Irish Fiscal Advisory Council

Irish Fiscal Advisory Council
Independent Statutory Body
Genre Independent Budgetry Oversight of Irish State
Founded July 2012 (interim)
12 December 2012
Headquarters Whitaker Square (ESRI Building),Sir John Rogerson’s Quay, Dublin D02 K138, Ireland
Area served
 Ireland
Key people
 Seamus Coffey (Chairperson)
Mr Sebastian Barnes
Dr Íde Kearney
Mr Michael G. Tutty
Dr Martina Lawless
Products Statutory Body that conducts independent budgetry oversight of Irish State finances and compliance with leglislated EU fiscal rules
Website IFAC website

Irish Fiscal Advisory Council (IFAC; Irish: Comhairle Chomhairleach Bhuiséadach na hÉireann) is a non-department statutory body providing independent assessment and analysis of the Irish Government's economic and budgetary forecasts, and fiscal approach. IFAC monitors compliance with EU fiscal rules and agreements. IFAC was created to counter the "green jersey agenda" which was identified as a contributor to the Irish financial crisis.

Purpose

IFAC was formed as part of a program of reform of Ireland’s "budgetary architecture" post the Irish economic crisis. It was established on an interim basis in July 2011, and legally constituted under the Fiscal Responsibility Act 2012[1] which was part of the EU-IMF Programme of Financial Support for Ireland (and whose terms required the creation of a "budgetary advisory council to provide an independent assessment of Government forecasts").[2][3]

The formation of IFAC was a response to the perceived failure of established Irish economic and Irish regulatory institutions to anticipate and warn over the consequences of the Irish credit bubble (i.e. the so-called "green jersey agenda"), and/or engage in the concerns that were being raised by various international monitors at the time (IMF and OECD) regarding Ireland's economic situation.[4][5][6]

IFAC performs a similar role to the "Office for Budget Responsibility" in the United Kingdom (also formed after the financial crisis), and other equivalent members of the "Network of European Union Independent Fiscal Institutions" (which IFAC joined in September 2015).[7][8]

IFAC is structured as a Council of 5 members (one Chairperson) and a supporting analytical team of circa 6.[4][9]

The formal mandate of the Irish Fiscal Advisory Council (per IFAC website) is to:

  • Assess and endorse the Irish Government’s official macroeconomic forecasts.
  • Assess the Irish Government's budgetary forecasts.
  • Assess the broader fiscal stance of the Irish Government.
  • Monitor compliance with legislated fiscal rules by the Irish Government.

IFAC has been well received by Irish financial commentators and its publications are widely covered in the Irish media.[10][11][12][13][14]

Publications

The key mandated publications of the Irish Fiscal Advisory Council are:

  • Bi-annual Fiscal Assessment Report (FAR) (produced after the Irish autumn Budget, and the spring Stability Update).[15]
  • Bi-annual Endorsement Letters of macroeconomic forecasts (produced in advance of the Irish autumn Budget, and the spring Stability Update).[16]
  • Annual Pre-Budget Statement (produced before the Irish autumn Budget).[17]
  • Annual Ex-Post Assessment of Compliance with the Domestic Budgetary Rule.[18]

The Irish Fiscal Advisory Council has commenced an annual conference titled “Path for the Public Finances” that was started in March 2017. The goal is to bring attention to long-term Irish State finance issues relevant for Ireland. International speakers attend. Each annual event is intended to focus on a particular theme, which has been:

  • March 2017 Path for the Public Finances: Fiscal Risks.[19]
  • March 2018 Path for the Public Finances: Too Hot, Too Cold! The Irish Cycle.[20]

IFAC also publishes Analytical Notes and Working Papers in areas of concern to Irish financial stability (including House Prices, Tax Receipts, Public Debt, and EU Rules/Guidelines).[21]

Focus

The IFAC looks at major areas that could affect the stability and confidence levels of Irish macroeconomic forecasts, and/or, create the potential for economic shocks.

Distortion of Irish GDP and GNP

Ireland is a leading corporate tax haven (see Corporate tax haven lists).[22] Extreme distortions of national economic data is a well-known feature of corporate tax havens.[23][24] The top 15 GDP-per-capita countries are heavily represented by traditional and corporate tax havens (see GDP-per-capita and tax havens). The artificial nature of the distortion makes the haven prone to more severe credit cycles as international capital markets misprice the cost of credit to the tax haven in benign times, only to reverse it sharply in times of global stress (see tax haven cycles).

A stunning $12 trillion—almost 40 percent of all foreign direct investment positions globally—is completely artificial: it consists of financial investment passing through empty corporate shells with no real activity. These investments in empty corporate shells almost always pass through well-known tax havens. The eight major pass-through economies—the Netherlands, Luxembourg, Hong Kong SAR, the British Virgin Islands, Bermuda, the Cayman Islands, Ireland, and Singapore—host more than 85 percent of the world’s investment in special purpose entities, which are often set up for tax reasons.

— "Piercing the Veil", International Monetary Fund, June 2018[24]

IFAC was one of the members of the economic steering group ((the Economic Statistics Review Group, or "ESRG"), that Philip R. Lane, the Governor of the Central Bank of Ireland, convened to create a new economic statistic to replace Irish GDP.[25][26] The metric, also called GNI*, is circa 30% below Irish GDP.[27][28]

Ireland has, more or less, stopped using GDP to measure its own economy. And on current trends [because Irish GDP is distorting EU-28 aggregate data], the eurozone taken as a whole may need to consider something similar.

— Brad Setser, Council on Foreign Relations, "Ireland exports its Leprechaun", 25 April 2018[29]

Irish Public Debt

Ireland's economic data is distorted by the tax planning schemes of US multinationals based in Ireland (i.e. "double Irish").[30] While traditionally this distortion manifested itself in divergences between Ireland's GDP and GNI[31], as the schemes have become more developed (i.e. "capital allowances for intangibles"), Irish GNI and GNP have also become materially distorted. This was most evident in the "leprechaun economics" affair when Apple restructured its controversial Irish operations (the subject of the EU Commission's €13bn fine) in January 2015 and Irish GDP rose 26.3% while Irish GNP rose 18.7%.

The problem of assessing Ireland's public indebtedness post "leprechaun economics" and "modified GNI", is captured on page 34 of the OECD 2018 Ireland Survey:[32]

  • On a Gross Public Debt-to-GDP basis, Ireland's 2015 figure at 78.8% is not of concern.
  • On a Gross Public Debt-to-GNI* basis, Ireland's 2015 figure at 116.5% is more serious, but not alarming.
  • On a Gross Public Debt Per Capita basis, Ireland's 2015 figure at over $62,686 per capita, exceeds every other OECD country, except Japan.[33]

IFAC introduced a new measure of benchmarking Irish public debt by comparing to Tax Revenues (similar to the Debt-to-EBITDA ratio used in capital markets). On this basis, Ireland's 2016 Gross Public Debt-to-Tax Revenues is 282.9%, which is the 4th highest of the EU-28 (after Greece, Portugal, and Cyprus).[34][35] It shows how difficult making Ireland's EU Debt Rule committments will be.[36]

From this, IFAC advised the Irish Government against using funds, or proceeds from State asset sales, to stimulate the fast-growing Irish economy, and instead use for debt repayment.[37]

U.S. Multinationals

Dominance of U.S. Multinationals: Irish corporate gross operating surplus by the controlling country of the company (note: a material part of the Irish figure is for U.S. tax inversions who are really also U.S.-controlled companies). Eurostat (2015)

Corporation tax was 15.1% of Irish tax revenues in 2016 with 80% coming from foreign-owned multinationals.[38] Irish corporate tax revenue jumped 49% in 2015 alone (from €4.61bn to €6.87bn),[38] the year of Apple's Irish restructuring. This is in an environment where foreign-owned multinationals, attracted to Ireland's corporate tax system, contributed €28.3bn in payments to the Irish economy in 2016 (corporate taxes, wages, and capital spending).[39] It is also in an environment where the 2017 US TCJA legislation, and the EU "digital tax" (and CCCTB), are threats to the Irish corporate tax system.

IFAC have reported on the volatility and concentration of Ireland corporation tax payments, with the top 20 payers now making up almost 40% of all corporation tax payments.[40]

The Chairperson of IFAC, Seamus Coffey, was separately commissioned by the Irish Government to review Ireland's Corporate Tax Code.[41][42] While corporate tax recipts were found to be sustainable for the near future (to 2020),[43] it was recommended that some multinational tax allowances be scaled back (i.e. capital allowances capped at 80%) to improve tax revenue sustainability.

IFAC noted Ireland’s exposure to U.S. multinationals in the June 2018 report and the impact of a single multinational leaving.[44] The high exposure of Ireland's economy to U.S. multinationals (14 of Ireland's top 20 firms, a quarter of the Irish labourforce), is discussed in more detail here. The former IMF mission chief to Ireland, Ashoka Mody, has emphasised how the changes to international tax regimes (i.e. Tax Cuts and Jobs Act of 2017), could make this event likely, and on a bigger and synchronised scale (discussed here):

He said the Irish economy won't cope with radical changes to international tax rules [TCJA], which will dent our attractiveness to multinationals. The dire warning of a massive threat to our economy is contained in a hard hitting new book from the former head of the IMF's mission to Ireland. "Without its low-tax regime, Ireland will find it hard to sustain economic momentum," he said.

— Interview with Ashoka Mody, IMF Chief for Ireland, 9 June 2018.[45]

Council

Chairperson

  • 1st (2011-2016) UCG Professor John McHale.[46]
  • 2nd (2016-current) UCC economist Seamus Coffey.[47]

Council members

  • Mr. Sebastian Barnes
  • Dr. Íde Kearney
  • Mr. Michael G. Tutty
  • Dr. Martina Lawless
  • (past) Professor Alan Barrett
  • (past) Professor Donal Donovan
  • (past) Dr. Róisín O’Sullivan
  • (past) Professor John McHale

See also

References

  1. ↑ "Fiscal Responsibility Act 2012" (PDF). Department of Finance. 2012.
  2. ↑ "Ireland bailout: full Irish government statement". The Guardian. 28 November 2010.
  3. ↑ "Memorandum of Understanding between the Irish Fiscal Advisory Council and the Department of Finance relating to the "Endorsement Function" of the Council under the Fiscal Responsibility Acts 2012 and 2013" (PDF). IFAC Department of Finance. January 2018.
  4. 1 2 "Irish Fiscal Advisory Council" (PDF). OECD Journal on Budgeting. 2015.
  5. ↑ "Failure to heed warnings was cause of crash: Trichet". Irish Independent. 30 January 2015.
  6. ↑ "FitzGerald: My regrets over crash are with me until I die". Irish Independent. 12 February 2015.
  7. ↑ "What is the Irish Fiscal Advisory Council for?". Irish Independent. 14 June 2015.
  8. ↑ "John McHale The man whose job it is to say 'No Minister'". Irish Independent. 13 March 2014.
  9. ↑ "Irish Fiscal Advisory Council" (PDF). C&AG Report 2015. 2015.
  10. ↑ "Fiscal Advisory Council's timely warning". Irish Times. 7 September 2017.
  11. ↑ "Fiscal Council says Ireland is still vulnerable and warns against extra Budget spending". thejournal.ie. 5 September 2017.
  12. ↑ "Chairman, Fiscal Advisory Council: 'There's been a very strong recovery - we are now living within our means'". thejournal.ie. 18 January 2018.
  13. ↑ "Even if the government refuses listen, having this kind of analysis in the public domain is vital". Sunday Business Post. 30 November 2016.
  14. ↑ "Ireland needs continued austerity says watchdog". Financial Times. June 2014.
  15. ↑ "Fiscal Assessment Reports". Irish Fiscal Advisory Council. 2018.
  16. ↑ "Endorsement Letters". Irish Fiscal Advisory Council. 2018.
  17. ↑ "Pre-Budget Statements". Irish Fiscal Advisory Council. 2018.
  18. ↑ "Assessments of Compliance with the Domestic Budgetary Rule". Irish Fiscal Advisory Council. 2018.
  19. ↑ "Path for the Public Finances 2017 Fiscal Risks". Irish Fiscal Advisory Council. 2017.
  20. ↑ "Path for the Public Finances 2018 Too Hot Too Cold The Irish Cycle". Irish Fiscal Advisory Council. 2018.
  21. ↑ "IFAC Analytical Notes Series". Irish Fiscal Advisory Council. 2018.
  22. ↑ "Ireland is the world's biggest corporate 'tax haven', say academics". Irish Times. 13 June 2018. Study claims State shelters more multinational profits than the entire Caribbean
  23. ↑ "How tax havens turn economic statistics into nonsense". Quartz. 11 June 2018.
  24. 1 2 "Piercing the Veil, FINANCE & DEVELOPMENT, JUNE 2018, VOL. 55, NO. 2". IMF Finance & Development. June 2018.
  25. ↑ "ESRG Presentation and CSO Response" (PDF). Central Statistics Office. 4 February 2017.
  26. ↑ "Leprechaun-proofing economic data". RTE News. 4 February 2017.
  27. ↑ "CSO paints a very different picture of Irish economy with new measure". Irish Times. 15 July 2017.
  28. ↑ "New economic Leprechaun on loose as rate of growth plunges". Irish Independent. 15 July 2017.
  29. ↑ "Ireland Exports its Leprechaun". Council on Foreign Relations. 11 May 2018.
  30. ↑ "Europe points finger at Ireland over tax avoidance". Irish Times. 7 March 2018.
  31. ↑ "International GNI to GDP Comparisons". Seamus Coffey, University College Cork. 29 April 2013.
  32. ↑ "OECD Ireland Survey 2018" (PDF). OECD. March 2018.
  33. ↑ "National debt now €44000 per head". Irish Independent. 7 July 2017.
  34. ↑ "Debt levels remain high following the crisis June FAR Slide 7" (PDF). Irish Fiscal Advisory Council. June 2017.
  35. ↑ "Section 1.2.2 Recent Fiscal Context June FAR Page 14" (PDF). Irish Fiscal Advisory Council. June 2017.
  36. ↑ "Future Implications of the Debt Rule" (PDF). Irish Fiscal Advisory Council. June 2014.
  37. ↑ "National Debt - it hasn't gone away, you know". RTE News. June 2017.
  38. 1 2 "An Analysis of 2015 Corporation Tax Returns and 2016 Payments" (PDF). Revenue Commissioners. April 2017.
  39. ↑ "IDA Ireland Competitiveness". IDA Ireland. March 2018.
  40. ↑ "Analytical Note 10 Challenges Forecasting Irish Corporation Tax" (PDF). Irish Fiscal Advisory Council. September 2016.
  41. ↑ "Minister Donohoe publishes Review of Ireland's Corporation Tax Code". Department of Finance. 21 December 2017.
  42. ↑ "REVIEW OF IRELAND'S CORPORATION TAX CODE, PRESENTED TO THE MINISTER FOR FINANCE AND PUBLIC EXPENDITURE AND REFORM BY MR. SEAMUS COFFEY" (PDF). Department of Finance. 30 January 2017.
  43. ↑ "Strong corporate tax receipts 'sustainable' until 2020". Irish Times. 12 September 2017.
  44. ↑ "Losing just one big multinational would leave Ireland nursing a €276m tax shortfall". Irish Independent. 6 June 2018.
  45. ↑ "Warning that Ireland faces huge economic threat over corporate tax reliance - Troika chief Mody says country won't be able to cope with changes to tax regime". Irish Independent. 9 June 2018.
  46. ↑ "John McHale to step down as fiscal council chief". Irish Time. 25 October 2016.
  47. ↑ "Michael Noonan appoints Seamus Coffey as Chairperson of Fiscal Advisory Council". 21 December 2016.
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