Right-Wing Think Tank Praised Ireland's 'Economic Freedom' ... and Then Its Economy Crashed
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It hasn't even been a year since the Heritage Foundation placed Ireland among the top ten countries on its Economic Freedom Index. I wasn't intending to write about Ireland at the time, but any time the Heritage Foundation holds up any country as an economic example attention must be paid. It's an invaluable opportunity to learn what not to do, in terms of economic policy.
Even way back then, in April of this year, Ireland's economic crisis was serious enough to make it a real head-scratcher that anyone would place it on top ten list, and hold it as an example of economic success, as the Heritage Foundation's Index is intended to do. Ireland is indeed an example. It's nearly a textbook example of the epic failure of conservative economics to grow an economy and austerity to spark a recovery.
At the time, Heritage glossed over Ireland's economic trouble with a short paragraph.
Despite the crisis, Ireland’s overall levels of economic freedom remain high, sustained by such institutional strengths as strong protection of property rights, a low level of corruption, efficient business regulations, and competitive tax rates. These strengths provide solid foundations on which to build recovery and curb long-term unemployment.
That short paragraph is actually loaded with irony. The very "institutional strengths" that Heritage highlights effectively neutered the "Celtic Tiger" that the Irish economy was suppose to be. Just a year before it was written, Ireland became the first Eurozone country to fall into a recession. A month after Heritage published its index, Ireland's recession evolved into a depression . As in the U.S., Ireland's economic boom was driven by a housing bubble that took the economy down with it when it burst, with shrinking economic output and spiraling unemployment following in its wake. The bursting of that bubble was made even more devastating by the effect of conservative policies on the Irish economy.
On top of the housing bubble, Ireland's economy largely relied on exports, 90% of which were made by foreign-owned multinationals, attracted by the corporate tax rate that was among the lowest in Europe. The tax rate was sweetened by more lucrative concessions designed to attract multinationals. Indeed, when tax-cutting advocate Charlie McCreevy became Labour Finance Minister in 1997, he soon implemented what some deemed were unnecessary property-tax incentives, along with a 20% cut in capital gains tax for property investment. Banking on permanent prosperity, essentially, led to tax cuts that have deprived the country of much-needed reserves, and left it stuck choosing between severe budget cuts in service of the national debt, or investing in programs to keep people working and stimulate the economy.
The "competitive tax rate" for which Heritage rated Ireland so highly turned out t o be catastrophic not just to Ireland but to its neighbors too. Ireland's deficit was caused by a an incredibly low corporate tax rate the benefited the corporations that came to Ireland more than it did the country itself. Ireland's "excellent tax climate for businesses," praised by conservatives came in the form of a 12.5% corporate tax rate that turned Ireland into a tax haven for corporations without profiting the Irish economy much at all.
Ireland’s problems are, sadly, far deeper than the need for simple fiscal austerity. The Celtic tiger’s impressive reported growth over the past decades was in part based on its aggressive attempts to help major corporations in the United States reduce their tax bills. The Irish government set corporate taxes at just 12.5 percent of profits, thus attracting all sorts of businesses — from computer services such as Google and Yahoo, to drug companies such as Forest Labs — that set up corporate bases and washed profits through Ireland to keep them out of the hands of the Internal Revenue Service.