There is a definite consistency in the messages coming from the latest commentaries on the Irish economy. Growth is expected to continue strongly and to create comparatively large, even unprecedented numbers of jobs. There is a danger of inflation picking up next year, caused by overheating and sterling's volatility. And adherence to the Partnership 2000 agreement, notably its taxation elements, is seen as central to continued prosperity.
Several reports this week have driven these lessons home. There is little public disagreement about the extent of growth, more about its distribution, direction and environmental impact. One cautionary word is necessary, however. Because the branches of multinational companies based in Ireland are such engines of growth, figures based on their performance have to be adjusted down to take account of the incentives for transfer pricing that attracted many of them here in the first place. It suits them to express a high proportion of their international profits in Ireland to avail of the 10 per cent company taxation scheme. Real national growth figures may therefore be nearer five per cent than the seven per cent often quoted.
This matters less than the related question of whether such companies are here for the long haul, are making linkages with other sectors of the economy and spreading their research and development facilities. The evidence is increasingly positive that they are, although more research could usefully be conducted. None of this takes from the need to encourage domestically owned companies, which are more labour intensive and often more closely bound up with Irish resources. Even as employment is projected to go down below 10 per cent, a large unemployed underclass is still there, endangering social cohesion.
Inflation has been remarkably low in recent years, as a result of effective economic management, including the successive national pay, welfare and tax rounds of which Partnership 2000 is but the latest example. Ireland fares increasingly well when incomes after all deductions are assessed, putting workers here abreast of Germany, Denmark, France and the UK in take-home pay. The mix of voluntary, mandatory and income tax deductions is more flexible than elsewhere, which can make it easier for the Government to deliver on undertakings about reforms and reductions in the coming year. But the need for caution and prudence has been underlined by the ESRI and the IMF, as they warn against over-stimulating demand on top of the strong growth and the effect of probable currency movements in the run in to economic and monetary union.
Disagreements between economic commentators on the likely pace of inflation next year should not disguise the central importance of delivering on the tax provisions built into Partnership 2000. Already there has been considerable discussion about whether the fruits of growth and higher profits are being fairly distributed by this national agreement, driven both by dissatisfaction among PAYE workers and by scarcity of labour in key sectors of the economy. If inflation creeps up it will become much more difficult to manage the growth that is transforming Ireland's relative position among European economies.