One of the biggest debates in Ireland is what to do with the public money that the State now has “excess”. The number of people employed is approaching the record of three million for a country of just over five million inhabitants and one of the richest in Europe. Price increases are less than the euro zone average while the economy is growing more than expected and the outlook for 2025 and 2026 They are very good.
Across the Irish Sea, the UK balances filling potholes in the roads, taking over decrepit trains and reforming public healthcare while angering business owners and homeowners for raise taxes. The workforce has shrunk since the pandemic at an unprecedented rate since the 80s. If it were not for the capital concentrated in Londonthe country would be one of the poorest in Europe while inequality increases and poverty. Inflation is among the highest of Europe and is the G-7 major while the economy takes two months falling against the odds and faces 2025 with a modest improvement and high prices. The Bank of England announced this Thursday that it maintains interest rates at 4.75% and it does not dare to lower them like the European Central Bank and the Federal Reserve due to the risk posed by inflation. The Bank of England has also changed its growth forecast this quarter from 0.3% to zero.
It is the story of two economies that remain interrelated, but have taken different paths. The divergence between Ireland and the United Kingdom has only increased with Brexit. The UK’s departure from the EU has not harmed the Irish economy as feared due to its trade relations with the former dominant country, and in some respects it has benefited it.
From the City to Dublin
Since Brexit, more large companies, particularly in the financial sector, have moved from the UK to Ireland. Between 2016, the year of the Brexit referendum, and 2021, at least 135 companies in this sector set up shop in Dublin, according to a report from the New Financial think tank. Among them, there are some with historical marks associated with London, such as Barclays and Thomson Reuters; others were already in Ireland, but have expanded its operationssuch as Goldman Sachs, JP Morgan and Bank of America.
The British-American Magazine The Economistthat in 2016 he predicted that Ireland would be the country that would suffer the most from the effects of Brexit, now says that Ireland is the second economy that has done better in 2024, behind Spain. Its ranking with 37 developed countries considers five variables: GDP, the stock market, underlying inflation, unemployment and public deficit. In the case of Ireland, the article highlights the strength of the technology sector.
The fact that Ireland is the only English-speaking country within the European Union works in its favor for multinationals already willing to set up shop there due to one of the lowest corporate taxes in Europe. From the late 90s until this year it has been 12.5% and, after an international agreement by the OECD, it has been raised to a minimum of 15% for large companies. Within the EU, only Hungary maintains lower taxes and the EU average is 21%. In the UK, corporation tax for companies with profits of more than €300,000 is now 25% (in Spain it is at that level but for companies with a turnover of more than one million).
“As far as multinationals are concerned, obviously it’s about low taxes, but something that has also benefited Ireland is that most companies might be more inclined to locate here because of our membership in the European Union,” he explains. to elDiario.es Kieran McQuinn, economist of the Economic and Social Research Institute and professor at Trinity College in Dublin. “And now we can say that we are the only country that has English as its first language in the European Union, which is undoubtedly an advantage for us.”
EU students opting for Ireland have also increased -in 2022 they had tripled compared to 2017– while declining in the UK – by half in the same period-. In this case it is not just about the paperwork, but now EU citizens, with the exception of the Irish, no longer pay the same tuition as the British but rather the one charged to nationals of other countries, that is, three times more.
The arrival of students in Ireland adds to one of the workforce more formed of Europe, particularly in the region of Dublin.
The effect of the pandemic
McQuinn believes it is difficult to disentangle the effect of Brexit from the effect of the pandemic, which in Ireland ultimately boosted growth due to the presence of two key sectors that have expanded the most since then: technology – Google, Amazon, Apple , Microsoft or Intel have their European headquarters in Ireland and bill part of their global income there – and that of the pharmaceutical companies.
Ireland’s GDP per capita is more than double that of the United Kingdom. In the case of Ireland, this data is distorted by the turnover of multinationals and the most appropriate measure of wealth is the modified Gross National Income, which focuses on domestic production, but even comparing this per capita ratio the Irish are very ahead of the British.
The effect of Brexit as a brake on the United Kingdom’s already languid growth has worsened as the new rules are deployed and is reflected in the collapse of trade with its main partners, the waste of resources in paperwork and the lack of workers in key sectors.
In this context, what has benefited Ireland is to build an economy more independent of its neighbor, whose progress, however, also worries the Irish. “Although we are much less dependent than 20 or 25 years ago, there are still Irish sectors that have a lot of relationship with the United Kingdom, so it is important that the British economy grows and is relatively strong; “If the UK economy continues to perform poorly, this is not positive from Ireland’s perspective,” explains McQuinn.
Trump’s risk
But the greatest risk for Ireland now comes from the other side of the Atlantic, with the return of Donald Trump to the White House in January and the possibility that he will start a trade war and attack Ireland to repatriate part of the technology business and other sectors. . Trump’s choice to be Minister of Commerce is Howard Lutnick, a Wall Street investor who during the election campaign in the United States targeted the island directly: “It is absurd that Ireland of all countries has a trade surplus at our expense.” said.
The Irish Prime Minister, Simon Harris, warned a few days ago that the State could lose 10 billion euros in revenue just if three American multinationals took part of their business back home due to pressure from Trump. “This is the level of risk to which we are exposed,” Harris said..
The fear that the new Administration in the United States will complicate life for its multinationals in Ireland is part of the debate now in the new Irish Government about the use of the budget surplus, which is at record levels. The public coffers are filled, among other things, by the payment of more than 14,000 million euros in back taxes from Apple after a decade-long legal battle. In September, a ruling by the EU Court of Justice ruled in favor of the European Commission, which questioned the tax advantages that the Irish Government had given to Apple.
In any case, beyond these “fallen from the sky” income, what the Irish State collects from corporate tax has tripled since 2019. From January of this year to November alone, the Irish State has collected some 35,000 million euros with this tax, that is, almost 60% more than in the same period of the previous year.
The State has investment funds and the debate is how much it should save thinking about Trump’s tariffs and other changes in the technology sector in particular. Ireland’s Tax Advisory Council, the independent agency that oversees the budget, advises saving more and considering these benefits as “finite, high risk” just as Norway does with oil. “We have good prospects in the coming years, but, given the aging of the population and the money committed, we should not get too carried away,” said the president of this council, Seamus Coffeya few days ago.
“Our budget watchdog has been warning us for years… Tax revenue is unrelated to the work people do in the Irish economy,” writes Liz Carolan, technology and politics journalist and author of the newsletter The Briefing. “We have an economy built by accountants, literally… The Ministers of Economy who have built this model were accountants, lawyers or both. But accounting is not economics.”
Dwelling
The budget surplus also has to address some of the problems exacerbated by the presence of technology and pharmaceutical multinationals. In fact, as McQuinn, the economist, points out, the extra funds for the state “should also be used to address some key infrastructure problems that currently exist in the economy, whether housing, transportation, or energy.”
Housing, in particular, is the focus of public debate due to rising prices and competition for space given the flow of workers from large American multinationals with high salaries.
How to facilitate access to housing, in fact, has been one of the centers of attention of the electoral campaign for the November elections, which the traditional center-right party, Fianna Fáil, won again. The group will continue to govern in coalition with another centrist, Fine Gael, and some smaller ones on the left such as Labor or the Social Democrats. Housing is central to the deal. Annual public spending in Ireland is now one of the highest in the EU, but they still need tens of thousands of more homes.
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