Transcript Lecture 2 Powerpoint presentation

IRISH ECONOMY
• STRUCTURE
• PERFORMANCE
STRUCTURE
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RICH (recently)
ASSET POOR
SMALL
LOW TAX
INTERNATIONALISED………TRADE,
TOURISM, FDI
• MEMBER OF EU
RICH
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1993 69% OF EU AVG
2004 125% OF EU AVG
SECOND RICHEST IN EU
NOT QUITE AS GOOD ON GNP BUT STILL
ABOVE AVERAGE
• WERE POOR……………NOW RICH
• CATCH UP COMPLETED
• FUTURE GAINS WOULD BE MORE
MODERATE (EVEN WITHOUT RECESSION)
INTERNATIONAL COMPARISONS
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GDP PER CAPITA PPPs(K)$ 2004
IRELAND
36.3
GER
28.8
FRA
29.0
USA
39.7
AUSTRALIA 32.4
DEN
32.3
UK
30.8
USA
39.7
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ASSET POOR
INFRASTRUCTURE
ROADS
TRANSPORT
HOSPITALS
HISTORICALLY POOR – LIMITED
INVESTEMENT RESOURCES
CATCH UP
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SMALL
POP 4.5M
EU
USA ABOUT 300M
JOBS
140M USA
2.1M IRL
• IMPLICATIONS
TRADE
ADJUST TO CHANGE
QUICK REACTION
LOW TAX ECONOMY
• IRELAND WAS A LOW TAX ECONOMY AS
MEASURED BY TAX AS % OF GDP BEFORE
CURRENT PROBLEMS
• IRELAND
28.7
• FRANCE
43.4
• GER
39.4
• ITA
42.5
• USA
26.3
LOW TAX
• PARTLY POLICY DETERMINED
(MIGRATION)
• PARTLY FDI DETERMINED
• IMPLICATIONS FOR QUALITY OF
PUBLIC SERVICES
• BIG FUTURE DECISIONS EVEN
BEFORE RECESSION
• BETTER PUBLIC SERVICES INCREASE
TAX
INTERNATIONALISED
EXPORTS % OF GDP
• IRL
• USA
AROUND 80%
AROUND 10 %
TOURISM 2008
TRIPS ABROAD BY IRISH 7.9M
TRIPS TO IRELAND
7.8M
FDI ROLE IN ECONOMY
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LARGE DEPENDENCE ON MULTI-NATs
IMPLICATIONS FOR LOCAL INDUSTRY
EXPORTS…MANUF
2006 (B)
IR 7.3B FORG 79.9B 92%
US FIRMS 69.7B 80% OF ALL MANUF
EXPORTS
• ELECTRONICS FORG +95% OF EXPORTS
• PHARMAC
FORG +99% OF EXPORTS
PERFORMANCE
• LONG TERM MISERABLE PERFORMANCE
• USUAL INDICATORS
– HIGH UNEMPLOYMENT
– LOW INCOME
– LOW GROWTH
– EMIGRATION
TRANSFORMATION EARLY 1990s
CELTIC TIGER
POOR
RICH
EMIGRATION
IMMIGRATION
UNEMPLOYMENT
FULL EMPLOYMENT
LOW GROWTH
HIGH GROWTH
GNP GROWTH
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CELTIC TIGER 1993 – 2001
1977/1985
3.2% p.a.
1985/1993
4.4%
1993/2001
11.9%
2002
6%
2003
4.5%
2004
4.5%
2005
6%
2006
6%
2007
5%
EMPLOYMENT – consumers
with money
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1985
1993
2001
2004
2005
2007
1.079M
1.183M
1.722M
1.836M
1.929M
2.1M
• 14 YEARS …………….75% INCREASE IN
EMPLOYMENT ------ IMPLICATIONS FOR
TAX REVENUES AND GENERAL SPENDING
• HISTROICALLY UNPRECEDENTED
POPULATION
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1901
3.222M
1951
2.960M
1961
2.818M
1981
3.443M
1991
3.526M
2002
3.917M
2005
4.131M
81/91 8300 INCREASE PER YEAR
91/05 43200 INCREASE PER YEAR
2009 4.5m
MIGRATION
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NET MIGRATION (avg per year)
1981-86
-14377
1986-91
-26834
1991-96
+1600
1996-02
+25511
2003
+29800
2004
+31600
2005
+53400
2006
+69900
ECONOMIC PERFORMANCE INDICATORS
1993
2004
UNEMPLOYMENT %
15.7
4.7
GOVERNMENT DEBT AS % GNP
93
34
CORPORATION TAX %
10/40
12.5/25
PERSONAL TAX % (lower & higher rate)
27/48
20/42
IRISH GDP PER CAPITA AS % OF EU-15 GDP
PER CAPTIA
69
125
IRISH GNP PER CAPITA AS % OF EU-15 GDP
PER CAPTIA
75
101
EMPLOYMENT
1.8M
1.2M
TRANSFORMATION
• Dramatic transformation in a relatively
short time
• 9 years
• Why has this occurred
• LATER IN DETAIL
• BROAD ASPECTS
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CURRENT SITUATION
ESRI
OECD
DAVY
SLOWDOWN IN GROWTH/RECESSION
CONCERNS
INTERNATIONAL
WHY THE TRANSFORMATION
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LIST OF AGREED FACTORS
ICT REVOLUTION
FDI
COMPETITIVENESS
“DEVELOPMENT” AID FROM EU
INTEREST RATES DOWN
PUBLIC FINANCIAL STABILITY
TAX RATES DOWN
GOOD INTERNATIONAL ENVIRONMENT IN US AND UK
LABOUR FORCE
SKILLS
CONFIDENCE
MUTUAL REINFORCING
WHY
• COMING OUT OF THE POOR 1980s
• CONFIDENCE
• OVERALL GOOD SET OF ECONOMIC
CIRCUMSTANCES
• AVAILABLE LABOUR FORCES AND
SKILLS
• WHAT WAS NEW IN THE 1990s?
TAX
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1883/84
CAPTIAL GAINS 40 TO 60%
VAT 5, 23. 35%
RESIDENTIAL PROPERTY TAX
INCOME TAX 25, 35, 45, 55, 60, 65
PROFITS TAX 40%, 50%
NOW
SOURCES OF GROWTH
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SUPPLY
LABOUR & PRODUCTIVITY
POTENTIAL GROWTH
DEMAND
CONFIDENCE
SPENDING
PUBLIC FINANCES
• DISASTER IN THE LATE 1970s AND 1980s
• HIGH BORROWING AND LARGE NATIONAL
DEBT
• HIGH TAXES
• CURRENTLY AMONG BEST IN EUROPE
• LOW BORROWING
• INCREASED EXPENDITURE WOULD LEAD
TO BORROWING OR NEED TAX INCREASE
• CONCERN TO AVOID PAST DISASTERS AND
GENERAL TAX INCREASES
SUMMARY
• NOW RICH
• RATE OF INCOME GROWTH SLOWER
IN FUTURE
• MAINTENANCE OF HIGH
EMPLOYMENT
• 5% NATIONAL GROWTH RATE
• POPULATION GROWTH
FUTURE/PROSPECTS
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INTER. ENVIRONMENT
COMPETITIVENESS
FDI
TAX
SKILLS
INNOVATION
INFRASTRUCTURE
CONFIDENCE