May 9, 2016

The Intel indicator

Posted in Sunday Business Post · 38 comments ·

Brexit could provide a boost to our FDI.

The recent layoffs in Intel and the fact that Brexit, if it happens, could lead to a bonanza in diverted multinational investment from Britain to Ireland, put this country’s relationship with global companies back in the spotlight.

In the case of the layoffs at Intel, forced due to a sharper than anticipated fall in PC sales in the US, the losses underscore the less than satisfactory arrangement we have with the companies.

We provide workers and tax breaks, and they provide wages and opportunities. But wages are income, not wealth. Income is transitory; wealth is permanent. The real prize for a country such as Ireland which facilitates massive wealth generation for the multinationals is to get a share of their permanent wealth rather than transitory income.

Regarding Brexit, Britain leaving the EU could deliver the greatest foreign investment kick to Ireland in decades.

You wouldn’t think that opportunity exists, listening to the chorus of Official Ireland baying for Britain to remain.

But any modicum of honest analysis would suggest a clear, logical counter-narrative.

Obviously, the complexion of the British economy would change initially as uncertainty over tax and trade arrangements diverts foreign direct investment away from Britain. But where would that diverted FDI go? To Ireland, of course. Where else?

The British economy is 15 times bigger than Ireland’s, so we only need a small amount of the diverted investment to make a massive difference to our growth prospects. Why not take this opportunity and the unfortunate, but hopefully temporary, news from Intel, to signal a new relationship with the multinationals?

This new relationship would be instantly attractive to increased investment and would allow us to garner wealth, not simply income.

One of the ways to become real partners with the multinationals is to become shareholders, rather than simply a production location with favourable taxes.

Imagine taking shares as well as corporation tax revenue from them. At the moment the world is moving toward closing tax loopholes, which will culminate in firms having to pay the headline rate of tax here.

But rather than taking this money in tax, to be frittered away in the next political auction, we could take shares.

By taking shares in multinationals, we could create an Irish sovereign wealth fund that is linked to the share performances of some of the best-governed companies in the world, plugged into the world economy like no other and providing huge wealth for future generations.

So how would something like this work and why would it be attractive to multinationals diverting from Britain?

Well, they always say the first way to persuade someone to do something for you is to speak their language.

Most quoted multinationals already reward their employees with share options and shares, so why not simply extend this to our total relationship with these companies – outfits such as Microsoft, Apple, Facebook, Google and the like?

In 2012, US multinationals made $100 billion profit here on which they are supposed to pay 12.5 per cent tax, or $12.5 billion. But in fact they only paid $4 billion. So they ought to pay $8.5 billion more than they do.

This is the type of money any tax equalisation measures from the EU will come after – and in fact it would wipe out the annual Irish budget deficit a few times over.

But of course, the multinationals may react to any tightening in the tax take as the signal to move. After all, most multinationals here are service businesses, and these are easier to move than manufacturing businesses.

Why not encourage the multinationals to pay the difference between what they actually pay ($4 billion) and what they ‘ought’ to pay ($12.5 billion) in shares? We could pledge these shares for future generations of Irish people. The figures are significant – $8.5 billion is a lot of money, and it grows. Shares are permanent wealth, whereas taxes are more transitory income, like wages.

In recent years, financial wealth has grown much more quickly than income. Imagine an Irish sovereign wealth fund comprising the shares of these companies, compounding at these rates. This is the prize. And why would the multinationals go for it? Because giving shares or share options is much cheaper for the company than giving cash. It always is.

And they are used to operating in this way. What multinational treasurer would not look at this option?

By matching our interests with the stakeholders and shareholders of the companies that we have operating here, we revolutionise the game. We would be jumping together and both have skin in the game. We would be solving the multinationals’ problem, helping them be globally tax-compliant, capitalising on Brexit and reducing the risk that they head off to another jurisdiction.

We would have a new story to tell, and no better people to go out and tell it. Brexit is an opportunity, not a threat. Can’t we see that?

  1. Colm MacDonncha

    Again,a clever and innovative way of looking at silver linings…but again you’re not taking into account the Gombeen men who run the place, and the idiots who repeatedly vote for them…

    Any Wealth Investment Regime such as you’ve described would require foresight,genuine concern for the country and a Government not held in thrall by Banksters and Corrupt Businessmen. Good Luck with that…

  2. JK

    What an excellent idea.
    There is a risk with piling more eggs into the basket on this one though. Any wealth created should be diverted to other potential opportunities, like what the Scandinavians do with their oil money.
    And imagine what twiddle dee and twiddle dum might do with a Sovereign Wealth Fund.

  3. Deco

    I disagree. In fact I would call the opposite perspective.

    Westminster gets more sovereignty. Britain becomes a far more nimble and serious competitor than presently. Because Britain means business. And Britain will do more to attract inward investment, and drive up productivity.

    The idiots in Brussels (including that buffoon responsible for decisions to reverse planning inquiries, and who oversaw the Irish Water super quango – designed to fail – expensively ] are instigating disaster.

    Ireland is now about to put Mary Mitchel O’Connor in charge of employment policy. Promoted on the basis of inadequacy and lack of her being a potential threat to a limping Enda Kenny, who now feels vulnerable, and needs to be in control of the cabinet to prevent a challenge.

    Britain means business. Germany is led by a diplomatic disaster, who is turning her neighbours against her. France is led by an amatuer who would not be good enough to be the petrol pump attended filling De Gaulle’s Citroen. Italy is led by an amateur who is deliberately refusing to reform a crooked institutional state. Spain is led by nobody. And Ireland is led by a nobody.

    And Brussels has…..PHIL HOGAN.

    Brexit, will liberate Britain from all the Brussels BS.

    Meanwhile Ireland will continue to pretend we are happily subservient to a policy making Chernobyl, and that this is the route to prosperity.

    The combination of the fool who drove off the plinth, an incompetence riddled institutinal state, a deliberate bottlenecking of the residential real estate supply through ridiculous planning codes, and Brussels will ensure that Ireland is simply not able to compete.

    Meanwhile, Richard Bruton gets moved to Education because the grade system is a joke, universities are wasting public money, and the Irish Education has been mismanaged for the past 5 years, to the point that it is now veering towards Potemkin village status.

  4. Deco

    The real problem here is that the Eurozone Banking system is a Ponzi scheme with extreme valuations, and a dangerous insolvency problem.

    And the last thing that it needs is Britain declaring that it does not really have any more confidence in a house of cards. In fact that is the ultimate crime. You can be sceptical. But you cannot declare it. Because that might result in serious reform of the system.

    And as we know, the EU, as a policy making monopoly does not like alternative viewpoints. Whether it is Greek Finance Ministers, or the Irish electorate, or Icelanders holding utensils in the cold, the EU is arrogant with respect to it’s assumed right to boss millions of people around.

    The fact is that we have been misleading ourselves collectively since the Treaty of Maastricht, as to be benefits of Ponzi financing, unsustainable debt levels, and policy making for the sake of centralization and control.

    The worst possible outcome, for all of Europe (with the exception of well connected lobbyists), would be Britain deciding to go along with the prevailing level of stupidity that exists with Phil Hogan and his equivalents.

  5. Mike Lucey

    If we are going to sell our souls we may as well get as much as we can by whatever means and what DMcW suggests is as good as any.

    This ‘Irish sovereign wealth fund’ that would be beefed up with multi-national shares in lieu of corp taxes might also help solve the looming state pension problem that is not too far down the road.

    I think it might also be prudent to use part of this possible windfall in some fashion to better fund education across the nation. I imagine this would also be attractive to these multi-nationals as this is where they are getting the well educated workforce that they want/need. And what multi-national CEO could resist a ‘wing’ being named after him / her!

  6. aidanxc

    Very good idea David.

    We would just need to ring fence the fund so it wouldn’t used for political advantage by any sitting government.


    About one third of MNC staff are Irish. The more FDI Ireland receives the greater the amount spent by govt on health, education and housing. Explains our insane nat debt and crowding out of domestic businesses.

  8. Wealth is not permanent. It is ephemeral. Created by capital, vision, and motivation, inventiveness and hard work.

    Likewise is easily destroyed by the incompetent. That is why any investment is best considered by who is running the enterprise rather than looking at past history.

    Many a family business success has been squandered by the succeeding generation(s).
    Many a government “wealth” fund has evaporated.

  9. mishco

    First, IF brexit occurs – and I doubt it will – Britain will surely find ways of attracting more – rather than less – FDI using their new freedom from the EU and, as Deco says, our lot will quickly ensure that any benefits as sketched by David above will probe to be pie in the sky.

    Second, if you are speculating about our wonderful gains achieved by doing nothing except depend on the English voter, don’t forget the US voter too. Even if Trump doesn’t get in – and I think he may well – the Americans under any future regime are surely going to cut back on their
    companies’ outsourcing.

    Finally, as I said when you floated this ephemeral idea not so long ago in another article, why on earth are you encouraging our government to take part in another bubble, unless you seriously believe these foreign companies’ shares will go on up forever?

  10. Truthist

    The Share Prices of the U.S.A. multinationals are artificially high because they got earlier chance to get finance than most of the rest of U.S.A. economy AND it at cheaper rate of interest AND much of the finance they then invested into buying shares of their respective multinational so as to raise the price of the shares.

    So, instead of proposing that the Irish State be given overpriced shares in over-valued multinational, why not arrange it that the multinational gives Irish State be given Bonds payable to the Irish State ?

    In short ;

    Why not Bonds instead of Shares ?

  11. Truthist

    “Naive” Suggestion ;
    Why not have all 3 of the Irish State’s Governments — #1 “Official” [ Cabinet, Dail, & Seanad, & also the Councils of the Counties & Cities ], #2 “Permanent” [ Civil Service ], & 3 “Hidden” / “Deep State” — be run by talented Crooks ?

    “Wise” Answer ;

    It already is.

    • Truthist

      Typos / Edit ;

      …, & #3 “the Hidden State” / “The Deep State” …

      “Wise” Answer ;

      They already are.

  12. Pat Flannery

    See anybody you know in here:

  13. McCawber

    At the core of another excellent article is to accept the reality of what the future for global taxation is likely to be rather than head in the sand denial.

  14. mcsean2163

    Groan.. Conflict of interest?

  15. Great idea David.

    Will it happen? No.

    It’s too smart for the braindead numbskulls in Leinster House.

    Game over.

    • Truthist

      U are wrong ;
      They are not brain-dead numbskulls ;
      Rather, they are very clever & educated & cunning people ;
      But, they are all this with greedy, & egotistical, & spiteful, & devious, & sycophantic, & traitorous, intent.

      They just think about their own betterment ONLY ; Unlike u Adam.

      They most prefer to get their hands on the tax because it is more liquid, & thus they can mis-appropriate it easier & swifter.

  16. Mike Lucey

    I noted in DMcW’s comments last night on RTE’s Claire Byrne Live that in relation to the house building required currently in Ireland, particularly in the Dublin area, that the County Councils should lead the way as if its left to developers / builders we will end up with more ‘ghost estates’!

    Before any the these ‘ghost estates’ were built they had to apply for and receive planning permission. The particular Planning Authorities IMO failed in their duty to oversee sustainable development. I suppose the attraction of pulling in large amounts of cash by way of conditional contributions helped blurred their vision.

    A simple future solution might be for planning authorities to require that the developers / builders prove that their proposals are ‘sustainable’ with a requirement that at least 50% of the schemes are pre-sold to single (house) property owners.

    This should not be that difficult where their are genuine housing shortages and it appears most developers / builders have indicated that they would be happy with a 16-20% profit margin so pricing can be largely fixed.

    What I propose would also help to eliminate a lot of ‘head in the cloud’ speculation and bank stupidity. Folks have short memories!

    • Swanie

      And there definitely needs to be a time limit on when construction needs to start and (approximately) finish – otherwise those lands are just going to sit indefinitely, waiting for land prices to escalate.

  17. Mike Lucey

    In relation to the water charges fiasco I wonder has it dawned on the government that one way out of the mess might be to propose that households be allowed a very generous amount of ‘free’ water and once this amount is passed that a pay per litre system comes in.

    I feel confident that most folks would be happy with such a system and use their water supply responsibly and also make sure that they do not have any leaks on their property passed the water meters.

    I also feel if folks were assured, via legislation, that Irish Water could never be sold off to Big Business they would rest easy and go along with a reasonable system whereby the water infrastructure be upgraded via funds collected from their excessive water usage.

    • Deco

      Bord na Mona were preparing to run the water system 10 years ago. They were developing the expertise in sewage, and they already had the expertise in hydro-engineering.

      But the two relevant government ministers involved (Hulk Hogan, & Sulk Rabbit) reckoned that the new quango needed to be a billing organization, first and foremost. So they asked An Bord Gais to guide the formation.

      With the inherent assumption that even though the purpose of the quango was to bill people for what Ming called a third tax for water infrastructure (in addition to the two you already pay), the marketing department would be able to smooze through acceptance, from the obedient section of the population that never asks questions for the state.

      Throw in a crook, anglo and a dodgy sale process, and a media whitewash, for good measure.

      IW – it contains threads that define the very worst excesses of the state system, and the business operators that align themselves with political parties.

  18. McCawber

    Elephants in the corner.
    Water charges.
    Government deficits.
    Misery = No water charges + too much debt + cintinueing government deficits + Denial of the
    of the impact of Technology on our freedom.
    Happiness = User paid water charges + gradual reduction in debt levels + prudent government spending + control of technological ownership.
    Another elephant in the room relates to the unions in the construction industry who want to continue to be paid at the same rates when house that sold at 400k now only fetch 250k – that does not compute but like the luas drivers they don’t care who gets screwed – another prezzie from Bertie’s partying days.
    Speaking of the Bertie it’s obvious he wants a cut at the Aras.
    This will be the ultimate test for the Irish people on a number of levels.
    The political party who allow him to represent them.
    The closeness of the result bearing in mind you can fool some of the people all of the time.

    • Deco

      I don’t know if Bertie is aiming for the Aras. But a member of one of his cabinets is aiming for it. And that person has the full backing of the most powerful corrupt businessman operating in the state.

      And therefore that person is assuming that the media will take out rivals, and will back that person.

      Do we want a proxy for corrupt businessman in the Aras ?

      Of course, the question you will get asked will be very different, because most people would turn against that proposal.

  19. Shane F

    Regarding BREXIT

    Just like in the Scottish referumdum, I believe most people will more happy to keep the status quo.

    Should we not be more concerned about a very like Trump presidency? Will he not regard us as the same as the Mexicans with multinationals located here taking potential american jobs?

    Would love to see article from David dealing with how Trump may dealk with corporate tax issue.

  20. Reading the article again I realised it is all speculative hype without a shed of evidence to support anything and additionally several mistakes in assertions.

    How about a share of this company. Just a fine way to loose ones shirt in my opinion. When the stocks drop 90% all that is left is a worthless piece of paper.

    Quite a bit like paper currency that is inflated to infinity and worthlessness.

    The Wealth of a country resides in its capital, the education and training of its people and a government that enforces the rule of law but otherwise gets out of the way to allow the entrepreneur to flourish and create.

  21. Truthist

    Anyways, anyways, … how are things shaping up with The Irish State, & the rest of the E.U. also, per the following ;

    Here is the Transcript referred to in above article ;

  22. McCawber

    Would be interesting to hear what an economist’s view on what kind of impact on Ireland President Trump’s likely(presumed) policies would have.

  23. Truthist

    “A Leopard cannot change its Spots.” ; And, neither can a Leopardess.

    So, the “Dumb Cattle” will be devoured by either of the 2 remaining main contenders [ Proxies of the Dreadful Few ] for the Prezzie Job : Hell-ary Kill-ton & Donald Trump.

    Here is more meaty stuff on Trump’s biz. character :

  24. SMOKEY

    The once radical notion that Donald Trump could be POTUS has now become mainstream. Vote Trump.

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