Ireland having a surplus is not necessarily a model to follow

Image: Youth Work Ireland

From reader, George S Gordon

Scotland and the rest of the UK have suffered austerity, largely due to an undue focus on that mysterious thing called fiscal sustainability – now adopted by Starmerite Labour! However, Ireland having a surplus is not necessarily a model to follow. Youth unemployment in Ireland has been stuck on 10% for years, whereas currently Scotland has about half that – and that’s with a lot less powerful economic levers than either Ireland or the UK.

The issue is whether its a sustainable plan for Ireland to be a tax haven in order to run a budget surplus and thereby put other countries into private or public sector deficits.

The tax revenues don’t reflect economic activity in Ireland but economic activity elsewhere, booked for tax purposes in Ireland.
Clearly this is not a generally applicable way for governments to raise revenue. Not every country can successfully “import” its tax revenues from other countries – that’s not economics, it’s just arithmetic. Similarly, not every country can be a net exporter of cars.

If other counties compete with Ireland for tax revenue using the same strategies – we get the proverbial “race to the bottom”.

What about the high paid jobs in Ireland? A lot of those jobs came from US pharma companies choosing to switch manufacturing from the US to Ireland, using tax residency in Ireland to benefit from the lower corporate tax.
The US knows this but doesn’t want another argument with the EU on trade, so that shields Ireland – so far!
But that can change, and Ireland is also feeding off its fellow EU members. It’s parasitic, and that is not going unnoticed.

The reason Ireland may put the surplus into a Sovereign Wealth Fund is that it knows other countries are fed up with it facilitating tax avoidance on an industrial scale and will eventually find a way of putting a stop to it. It’s not a long-term strategy. It’s a short-term smash and grab.

For Norway, the Sovereign Wealth Fund is a more long term strategy.

if you are an exporter of something like oil on a massive scale, a huge influx of foreign currencies can have a destabilising effect on the country’s economy. The output from the expanding sector will generate large foreign currency income which, if the recipient businesses try to exchange for domestic currency, will put a lot of upward pressure on the currency in the Forex markets – hence making exports more expensive. This would further depress other sectors of the economy. So, although the concept of a hugely powerful export market for oil would seem to be a good idea, it has potentially negative consequences for the wider economy.

This happened to the Netherlands when gas reserves were discovered in the 1970s, and the term “Dutch disease” was coined as a shorthand way of describing these adverse effects. Norway learned from the Netherlands and invests the surplus revenues of the Norwegian petroleum sector in its Sovereign Wealth Fund. It was created simply to prevent Dutch disease. Keeping most of the currency inflow out of the real economy has the effect of keeping it stable. Also, note that the inflow is not held in the domestic currency – it is all in foreign currencies. Trying to spend any of it in any significant quantity could be severely disruptive to the country whose currency is being spent, and to Norway.


4 thoughts on “Ireland having a surplus is not necessarily a model to follow

  1. Hmm, interesting for those of us with not a scoobie about economics, why didn’t they teach economics in school, rhetorical question.

    What I have heard about Ireland is they have a really bad housing crisis, even worse than the Uk. The young just simply cannot afford to rent, or buy, and whole swathes of housing are private bought and the ‘landlords’ charge huge sums for rent, unaffordable to most people, so surely that would be far less disposable income, which in turn is not great for a healthy economy. Not sure about their homelessness stats but it’s probably not good. A real shame, Ireland should be a success story, it should be thriving for the good of the people.

    Liked by 1 person

    1. Economics is taught in schools, at least to a greater extent than it was for those of us born shortly after World War II.

      A major problem with the teaching of economics, particularly to undergraduates is that it has been based substantially on a paradigm devised in the lat 1940s and early 1950s. This but one paradigm and is based on many assumptions some of which are rather tenuous, but which seek fallaciously to place economics on a similar footing to the natural sciences and to portray it as ‘natural’ in the sense that Biology, Chemistry or Physics are.

      This is a political choice to establish neoliberal monetarist theories as a law of nature rather than a human construct. Hence we get platitudes like ‘you can’t buck the market’. This is to exclude alternative paradigms, such as derive from socialist, communitarian, collaborative, distributive ideas.

      Economics as presented in the main stream media is to reinforce the propaganda of the market.

      Yes, economics should be taught in schools, but according to more widely based and alternative paradigms.

      Liked by 2 people

  2. Had thought on commenting earlier on the Ireland comparative, George covered it very much better than I and so much more…

    To “The reason Ireland may put the surplus into a Sovereign Wealth Fund is that it knows other countries are fed up with it facilitating tax avoidance on an industrial scale and will eventually find a way of putting a stop to it” I’d add the political discomfort of the Irish electorate questioning where all this “wealth” is going when life is getting increasingly expensive…

    Whereas I agree on the Agency the Oireachtas enjoys, let’s be in no doubt politicians in Ireland are fearful of their electorate unlike any in the UK, and the reasons aren’t difficult to pinpoint
    – The Irish ‘free’ press is widely read and discussed everywhere in Ireland – It is not the plaything of the Murdochs of this world (not that they haven’t tried), and as for the Sarah Smith/James Cook/GBN version of “news”, they’d last barely last a day before being pilloried in a skit on radio or TV – Ask Bertie Ahern on his “spitting image” experience of “in-facta” on Irish radio skits, they crucified him.
    Can you imagine “Team Sunak” ‘allowing’ that degree of exposure ?

    When politicians control the media you get Glenn Campbell’s “opinions”, rather the “News where you are..” per James Robertson.

    In summary, the Irish are better informed by their media, how Scots get there is a good question, one which BiS are attempting to address with some success.

    Excellent post.

    Liked by 1 person

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.