John Simpson: Republic's economic risks can also impact on us in Northern Ireland
Each year the Republic's government publishes a well-researched Draft National Risk Assessment, bringing together a wide-ranging assessment of the threats to the Irish economy. There is little surprise that top of the geopolitical risks the Irish government lists are the consequences of the departure of the UK from the EU. This is followed by a section highlighting the risks of (economic) instability in Northern Ireland.
The UK decision to leave the EU has serious consequences for Ireland as well as creating opportunities to take advantage of the UK-Ireland/EU changes. The official Irish assessment of the effects of Brexit over an initial 10-year period is that there will be net cost to GDP:
- 2.6% - if there is a Brexit deal;
- 4.6% - without a Brexit deal;
- 5.0% - with a disorderly no-deal.
Recent publicity has focused on the effects of Brexit on the operations and location of businesses north and south on this island.
There is little doubt that some businesses from Northern Ireland are looking south of the border for new locations which stay inside the EU. More significantly, there is evidence that some international finance businesses, formerly London-based, are moving particularly to the Dublin region. The Republic's low corporate tax regime and EU status are proving a useful asset.
In the overall assessment of the consequences of a Brexit the Irish government has identified many problems as well as opportunities.
The impact of Brexit on Ireland's trading relationships is worrying. A serious reduction in the demand for Irish exports to the UK is anticipated, particularly if the UK-EU split is disorderly. More than a third (37%) of Irish food and drink exports went to the UK in 2018 and 34% of fish landings from Irish vessels were from UK waters.
If there is no smooth transition agreement, these trading figures may be hard-hit.
In a telling summary the risk assessment says: "While Ireland might benefit from the relocation or diversion of FDI (foreign direct investment) from the UK... ultimately, the positive impact is outweighed by the negative trade effect."
For the Irish economy, there is an acknowledgement of the initial impact of the level of uncertainty introduced by Brexit and, as a consequence, businesses holding off on investment decisions until greater clarity emerges.
This leads the policy discussion into ideas on how the competitiveness of business might be maintained.
Drawing on Central Bank of Ireland evidence that Irish competitiveness, relative to other countries, had improved by 21% since 2008, there is a caution that Irish competitiveness could be vulnerable to domestic overheating pressures as the labour market has been tightening (with rising labour costs) alongside emerging infrastructure constraints, in transport and water supplies, and housing market imbalance.
From a Northern Ireland perspective there is significant interest in the possible adoption of changes in the corporation tax regime in Ireland.
In recent years the 12.5% corporate tax rate has been a competitive challenge in the attraction of FDI.
Less conspicuous but no less serious have been the particular tax rules as applied to large multinational corporations with subsidiaries in Ireland.
There has been growing interest in the application of EU competition policy as well as emerging proposals from the OECD on limiting the scope for international businesses to minimise taxation by shifting profits to the most favourable country.
New international policies to minimise tax base erosion through profit shifting (BEPS) are anticipated. The development of new digital taxation proposals is likely to further challenge current Irish tax competitiveness.
The Irish want to co-operate with the OECD but in ways which minimise any Irish disadvantage. The key conclusion is that the Republic's g\ overnment will remain proactive in international efforts to co-ordinate tax standards.
Whilst a Brexit will have many serious consequences, some unintended, for the Irish economy, the Irish risk assessment process is a valuable base line highly relevant north and south on this island.