CSO to remove ‘leprechaun’ from economic statistics

The Central Statistics Office (CSO) aims to remove the "leprechaun" from Irish economics with a modified measure of economic growth that adjusts for the distorting effects of multinationals.

In response to the furore over Ireland’s recent economic growth numbers, the agency has developed a new indicator – gross national income* (GNI*) – which will better capture the true level of growth in the domestic economy by stripping out the profits associated with so called “redomiciled PLCs”.

The new barometer will be published annually alongside the standard, internationally agreed indicators of gross domestic product (GDP) and gross national product (GNP).

The move comes in the wake of the revised 26 per cent growth in Irish GDP for 2015, derided by US economist Paul Krugman as "leprechaun economics".

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That leap in GDP was underpinned by the relocation of €300 billion in capital assets to Ireland by multinationals – mainly in the form of intellectual property.

The massive transfer of assets here came amid a global clampdown on multinational tax avoidance.

Distorting factors

The profits of “redomiciled PLCs” headquartered in Ireland are currently included in top line economic indicators such as GDP and GNP, instead of being booked as an outflow as is the case with traditional Irish-based multinationals, effectively inflating the level of economic activity.

The GNI* indicator will adjust for this phenomenon as well as exclude the depreciation attributable to relocated capital assets, which also distorts the headline indicators.

In response to criticism of the Irish figures, the CSO convened a review group, chaired by Central Bank governor Philip Lane, to address the problem and provide a broader suite of domestic indicators.

Among its recommendations is the adoption of the GNI* indicator. While a GNI* measure for 2015 has yet to be collated, it is expected to indicate the economy grew by approximately 6 per cent, which would be more in line with the expansion in consumer spending.

“When you’re confronted with data which have limited possibilities in terms of interpretation, it’s important to supplement that,” Prof Lane said.

Sheer scale

“Everyone around the world recognises that the interpretation of national account data in a globalised economy presents challenges.

“Ireland happens to be at the front end of that because of the sheer scale of the multinational sector.”

He said the new GNI* provided a useful gauge of the size of the economy, which was crucial for assessing the State’s debt load.

“A supplementary measure of domestic resources should combine adjustments that allow for depreciation of foreign-owned domestic capital and the retained earnings of redomiciled firms,” Prof Lane said in an economic letter also published on Friday.

CSO director general Padraig Dalton said: “While GDP and GNP continue to be the international standard indicators, the development of a new level indicator, GNI*, has been proposed to address the specific nature of the Irish economy.

“ The new indicator is designed to exclude the depreciation attributable to relocated capital assets and the impact of redomiciled firms.

“In doing so, it should provide useful information for analytical and economic modelling purposes, such as budgetary forecasting.”