The underlying growth in Ireland's domestic economy last year was around 6 per cent, according to estimates by the National Treasury Management Agency, in its latest presentation to investors. The NTMA document says that the GDP growth rate of over 26 per cent in the latest GDP figures severely overstates the growth in economic activity here.
The NTMA’s work is the first calculation by an official agency which tries to capture a more realistic measure of the rate of economic growth. It says that on its calculations the underlying growth in domestic demand in the economy was running around 6.8 per cent at the end of 2015. This measurement is in nominal terms – not taking into account price changes, although as inflation was low the difference for the domestic economy would not be very large.
The NTMA presentation also tries to adjust for the main factors which distorted growth via the multinational and business sectors. It says this would reduce the nominal rate of overall GDP growth to 11 per cent last year. The recent CSO figures showed nominal growth of over 32 per cent in GDP last year, with real growth – adjusted for inflation – of over 26 per cent.
The NTMA warns that the CSO figures will complicate the EU Commission's judgement about Ireland's compliance with the rules under the stability and growth pact. These rules state that the deficit must be reduced at a specified rate each year as a percentage of GDP. A committee chaired by Central Bank governor Philip Lane is to look at whether separate more realistic figures can be produced, but the CSO will also have to continue to publish figures using international guidelines.
In a separate paper looking at corporation tax, NTMA economist David Purdue says that 10 companies accounted for more than 40 per cent of corporation tax revenues last year , up from the average of 23.8 per cent which the top 10 accounted for between 2008 and 2012. This could create a vulnerability if the companies relocate, or if there are once-off transactions which hit Irish revenues. However Mr Purdue says that the market generally believes that the Government has taken a conservative view of likely corporation tax revenues for 2016 and it will probably continue to do so.
