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....and what's the view from Dublin? Why the issue of GDP clouds rather than clarifies

By Brendan Keenan

Published 02/08/2016

A funny thing happened on the way to the merger of car makers Daimler-Benz and Chrysler in 1998. When the highly profitable German company re-filed its accounts in line with the rules of the US Securities and Exchange Commission, it posted a loss. Nothing else had changed, there was no jiggery-pokery; just accountancy.

Presumably this was the work of Wagnerian dwarves rather than Irish leprechauns, but the reasons for this oddity and the 2015 explosion in the official size of Irish GDP are much the same.

The dictionary definition of GDP (gross domestic product) could hardly be simpler - the monetary value of all the finished goods and services produced within a country's borders over a particular period.

Note the word, "produced".

It is one thing to talk of lies, damned lies and statistics. Things get even worse when they are harmonised across countries, whether for profits or GDP.

The merger story shows why international standards seem a good idea. In practice, especially in UK and Irish pensions, they have been more like weapons of mass financial destruction. Now, they may do similar harm to the Irish economy, at home and abroad.

At home, the uncomfortable truth is that we need a good measure of something like GDP to have any chance of following sensible policies.

GDP itself has been unsatisfactory for a long time, because it includes the earnings of multinational companies which do not accrue to Irish people.

This did not stop policy formation based on GDP, with the unfortunate result that we spent money we did not actually have.

It is a difficult business admittedly, because all the international comparisons are in GDP. Irish people and policy makers are being asked to act on the basis of one set of numbers, while all the statistics are based on another.

The result is that we have a very limited understanding of what is actually going on, never mind what we ought to do next.

Nowhere is this more obvious than in the thickets of the health service. Measured as a proportion of GDP, Irish health spending looks on the low side compared with other advanced economies.

Take a more realistic measure of Irish income than GDP, and health spending is already in that zone - without the levels of service. Get a little more complicated, and allow for the age of the population, and Ireland becomes one of the big spenders. Not a lot of people know that.

Complexity in policy argument is impossible if the basic measure is incorrect. There are persistent demands for spending to be increased to match the countries with higher ratios of spending to GDP. And that was the old GDP, before the 2015 eruption, and at least we had Irish income (GNP) as a more realistic basis. But there was precious little attempt by politicians, unions or spending lobbies and lobbyists to work off the lower figure, when more money could be mined from the higher.

Now, GNP is pretty useless too, because of a particular kind of tax avoidance; mostly by British companies. One would like to think that the ludicrous 26% increase in the value of GDP would persuade everyone that both should be consigned to the junk folder, but the early signs are not encouraging.

The public finances of the last couple of years benefited from corporation tax receipts soaring for reasons which were not clear. Now, they are becoming clear. Changes in the way the accounts are drawn up along with - irony of ironies - attempts by multinationals to escape the international crackdown on tax avoidance, have laden Irish GDP with investments we have not made and assets we do not own, and all without any particular increase in production.

Artificial it may be, but the search for tax shelter may see the booming corporation tax revenues continue for some time.

Belfast Telegraph

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