The significant difference between Ireland’s GNP and GDP has been so normalised that even newscasters on the 9 O’Clock News, reading out a report on a very small increase in Ireland’s GDP now usually follow it up with a comment that Ireland’s GDP can’t be taken as an accurate indicator of economic performance. Instead GNP, Gross National Product, must be used they stress as this does not include the profits that MNC’s earn tax free by taking advantage of Ireland’s loose transfer pricing regime.
The following is an entry called GDP/GNP in a glossary published on the RTE News site:
“Gross Domestic Product (GDP) is the total value of all goods and services produced in an economy in a given time period.Gross National Product (GNP) is the total value of all goods and services produced in an economy in a given time period which accrues.
The difference is made up of net factor flows, which in reality includes net profit repatriation by multinationals and interest on the foreign component of the national debt. In Ireland’s case, GDP is significantly larger than GNP because of the large US multinational presence here.”
….”which in reality”. It’s a bit like the reality where it’s perfectly normal that one person could hold a directorship on the boards of 256 companies.
However, to provide some perspective on this reality its worth reading Note 10 on page 5 of Simon Johnson’s recent statement presented before the US Senate Committee on Foreign Relations Subcommittee on European Affairs hearing on “The Future of the Eurozone: Outlook and Lessons” (dated 1st of August 2012).
“Ireland’s GNP is substantially smaller than its GDP. Due to its role as a tax haven, many foreign companies have set up operations in Ireland, with a controlling shell company located in a tax-free nation, in order to take advantage of Ireland’s regulations that specify that the controlling owner, rather than the resident company, is subject to tax. For this reason companies such as Google, Yahoo, Microsoft, Forest Labs, and many others channel license revenues and royalties through Irish subsidiaries. These royalties and revenues are in large part excluded from the tax base in Ireland. These companies would move if Ireland changed rules and made such revenues taxable. Since the relevant concept for fiscal sustainability is the taxable base, it makes sense that this should be used to measure Ireland’s indicators. No other nation in Europe has a large difference between GNP and GDP. The IMF regularly reported Irish GNP in its staff reports but recently removed all reference to GNP. This raises concerns that the IMF is attempting to mask fiscal sustainability problems by not reporting these data.”
That’s the reality, but there is nothing normal about it.
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