Is Ireland getting the most from the MNC sector? Frances Ruane, IIEA TASC- FEPS Conference, 22 June 2018

Questions What did Ireland want from MNCs? What policy approach did Ireland adopt? What did Ireland get from MNCs? What should Ireland want from MNCs in the future? How can Ireland get more from MNCs?

What did Ireland Want from MNCs? To help address the major economic and social problems of the mid-1950s Emigration*, high unemployment Negligible growth*, capital outflows, balance-of-payments deficits High tariffs, FDI controls, trade deficit Fiscal deficits, uncompetitive economy Trade Policy: Open up the economy to trade starting with export promotion Incentivize exports by existing Irish companies Attract MNCs to use Ireland as Export Platform into Europe FDI Policy: attract FDI to get more employment (stem emigration) through New capital / management New technology New markets

Starting point: Century of Declining Population through Emigration

Starting Point: Contrasting Weak Growth in early 1950s % Change GNP 1949-56: Ireland (8%), UK (21%) OEEC (42%)

What policy approach did Ireland adopt? Common Approach to FDI and Indigenous Industry Financial incentives (capital grants to support employment) Fiscal incentives (zero tax on profits from exports to support exports) Adjustment to EU / WTO rules to ensure low CTR not an ‘incentive’ Removal of pro-export bias – 1980s – 10% rate introduced Removal of pro-trade bias – 1990s – 12.5% rate introduced Promotion of high value-added sectors Limitation on general financial investment incentives - 2000s Introduction of R&D grants + tax incentives (Lisbon Treaty) – 2000s* Increased focus on quality as well as quantity of jobs – high V-A activities

What did Ireland get from MNCs? Contribution to generating employment, investment? Wide range of indicators – comparators are important E.G. Direct Impact of US MNCs; Seamus Coffey, Chair, IFAC / UCC How Ireland compares with EU countries in terms of relative size of USMNC employment in business sectors - 100,000+ employees US MNC personnel costs in business sectors – 6.5 billion euro US MNC tangible investment flows into business sectors – 2.5 billion euro Further indirect impacts: 4+ billion euro spend on local goods and services – policy objective 4+ billion euro in corporate taxes – by-product of policy design

Secondary Source: Seamus Coffey IFAC/UCC

Secondary Source: Seamus Coffey IFAC/UCC

Source: Seamus Coffey IFAC/UCC

What should Ireland want from MNCs in the future? Maintenance/growth of high quality employment Pro-Growth Sectoral composition High growth activities in high growth sectors High tech activities in high tech sectors High environment quality standards and commitments Contribution to building national skill base in economy On the job training; CPD Stronger linkages with Irish indigenous sector and research system Increased real R&D activity in Ireland

Cost of R&D Tax Expenditures, 2015-2004

Number of Entities Availing of Tax Relief 2015-2004

How can Ireland get more from MNCs? R&D reliefs – ensure correct use and minimal deadweight Monitor closely and watch pattern of growth in R&D Tax Expenditures Ensure alignment of reputations in relation to global taxation system Adherence to OECD reforms, etc Increase attractiveness of non-tax factors through competitiveness and consistent policies in relation to attracting/retaining talent: Housing Education Health Quality of life supports (including culture) Reintegrate IDA Ireland and Enterprise Ireland?