Transcript Celtic Tiger powerpoint File

The Celtic Tiger
Caoimhghin Ó Croidheáin
Celtic Tiger?
• The first recorded use of the phrase is in a
1994 Morgan Stanley report by Kevin
Gardiner.
• The term refers to Ireland's similarity to the
East Asian Tigers: Hong Kong, Singapore,
South Korea, and Taiwan during their
periods of rapid growth in the early 1960s
and late 1990s.
Boom and bust
• "Celtic Tiger" (Irish: An Tíogar Ceilteach)
is a term referring to the economy of the
Republic of Ireland between 1995 and
2000,
• a period of rapid real economic growth
fuelled by foreign direct investment,
• and a subsequent property price bubble
which rendered the real economy
uncompetitive.
Growth of the Tiger
expansion
• The Irish economy expanded at an
average rate of 9.4% between 1995 and
2000 and continued to grow at an average
rate of 5.9% during the following decade
until 2008, when it fell into recession.
Pre-boom
• Caught up with living standards of
Western Europe
• Long global boom of the 1990s
• Investment in state-funded third-level
education
• ‘social partnership’
Who funded the 'Celtic Tiger'?
• Mid-2008
• 80 per cent - UK-sourced funding in Irish
domestic banks
• 13 per cent - US-based funding
• 5 per cent came from off-shore funding
• 2 per cent - directly from the euro zone
Tax policy
• Many economists credit Ireland's growth to
a low corporate taxation rate (10 to 12.5%
throughout the late 1990s).
• Since 1956, successive Irish governments
have pursued low-taxation policies.
Four Asian Tigers
• Hong Kong's economy was the first out of the four to
undergo industrialization with the development of a
textile industry in the 1950s. By the 1960s,
manufacturing in the British colony had expanded and
diversified to include clothing, electronics and plastics for
export orientation.
• Following Singapore's independence from Malaysia, the
Economic Development Board formulated and
implemented national economic strategies to promote
the country's manufacturing sector. Industrial estates
were set up and foreign investment was attracted to the
country with tax incentives.
• Taiwan and South Korea began to industrialize in the
mid-1960s with heavy government involvement including
initiatives and policies.
Neo liberal policy
• US firms were drawn to Ireland by cheap
wage costs compared to the UK,
• and by the limited government intervention
in business compared to other EU
members, and particularly to countries in
Eastern Europe.
• By 1999 half of manufacturing jobs in
foreign-based companies compared to
20% in EU
MNC profits 2008 [bn]
transformation
• Ireland was transformed from one of the
poorest countries in Western Europe to
one of the wealthiest.
• Disposable income soared to record
levels, enabling a huge rise in consumer
spending with foreign holidays accounting
for over 91% of total holiday expenditure in
2004.
What we did ...
•
•
•
•
•
•
•
•
•
Getting 100% mortgages.
Some people were even getting up to 150% mortgages - a bit extra to cover
some nice furniture. Wasn't that nice of the banks?
Christmas Shopping in New York
Some Irish people used to just 'pop over' to New York for a bit of shopping.
Many students working minimum wage jobs were able to get loans and
overdrafts of a couple of thousand euro, with no way to pay it back in the
foreseeable future.
Anyone who was 'anyone' went skiing at least once a year, if not twice.
Gran Canaria 'Leaving Cert' holidays
Leaving Cert students would often celebrate the end of their Leaving Cert
by jetting off as a group to Gran Canaria or even Ibiza. These excursions
would often be wild, and young Irish people developed quite a bad name
overseas for a while.
Visiting Santa in Lapland
Unemployment
• Unemployment fell from 18% in the late
1980s to 4.5% by the end of 2007, and
average industrial wages grew at one of
the highest rates in Europe.
• Inflation brushed 5% per annum towards
the end of the "Tiger" period, pushing Irish
prices up to those of Nordic Europe, even
though wage rates are roughly the same
as in the UK.
investments
• The new wealth resulted in large investments in
modernising Irish infrastructure and cities.
• The National Development Plan led to
improvements in roads, and new transport
services were developed, such as the Luas light
rail lines, the Dublin Port Tunnel, and the
extension of the Cork Suburban Rail.
• Local authorities enhanced city streets and built
monuments such as the Spire of Dublin.
immigration
• Ireland's trend of net emigration was reversed as
the republic became a destination for
immigrants.
• This significantly changed Irish demographics
and resulted in expanding multiculturalism,
particularly in the Dublin, Cork, Limerick, and
Galway areas.
• It was estimated in 2007 that 10% of Irish
residents were foreign-born; most of the new
arrivals were citizens of Poland and the Baltic
states, many of whom found work in the retail
and service sectors.
foreign-owned companies
• The growing success of Ireland's economy
encouraged entrepreneurship and risktaking, qualities that had been dormant
during poor economic periods.
• However, whilst some semblance of a
culture of entrepreneurship exists, foreignowned companies account for 93% of
Ireland's exports.
Double Irish
• The so called “Double Irish” is an arrangement under
which corporations like Apple are able to divert incomes
out of Ireland into low tax regimes in places like
Bermuda and the Cayman Islands.
• It is made possible by the fact that Irish tax laws allow
two companies to be set up here side by side, with one
of them resident here while the other one is resident in a
tax haven.
• Funds can then be transferred from one to the other so
that cash can be held free of US tax obligations in the
offshore location.
• Largest source of foreign investment came
from the Netherlands from 2002 on
(10.7bn euro compared to 7.9 bn euro
from USA -18.6 bn euro in total
• Most went to IFSC – 75% of all foreign
investment in Ireland [not IT or big
pharma].
• Haughey set up 1987 with 10%
corporation tax.
worldwide downturn
• The Celtic Tiger's momentum slowed
sharply in 2002, after seven years of high
growth.
• The Irish economic downturn was in line
with the worldwide downturn.
information technology (IT) industry
• The economy was impacted by a large reduction in
investment in the worldwide information technology (IT)
industry.
• The industry had over-expanded in the late 1990s, and
its stock market equity declined sharply.
• Ireland was a major player in the IT industry: in 2002, it
had exported US$10.4 billion worth of computer
services, compared to $6.9 billion from the US.
• Ireland accounted for approximately 50% of all massmarket packaged software sold in Europe in 2002
(OECD, 2002; OECD, 2004).
return of the boom
• After the slowdown in 2001 and 2002, Irish
economic growth began to accelerate
again in late 2003 and 2004.
• Some of the media considered that an
opportunity to document the return of the
Celtic Tiger – occasionally referred to in
the press as the "Celtic Tiger 2" and
"Celtic Tiger Mark 2".
return of the boom 2003-2007
• In 2004, Irish growth was the highest, at
4.5%, of the EU-15 states, and a similar
figure was forecast for 2005.
• Those rates contrast with growth rates of
1% to 3% for many other European
economies, including France, Germany,
and Italy.
return of the boom 2003-2007
• The pace of expansion in lending to households from
2003-2007 was among the highest in the euro area.
return of the boom
• The return of the boom in 2004 was claimed to
be primarily the result of the large construction
sector's catching up with the demand caused by
the first boom.
• The construction sector represented nearly 12%
of GDP and a large proportion of employment
among young, unskilled men.
• A number of sources, including The Economist,
warned of excessive Irish property values.
An advertisement for 100% mortgages
seen outside Dublin (17 July 2007).
return of the boom
• 2004 saw the construction of 80,000 new
homes, compared to the UK's 160,000 – a
nation that has 15 times Ireland's population.
• House prices doubled between 2000 and 2006;
tax incentives were a key driver of this price rise,
and the Fianna Fáil-Progressive Democrats
government subsequently received substantial
criticism for these policies.
• In January 2009, UCD economist Morgan Kelly
predicted that house prices would fall by 80%
from peak to trough in real terms.
Bertie Ahern (born September 12, 1951) was the tenth
Taoiseach of Ireland between 1997 and 2008.
• “The reason it's on the rise is because probably
the boom times are getting even more boomer.”
commenting on rising inflation in the Irish economy. Economic
growth shows little sign of letting up – The Irish Times newspaper
article, 14 July, 2006.
• "I don't know how people who engage in that
don't commit suicide"
commenting on people "talking the economy down", just before the
crash. Speech at Irish Congress of Trade Unions conference 200707-3.
Developing problems
• Rising wages, inflation, and excessive
public spending led to a loss of
competitiveness in the Irish economy.
• Irish wages were substantially above the
EU average, particularly in the Dublin
region, though many poorer Eastern
European states had joined the EU since
2004, substantially lowering the average
EU wage below its 1995 level.
Warning! - Warning! - Danger!
Local and International warnings
• In February 2000, William Slattery (then former
Deputy Head of Banking Supervision in the
Central Bank of Ireland) predicted a property
price fall of 30%–50% was possible if credit
growth was not curbed.
• In 2000, the International Monetary Fund stated
that no industrial country in the last 20 years had
experienced price increases on the scale of
Ireland without suffering a subsequent fall.
• In June 2005, The Economist news magazine
suggested that a large bubble existed in the Irish
market.
Developing problems
• Ireland's new wealth is unevenly distributed.
• The United Nations reported in 2004 that Ireland
was second only to the US in inequality among
Western nations.
• According to an ESRI report published in
December 2006, Ireland's child poverty level
ranks 22nd out of the 26 richest countries, and it
is the 2nd most unequal country in Europe.
Developing problems
• Banking scandals
• The New York Times in 2005 described Ireland
as the "Wild West of European finance", a
perception that helped prompt the creation of the
Irish Financial Services Regulatory Authority.
• Despite its mandate for stricter oversight, the
agency never imposed major sanctions on any
Irish institution, even though Ireland had
experienced several major banking scandals in
overcharging of their customers.
Developing problems
• Between the years of 2000 and 2003 the then
Finance Minister Charlie McCreevy boosted
public spending by 48% while cutting income
tax.
• A second problem occurred when government
policies allowed, or even encouraged, a housing
bubble to develop, "on an immense scale".
• However, he wrote nothing of the impact of the
European Central Bank's low interest rates
which funded the property bubble and further
exacerbated the overheating economy.
Death of the Tiger
Death of the Tiger
• In September 2008, Ireland became the
first eurozone country to officially enter
recession.
• The recession was confirmed by figures
from the Central Statistics Office showing
the bursting of the property bubble and a
collapse in consumer spending that
terminated the boom that was the Celtic
Tiger.
What's left?
ghost estates
ghost estates
• A ghost estate is an unoccupied housing estate,
particularly one built in the Republic of Ireland
during the period of economic growth when the
Irish economy was known as the Celtic tiger.
• A massive surplus of housing, combined with the
late-2000s recession, resulted in a large number
of estates being abandoned, unoccupied or
uncompleted.
• In 2010 there were more than 600 ghost estates
in Ireland, and a government agency report
estimated the number of empty homes in Ireland
at greater than 300,000.
Mortgage arrears 2005 - 2012
Housing supply
• In mid 1940s 70% of all new housing built
by councils and city corporations
• Fianna Fail reduce supply from 27% in
1985 to 6% during boom.
• Many bought as second homes or
investment.
House completions
Huge rent increases
Who owns Irish debt?
Top 1% income
Half of Ireland's population on welfare
• 'Irish Budget 2014: Half of Ireland's population on
welfare‘ By Michael Hennigan Sep 2, 2013
"Half of Ireland's population is on welfare and when
recipients of child benefit, farmers dependent on public
subsidies which are effectively welfare, accounting for
81% of average farm income in 2012; legal services
costing the state about a half billion euros annually;
public payments to doctors; a raft of corporate welfare
schemes and the public service itself.
Half of Ireland's population on welfare
• This year, the Department of Social Protection
will spend over €20.24bn on its entire range of
schemes, services, and administration. At the
end of May, there were 1.476m people receiving
a weekly payment in respect of 2.283m
beneficiaries. In addition, some 614,000 families
were in receipt of the monthly child benefit
payment.
The CSO estimated that the total population was
at 4.593m in April 2013."
National debt 2015
• € 213,724,685,056 billion
• Interest per Year 10,524,945,175€
• Interest per Second 334€
•
•
•
•
•
Debt per Citizen 46,552€
Debt as % of GDP 114.27%
GDP 187,042,214,900€
Population 4,591,087
http://www.nationaldebtclocks.org/debtclock/ireland
National debt
Company profits
• Gross profits for all
trading companies
in 2010
US multinationals
• US statistics show that Irish-incorporated subsidiaries of US
multinationals made profits of $147 billion [€113.5 billion] in 2011,
although the Revenue Commissioners estimated that the net taxable
profits for all companies that year were just €40 billion.
• The difference between the two figures is down to the existence of
Irish-incorporated subsidiaries of US multinationals that are not taxresident here but are tax-resident in offshore locations such as
Bermuda.
• It is the use of such companies by multinationals such a Google,
Microsoft and Apple that has brought unwelcome global attention to
Ireland’s role in their tax affairs.
US multinationals
• The amount of all taxable corporate profits in the
State accounted for by US-owned companies is
not known but is likely to be a considerable
proportion of the overall Revenue figure.
• The data from the US Bureau of Economic
Analysis, which shows that Irish-incorporated US
subsidiaries paid an effective tax rate of 2.2 per
cent in 2011, is contained in a paper published
yesterday by the Department of Finance.
Tax revenues 2014
• Corporation tax receipts for the year to date of €2.71bn
New taxes
•
•
•
•
•
Property tax
Bin charges
Water charges
USC
Pay cuts
Unemployment
Unemployment rates
• The unemployment rate for 15-24 year olds (youth
unemployment rate) decreased from 25.3% to 21.5%
over the year to Q1 2015.
• the seasonally adjusted unemployment rate for the EU28 for February 2015 was 9.8% compared to the
seasonally adjusted unemployment rate of 9.9% for
Ireland for Q1 2015.
• The highest unemployment rates among the EU-28
countries in Q4 2014 were recorded in Greece and
Spain (26.1% and 23.7% respectively) while the lowest
rate of 4.8% was recorded in Germany.
Future shock?