 pounds per job for every job created between 1990-1996.

That’s on top of the tax cuts.

So you are free to disagree with government providing funds to support industry attraction. That’s your right. Just don’t throw up Ireland as some model of ‘hands off’ government just cutting taxes and watching the investment pour in.

To recap:

Ireland spends upwards of $30k – $35k per job to attract companies in addition to having among the lowest corporate tax rates in the OECD.

Ireland spends tens of millions every year to build industrial and technology parks all over the country and then finds companies to move in.

IDA Ireland has 12 foreign offices to promote investment development: four in the USA, three in Europe, five in Asia-Pacific. New Brunswick has none.

University is free in Ireland until you are 21 years of age.

I like the Irish model. I would be perfectly happy to have the SSTF recommend most of what they have done to rehabilitate a tattered economy like ours.

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4 Responses to Setting the Irish ‘miracle’ straight

  1. Anonymous says:

    The modern IDA model as you describe it works very well. It was originally set up over 20 or 30 years ago to attract foreign investment. In its early days it was abused by multinationals who took the short term view and absconded after a few years taking their taxes with them and leaving areas decimated by unemployment. A few little changes in the criteria has worked pretty well but it is not only the work of the IDA that has brought Ireland to where it is today.
    Yes, the construction of business parks throughout the country has worked well but this is being coupled with an intensive system of government decentralisation that populates previously unpopulated and economically depressed regions of the country.
    As in all economies every job has a price but the price is predicated on a few things such as location, quality and longevity of the position created etc.
    Nothing I have said above would be difficult to do in NB and I am sure a fact finding mission to Ireland or somewhere similar would be a nice idea.
    Yes, Ireland is a country and NB is a province but if you take the fact that Ireland is now simply a province of the greater federal European Union as an idea then NB would be placed similarly in the Federal aspect of Canada. We receive roughly the same support as Ireland did when things were bad. Ireland simply does their own thing and then argues the position when it goes against the EU federal rules. The current purported EU / USA open skies agreement is testament to this.
    One small quibble with your post is that the currency in Ireland is the euro not the pound and it is worth less than the pound (about 1 – 1.5)

  2. David Campbell says:

    It was late when I wrote that. You are right. The conversion is more like 1.00 EUR = 1.56561 CAD and not pounds 1.00 GBP = 2.28904 CAD. So crank back my #s by a similar amount.

  3. Anonymous says:

    Your digression is more interesting to me than the post. There are already ‘business parks’ all over the province. The decentralization model works somewhat, but Ireland’s growth is largely centred in one place-Dublin. I think those who propose Ireland as a model should have to live there awhile-high commodity prices, high utility prices, massive local taxes.

    A province the size of NB doesn’t need an ‘irish’ miracle (again, look at the poverty studies and its hardly ‘miraculous’ for a good percentage of the population).

    The real point is that while NB wallows and gripes at the feds for more investment, it gives a free hand to the corporations that are raping the land. The Fraser Institute recently called New Brunswick one of the ‘friendliest’ mining jurisdictions in the world, right up there with human rights abuser Columbia. For some people that’s great news, especially commodity brokers and of course as the government states, they only have a surplus thanks to high zinc prices and the massive disappearance of zinc from the province.

    So here is a province with a 6 billion dollar budget, with fewer than a million people, yet TWO of worlds richest corporations ‘headquartered’ in the province yet gets the lowest amount of corporate tax of any province.

    So from the view of the feds, why give more money to a province which just lets the rich take everything? The argument against equalization would simply be “look, you’ve got shitloads of money, you just don’t have the balls to get it and are letting corporations rob you blind”.

    Sort of like if a mugger robs you every day on the way to the bank with your daily cash receipts and you keep griping to head office that you need more cash because half of it gets stolen, they are quite justified in telling you not to go that way!

    I’ve been doing some number crunching, and if New Brunswick got a similar percentage of their budget from corporate tax, which is easily justifiable since far more companies in NB are resource based, meaning that they GET much more from the government, then the province would have 120 MILLION more dollars in their budget.

    To look at that more closely, that would be almost HALF the debt of the new section of highway that was just added this year.

    Imagine plunking THAT down into economic development!

    If it raised its percentage to what Manitoba gets in corporate tax, then it would have 240 MILLION, that would almost pay for that highway. At Saskatchewan’s level it would have almost a BILLION dollars. At PEI levels, which are skewered because its so small, but a similar percentage would be $1.2 BILLION!

    So in the end all the talk about Ireland is moot. All talk about Atlantica is moot. If you’ve got a political system that is geared towards the screwing over of the maximum amount of people in favour of the richest, then forget it, NONE of those benefits of other jurisdictions are going to come this way simply because the system is designed to give as much away for the cheapest amount possible.

    If you want to talk Ireland, AT LEAST talk about the politics of the place, which is far far different.

  4. Anonymous says:

    Sorry, the first example was Nova Scotia, I forgot to say that.

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