The EU gets our figures in a twist

Some might say we have been hoist by our own petard

Some might say we have been hoist by our own petard. Every first-year economics student is told of the difference between gross national product (GNP) and gross domestic product (GDP). But more than 20 years ago this correspondent was told that "in the real world" the difference is academic as the income earned in an economy - GNP - generally corresponds roughly to the "added value" of goods produced - GDP.

GNP can also be defined broadly as a measure of our ability to spend, and GDP, of our level of economic activity. Wealth, however, is something else again.

In the 1970s the GDP-GNP difference in Ireland averaged out at as little as 0.4 percentage points, a reality that largely reflected the European experience.

That was then. But, as the accompanying table shows, the reality is very different today. In terms of the relative performance of the Irish economy compared to that of its EU partners, a yawning gap of some 15 percentage points has appeared between the two figures.

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The reason is straightforward: profits generated by multinational companies based in Ireland are "product" but not "income" when repatriated. The heavy dependence of the Irish economic success on attracting foreign investors through the most generous corporation tax regime in Europe has resulted in huge profit repatriations, a full 15 per cent of GDP, a scale simply not seen elsewhere.

The reason it matters is that the EU uses both GDP and GNP figures for differing purposes with what seems like a total disregard for conceptual rigour, or, the Government would say, fairness. So, while eligibility for cohesion funds is based on a GNP yardstick, that for structural funds uses a GDP one.

And, yet more confusingly, in calculating the actual amount of aid per head to be disbursed, the Commission uses both figures simultaneously.

The Government has traditionally argued with our EU partners that it would be fairer to base structural fund eligibility on our GNP because that reflects our relative ability to contribute to our own development.

But, as Irish diplomats acknowledge privately and the Danish ambassador remarked recently to this correspondent most pointedly, it's a bit rich making such a case when the reason for the problem arises directly from what is perceived by many partners as our poaching of their jobs through an overly generous corporate tax regime.

That was one thing, they say, when Ireland was poor . . . The connection between the corporation tax row and our structural funding aspirations is thus not just polemical but very real and immediate. The collateral damage of sustaining our tax regime so vigorously is to undermine our traditional case for structural funds.

But "wealth" is another matter. An infrastructure is developed over generations, like a family fortune. Two families on the same income, one of which has inherited capital, whether a home or the means of making a living, have fundamentally different capacities.

Ireland's case for continued EU aid is now articulated in such terms. Comparative figures for road standards show Ireland at the bottom of the EU table with less than 20 per cent of the EU average. And the proportion of the population connected to waste water treatment at 45 per cent is nearly 30 percentage points below the EU average.

In terms of human capital there is also much catching up to do - participation rates in education for 19-22 year-olds are higher than only three countries and some 17 per cent of 15-to-19-year-olds are in vocational education and training compared to an EU average of 30 per cent.

Ireland also has the worst level of education among the unemployed in the 25 to 35 age group.

To bridge the infrastructure gap between Ireland and the EU average, it is argued, will cost some £15 billion.

But is anyone listening?