Amid the turmoil of the last few years, the multinational sector has been a huge support, motoring through the Covid shutdowns and — with one or two bumps — the cost-of-living crisis. Corporation tax payments more than doubled from just under €11 billion in 2019 to almost €23 billion last year. Things would have been much tighter for the exchequer without this boost.
Over the past decade, Ireland’s model for attracting multinational investment has been even more successful than the most optimistic of forecasters would have predicted. The stars aligned.
But looking out over the next few years, there are now serious warning signals, things that Ireland needs to address if it is to win the next phase of investment. Ireland’s multinational model is slowly coming under threat — and dazzled by the stellar tax returns, we may have missed a few warning signs. The lights are not flashing red — but they are now on orange.
So why come to Ireland? Many of the key attractions remain in place — an established multinational base, a skilled workforce and a stable political system
Ireland understandably focused on the risks from multinational tax changes over the past few years — a bomb defused for now with the Organisation for Economic Co-operation and Development (OECD) tax deal and Ireland’s move to a 15 per cent rate on the biggest companies. We should note, however, that the OECD deal is not yet fully implemented and this week’s announcement by US president Joe Biden of his intention if re-elected to push for a worldwide corporate tax rate of 21 per cent on US companies — above the agreed OECD rate — shows that much remains in play.
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This is election politics, as opposed to anything that might be voted through Congress. But it shows that what companies pay and where they pay it remains contentious political territory. Ireland, as one of the big winners on the tax front, remains in the spotlight. The tax regime will not be the calling card it was in the past.
So why come to Ireland? Many of the key attractions remain in place — an established multinational base, a skilled workforce and a stable political system. All parties remain committed to attracting and keeping multinationals and the new corporate tax arrangements, even if Sinn Féin’s personal tax policies may raise a few eyebrows in corporate headquarters.
But talk to those in the multinational sector or others familiar with their views and you hear rumblings. Big companies plan projects on a timescale of six or seven years or more and they need reassurances that from 2030 on, Ireland will be able to supply clean water and green energy. Housing, too, is an issue. But energy and water are the basics. And official reassurances that there is no immediate threat on either score are not going to wash. The question is whether Ireland can deliver in the longer term. And the two core concerns — planning and politics — raise doubts on both scores.
On planning, the decision by Apple to halt its Athenry data centre plan in 2018 after three years of delay getting through the process caught a lot of attention in corporate boardrooms. It clearly showed a planning system not fit for purpose. And as well as getting the go-ahead for their own project investments, the multinational boardrooms realise that Ireland’s big plans for energy and water require a plethora of planning decisions.
A warning signal that did not receive enough attention was Intel’s decision in late 2021 to choose Magdeburg in Germany for a large new semiconductor investment, rather than Oranmore in Galway. This was smoothed over by the commitment of the company to invest billions more in its plant in Leixlip, Co Kildare. But in reports at the time, there was talk about the speed of planning for the plant and the deliverability of the energy and water infrastructure needed. This is not about guaranteeing a favourable decision — it is about being able to promise a timeline for this.
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The political appetite to face the longer-term and often difficult decisions is also debatable. It is not so much a question of the wrong decisions being made, it is all too often no decision being taken, or a decision made after years of cogitating. The first expert report on the North-South electricity interconnector was submitted in 2016 but subsequently Government ordered a second one and then an independent review. Construction has still not started. It was all about avoiding a decision.
Irish politics can, at times, react quickly. Talk of the lights going out due to the failure of new auctions for gas-fired energy plants in 2021 led to quick decisions to put in place emergency generation that should cover the cracks for a few years. The “no immediate threat” line lives on.
But the longer-term move to clean energy is still surrounded by some policy ambiguity, particularly about how the transition is managed and the use of gas in doing this. EirGrid has warned about looming shortfalls in generation capacity. But the question of how this gap is to be filled as we await the arrival of offshore wind energy has never been satisfactorily bottomed out.
With local and European elections in early June and a general election possible later this year, the risk now is of more delay
The clash between Minister for the Environment Eamon Ryan and Minister for Enterprise Simon Coveney on data centres at a recent Cabinet committee is instructive and a sign of this policy uncertainty. Coveney wants to push ahead, because he sees the centres as part of the infrastructure of the tech sector, while Ryan fears pressure on electricity will lead to more gas-fired supply being needed in the short term. Meanwhile, there are questions about whether the planning system can deal with the permits and permissions for the new offshore projects — and also about the slow pace of planned development off the west coast of Ireland.
With local and European elections in early June and a general election possible later this year, the risk now is of more delay. For example, it appears the Government will put off any decision on Irish Water’s plans for a pipeline from the Shannon across the Midlands to Dublin until at least after the local and European elections. Meanwhile, the ability to supply water for housing and industrial development across much of the country is gradually being eaten away.
The continued march of new investment here in areas like pharma shows Ireland still has a good thing going on foreign investment. But the rumblings are now too loud to ignore. A dangerous credibility gap is opening up in terms of our ability to deliver on longer-term plans.