Friday, June 23, 2023

Does Ireland have the lowest per capita consumption of housing in the EU?

A couple of years ago we asked “does Ireland have the lowest per capita consumption of housing in the EU15?”  As the title to this post suggests, that question can now be put in terms of the entire EU and now just the old EU15.

Here is the full data on the consumption of housing services (including water, electricity, gas and other fuels) in Eurostat’s data on Actual Individual Consumption (AIC).  Obviously there is too much here to be useful but it gives all the elements used to give the ranking in the final column.

Consumption of Housing Services in AIC 2022

The start point is the consumption of housing services in national currency from each country’s national accounts.  Using the exchange rate, population and a relative price index this is transformed into real expenditure per capita on which the volume index is based.

Here is Ireland’s consumption of housing services relative to the overall figure for the EU27.

Consumption Per Capita of Housing Relative to EU27 2003-2022

Back in 2008 Ireland was pretty much at the level of the EU27 and ranked 12th of the 27 countries.  Since then Ireland’s relative consumption has fallen and the first estimates for 2022 put Ireland’s consumption of housing services at 70 per cent of the level of the EU27 and now ranked last (joint with Estonia) across the EU.

In terms of the data, the answer to the question at the top is, yes, Ireland has the lowest per capita consumption of housing services in the EU.  Why is this?

Here is the aggregate consumption of housing services in constant prices.

Consumption of Housing Services Constant Price 2003-2022

In line with the significant construction of new housing this rises up to 2009 and has been essentially unchanged since then.  Ireland and Luxembourg are the only EU countries that have not had growth in the per capita consumption of housing since 2008.

Consumption Per Capita of Housing Relative 2008 and 2022

In 2008, Ireland’s per capita consumption of housing was almost twice that of Bulgaria. In the years since, Bulgaria has seen per capita growth of almost 130 per cent and is now around 25 per cent higher than Ireland.

That there hasn’t been growth over the last 15 years in the per capita consumption of housing services is a surprise. We haven’t built many new dwellings and the population has grown faster than the stock of housing. Census figures show that between 2011 and 2022 the housing stock grew by around six percent. Over the same period the population grew by 12 percent.

Ireland is below the level of the EU27 for many of the categories in Actual Individual Consumption.  This is in contrast to 2006 when Ireland was above the level of EU27 for almost all categories.  Some convergence might have been expected but the fall in Ireland’s relative position goes beyond that.

AIC Ireland by Item 2006-2022

Ireland is significantly below the level of the EU27 for food, alcohol and tobacco but then is also one of the highest for consumption in restaurants and hotels (including pubs).  There are a number of categories where Ireland is close to but below the level of the EU27 including health, transport and communication. Ireland is higher for education as might be expected from our relatively younger population and higher participation in third-level.

For the public/private split of AIC, it can be seen that Ireland is at the level of the EU27 for government spending on individual consumption expenditure (and has been rising slightly relative to that over the past decade).

However, for the household component of real AIC per capita, Ireland is well below the level of the EU27.  Back in 2006, Ireland was 127 per cent of the level of the EU27; now this is just 84 per cent (though with a far, far higher household savings rate!)

Yes, there have been falls in a number of categories but by far the most significant is the one highlighted at the start of the post: consumption of housing services.

Communication has gone from 146 per cent of the level of the EU27 in 2006 to just 88 per cent now, but communication makes up only two per cent of AIC.  Housing on the other hand makes up 16 per cent of AIC. It is the largest of the above categories. 

15 years ago, Ireland was middle of the road for the consumption of housing services in the EU.  The convergence referred to earlier can be seen here. But rather than holding station in the middle Ireland can now be seen poking out at the bottom.

EU27 Housing Consumption in AIC 2003-2022

Ireland certainly has issues with housing. And the data says we have the lowest per capita consumption of housing in the EU. But is that really how we see it?

Monday, June 19, 2023

An update on what was Ireland’s largest taxpayer

We previously identified Microsoft Ireland Research as a likely candidate for Ireland’s largest taxpayer.  Microsoft Ireland remains a very large taxpayer but may have been usurped for top billing. Here will be provide a short update on Microsoft Ireland Research’s latest accounts.

The company has seen enormous revenue growth in recent years.  Since 2017 (the first year the information is available for) turnover has pretty much quadrupled from $11.6 billion to $48.2 billion. Operating profit has grown commensurately going from $5.1 billion to $21.4 billion.

There is more details on the taxation of the company in the previous post. Here we note that the tax charged in the accounts continues to be around 12 per cent of operating profit plus interest received.

The amount of tax has also quadrupled going from nearly $630 million in 2017 to $2.6 billion in 2022.  This would make Microsoft Ireland Research alone responsible for around 10 per cent of current Corporation Tax receipts and around 2 per cent of general government revenue.

Microsoft Ireland Research’s staff count has grown at a slower pace. In 2017, the average number of persons employed during the year was 443. This rose to 524 in 2020 and reached 831 in 2022.  The total wages and salaries bill was €112.6 million (giving an average of €135,000 per person employed).  Additional social insurance, pension and share-based remuneration were also incurred.

Wednesday, June 14, 2023

Ireland in the 2020 Country-by-Country Data for US MNCs

As a result of BEPS 1.0, large MNCs have been filing country-by-country reports with their home tax authority since 2016.  Using these tax authorities can publish aggregate statistics and the OECD itself has a partial database of these although it currently only goes up to 2018. For US MNCs, the IRS have now published data up to 2020.

These figures are not national accounts data and there is a number of issues with them but they are still useful. We will look at the 2020 figures published by the IRS and, in particular, the figures for Ireland. This is relevant given the very significant presence of US MNCs in Ireland.

First we will start with the payments of corporate income taxes.  Per the CbCR reports filed with the IRS the US MNCs covered paid $310 billion of corporate income taxes in 2020.  This is on a “cash basis”, i.e. net payments of tax to governments around the world. Unsurprisingly, the biggest share of these payments went to the U.S. itself.  The reporting companies made $192 billion of cash payments to corporate income taxes in the U.S.

Here are the top 25 recipients of corporate income taxes from US MNCs in the IRS CbCR data for 2020.

IRS Cash Tax Paid CbCR Chart 2020

Across the EU, the US MNCs in the CbCR data made $35 billion of cash tax payments in 2020.  Ireland is by far the largest recipient of corporate taxes from US MNCs in the EU.  In 2020, Ireland received more corporate tax from US MNCs than the combined total for every country from Italy down in the following chart.

IRS CbCR for the EU27 Tax Payments 2020

The nominal figures, of course, don’t tell the full story. In relative terms, $1 billion of tax payments in Ireland is very different to $1 billion of tax payments in, say, France.  Here are the corporate tax payments of US MNCs relative to the Net National Income (NNI) of each Member State.

IRS CbCR for the EU27 Tax Payments to NNI 2020

Using NNI means we don’t have to do any adjustments for the distortions that can appear in GDP data.  All the above chart does is put the cash tax payments figures from the IRS as a percent of the net national income figures from Eurostat.  The tax payments are converted from dollars to euro using the average exchange rate for the year (1.142).

For the EU as a whole the corporate tax payments of EU MNCs are equivalent to 0.3 per cent of NNI. For Ireland the share is 5.5 per cent.  It exceeds 1.0 per cent in only one other country and the result for Luxembourg is only one-third of that for Ireland.

Putting them in per capita terms may be an easier concept to grasp.  For a population of 5 million the near €10 billion of tax payments from US MNCs is equivalent to near €2,000 per capita.  The equivalent figure for Germany is €67 while for France it is €46 with Italy at just €27.

IRS CbCR for the EU27 Tax Payments Per Capita 2020

The effective tax rates of US MNCs across the EU are shown next. In this instance, the analysis is limited to entities reporting positive profits to ensure that the effective rates are not artificially higher due to the inclusion of losses.

The effective tax rates faced by US MNCs vary from 29.5 per cent in France to 1.3 per cent in Luxembourg.  The effective rate in Ireland, 12.6 per cent, is at the lower end with eight EU countries have a lower rate in 2020.

IRS CbCR Effective Tax Rates in EU27 2020

As well as tax details, the country-by-country data also gives some insight into the substance US MNCs have around the world including employees and tangible assets.

The 1,750 or so US MNCs in the CbCR statistics had around 2.7 million employees in the EU in 2020.  Of this, the largest amounts were in Germany and France where they had 570,000 and 370,000 employees respectively.  The 172,000 employees in Ireland is the eighth-highest amount in the EU.  Of the 1,750 MNCs who filed country-by-country reports with the IRS, 660 included Ireland as a jurisdiction in which they operated.

IRS CbCR Employees Number in EU27 2020

The get an insight into the relative importance of employment in US MNCs in each Member State we can combine the IRS data above with total employment figures from Eurostat.  This shows that employment in US MNCs is just over one per cent of total employment in Germany and France.  For Ireland, the equivalent share is 7.5 per cent, the highest in the EU.  Next highest is Luxembourg where the 15,000 employees they have there is just over five per cent of total employment.

IRS CbCR Employees Share of Total Employment in EU27 2020

The second indicator of substance in the IRS data is the value of tangible assets, other than cash and cash equivalents, that US MNCs have in each country.  This assets would include factories, buildings, plant, equipment etc.

IRS CbCR Tangible Assets in EU27 2020

In 2020, US MNCs valued the tangible assets of their Irish entities at $110 billion.  This was the highest in the EU and is more than France, Italy and Spain combined.

Indeed, the tangible assets that US MNCs report for Ireland is one of the highest in the world.  The reporting groups indicated that they had a total of $8.6 trillion in tangible assets of which $6.2 trillion, 72 per cent, were located in the U.S. itself.  The following charts shows the highest jurisdictions excluding the U.S.

IRS CbCR Tangible Assets 2020

The amount of tangible assets reported for Ireland is the fourth-highest in the world, lower only than the U.S., the U.K. and Canada.  Indeed, the standalone figure for Ireland is more than twice the combined figure for the continent of Africa as a whole.