From the ‘sick man of Europe’ in the 1970s turned Celtic Tiger, the Republic of Ireland’s embrace of generous corporate tax laws and subsequent economic growth has captivated global audiences. Nonetheless, Irish public services and living standards don’t seem to reflect this supposed transformation.
GDP per capita figures from the IMF place Ireland as the 2nd wealthiest country in the world, ahead of both Norway and Switzerland at $137,638. In addition, in 2020, it was one of the fastest-growing economies, during a time when few nations managed growth at all and its 12.2% growth in 2022 was credited with single-handedly pulling the EU out of technical recession – impressive achievements for a relatively small economy.
From these statistics, it wouldn’t be unreasonable to assume Ireland is ‘rich’. The nation’s evolution benefited greatly from foreign direct investment (FDI) attracted by its low 12.5% corporate tax rate and willingness to turn a blind eye to the use of a profit-shifting loophole otherwise known as the ‘Double Irish Dutch Sandwich’. These policies saw huge success in courting multinational tech and pharmaceutical giants, hence the likes of Google and Pfizer setting up shops there, but also earned the Republic tax haven allegations. Whilst the nation vehemently rejects this label, it does feature on almost all academic ‘tax haven lists’.
Alas, just because money is sat in an Irish bank account, there is no guarantee it will find its way into Irish communities, aside from the pockets of a few highly-paid lawyers and accountants. The movement of profits made elsewhere into Ireland thus inflates measures of economic activity such as GDP. It is this that forms the basis for considerable misconceptions about the quality of life in Ireland.
iPhones are not manufactured, nor designed in Ireland, yet the profits from sales of Apple products across Europe contribute towards the measurement of Irish GDP, a distortion of data dubbed ‘Leprechaun Economics’ by economist Paul Krugman. Additionally, in 2019, the IMF estimated that over 60% of foreign investment into Ireland was essentially just multinationals moving money between subsidiaries, or ‘phantom FDI’, with no meaningful impact on welfare.
Anyone who has visited the country will know that it doesn’t exude affluence in the same way as the city skylines of Singapore and Luxembourg. In fact, Eurostat’s Actual Individual Consumption index places purchasing power in Ireland – a measure of the goods an average household can afford – alongside most Eastern European nations and even below Romania. Living in Ireland works out approximately 14% more expensive than in the UK and, most influentially, renting is a huge 50% dearer as the housing supply dwindles.
Furthermore, infrastructure in Ireland is notoriously poor quality, particularly its meagre bus and rail services – two in five villages in the Republic have no public transport connections at all. Waiting times for healthcare in Ireland ranked the worst in Europe in the Euro Health Consumer Index 2018 which is hardly a characteristic of supposedly one of the richest nations on Earth.
Between a housing crisis, inadequate public services, and a cost of living rendering a fulfilling social life near-impossible, the situation for young people is particularly dire. Research for the National Youth Council of Ireland (NYCI) found that 7 in 10 young people in the Republic are considering moving abroad “for a better quality of life”. For many in poorer areas, emigration is not just an option but a necessity for social mobility.
Moreover, as a result of Ireland’s exorbitant cost of living, nearly two-thirds of undergraduates are now living at home according to the Bank of Ireland. Even with over half living completely rent-free, Financial Wellbeing research finds that the average student has a disposable income of just €9.20 a day – that’s £7.90, or just under 1.7 pints of Guinness. The figures include 35% reporting living on less than €100 monthly. For context, this equates to £19.74 weekly even before adjusting to Ireland’s much higher price level.
Many explain the disparity between standards of living and GDP, as discussed, by its tax haven status and the subsequent presence of large multinational corporations holding intellectual property in the country. But Ireland’s boom started in the mid-1990s and despite a brief intermission following the financial crisis, its formidable growth has continued since – so why is Irish infrastructure still so poor?
The answer is largely, as usual, politics. Successive Fianna Fáil and Fine Gael governments have fallen foul of short-termism and failed to take any meaningful advantage of the involvement of, and revenues from these multinational companies. When coupled with the rapid population growth Ireland has seen since 2000, a reluctance to take on long-term infrastructure and house-building projects has resulted in capacity falling far short of the population’s demand.
Large areas around the border, including the entire counties of Donegal, Monaghan, and Cavan, have no operating train stations. Moreover, vast excess demand for housing not only means Dublin is now the most expensive city for renters in Europe but has also fuelled anti-immigrant sentiment that culminated in violence in last month’s Dublin Riot.
There are, of course, geographical challenges; the Republic remains relatively sparsely populated which admittedly makes ensuring connectivity more difficult, especially in the west of the country. Furthermore, one would have to be wilfully ignorant not to acknowledge the genuine improvements to quality of life that its membership of the European Economic Community (EEC) and then the European Union (EU) has provided through access to trade markets.
Ireland’s lenient attitude towards tax evasion, however, is coming to an end. The ‘double Irish’ loophole was closed in 2015 and an OECD deal will see larger multinationals pay a higher 15% corporate tax rate from 2024. In addition, the removal of most of Shannon Airport’s free trade zone powers, which played a major role in hosting sellers of small high-value products including Intel, Sony and Lufthansa, has contributed towards a transition away from Ireland’s tax haven status.
Resultantly, much of the country’s business tax revenue, and thus the funds available for public service provision, is now dependent on multinationals electing to ‘stick with Ireland’ to avoid the cost and complexity of shifting operations to a more accommodating economy. Whilst 15% is still a comparably low rate, prominent thinktank ESRI is warning of ‘slowing’ growth in Ireland as it loses out to nations with superior infrastructure, even with the economy operating at capacity.
With a potentially uncertain future ahead, the Republic of Ireland is a prime example of the possibly misleading nature of GDP as a measure of development. The reality of the cost of living, and opportunities for young people in the country tells a much more complex narrative than output figures would suggest. Thus, to describe the nation as one of the wealthiest in the world is ultimately a drastic overstatement of living standards.