Mr. Pádraig Dalton:

I thank the Chairman and the committee for inviting the Central Statistics Office here today. I am accompanied by my colleagues Ms Jennifer Banim, Mr. Richard McMahon, Mr. Michael Connolly, Mr. Brian Ring and Mr. Ciaran Dooly. The CSO operates under the terms of the Statistics Act 1993, which sets out the mandate of the office and the standards by which we must conduct our business. Independent, objective, trusted and high quality official statistics are the cornerstone of any developed democratic society. A key element in ensuring trust and quality is the legal guarantee in relation to the confidentiality of statistical returns made to the CSO. Accordingly, we cannot discuss any issues relating to any individual person or entity. Due to the nature of our work, the CSO is entrusted with a large quantity of extremely sensitive information by our respondents, both businesses and persons. The legal guarantee we provide to these respondents is central to our ability to collect information and to the compilation of all the official statistics we publish.

The CSO operates in a dynamic global environment, driven not only by a shift in focus towards greater levels of scrutiny but also by the unprecedented growth in the volume and nature of data. The CSO embraces the opportunities for official statistics provided by these changing trends. We are engaged in a programme of modernisation and innovation and we are respected contributors on the international stage. The CSO is the main producer of official statistics in Ireland but there is also a significant international dimension to our work. Meeting EU legislative requirements, which have a considerable overlap with national requirements, accounts for almost 90% of our work programme and has been the single most important factor shaping the development of the CSO since joining the EU.

We have been invited here today to discuss three particular issues. First, is the proposal for a regulation of the European Parliament and of the Council establishing a framework for European statistics relating to persons and households. This is known as the integrated European social statistics, or IESS, regulation. Second, is a proposal for a regulation of the European Parliament and of the Council on the European statistical programme. Finally, the committee wishes to discuss the methodology for calculating national economic output. I propose to take each of these in turn.

I begin with the IESS regulation. Currently, the production of European statistics on persons and households is governed by a suite of five stand-alone, topic-specific EU regulations. The proposed framework regulation is designed to address this fragmentation and will provide a unified legal basis for the existing collection of social statistics from persons and households in sample surveys while enabling future integration and improvements. The primary objective of this modernisation initiative is to move away from the traditional way of producing social statistics in silos to a more integrated legal framework leading to a standardisation of concepts and greater comparability across member states and surveys. The proposed consolidated regulation will cover the labour market, income and living conditions, health, education and training, the use of information and communication technologies, time use and consumption.

The CSO supports the modernisation initiative and the overall objectives of the proposal. We agree with the consolidation of the legal framework, the integration of data collections, standardisation of variables and wider use of innovative data sources. However, we feel that the priority areas identified do not adequately reflect user needs and are inconsistent with the Beyond GDP initiative which focuses on broader quality of life indicators. The CSO opposes some specific elements of the regulation including the move towards input harmonisation, which prescribes how member states ask and collect information; the overburdening of the survey on income and living conditions; and the legislative vehicles being proposed by EUROSTAT which would significantly reduce member states' control over survey costs and burden.

I turn now to the EU regulation to amend the European statistical programme 2013 to 2017.

The current programme extends to 2017 and provides the framework for the development, production and dissemination of European statistics. The extension by three years to 2020 brings the statistical programme into line with the multiannual financial framework applied by the Commission and takes account of new policy demands.

In addition to the existing outputs of the current programme, this amended programme aims to produce a broader range of information on topics, including inequality, poverty, material deprivation, services sector, energy and climate change. There is also a focus on measuring progress on the UN Sustainable Development Goals.

While the CSO is broadly in favour of the amended statistical programme, we intend to challenge on certain amendments during the co-legislative process. In particular, we are seeking clarity on the exact requirements before agreeing to the inclusion of annual updates of population projections and the development of any additional social survey outside the realm of the integrated European social statistics framework.

Finally, I will turn to the methodology for calculating national economic output. The highly globalised nature of the Irish economy was demonstrated dramatically in July with the publication of the national accounts and balance of payments statistics for 2015. The CSO compiles national accounts and balance of payments statistics in accordance with the standards set by the UN and the IMF and as required under EU legislation. Adhering to the international standards ensures the provision of results that can be compared across countries and across time. The statistics published by the CSO in the 2015 national income and expenditure publication, were compiled in accordance with these standards and accurately reflect the highly globalised and complex nature and structure of the Irish economy. In this context the figures are highly relevant and play an important role in understanding the complexity of our economy. However, as the CSO has previously stated, the headline indicators of GDP and GNP are now of limited value in providing insights into the domestic economy.

The level shift in GDP of 26% in 2015 was driven by relocations of entire balance sheets to Ireland, with the activity related to these relocations having consequential impacts on the results. The relocated balance sheets were dominated by intellectual property categorised as intangible assets. The practice of relocating intellectual property to Ireland has been growing in recent years, but the scale of the relocations in 2015 was substantial and added €300 billion to Ireland’s capital stocks. Associated with the relocations were significant increases in contract manufacturing activity attributable to Ireland. When the net effect of sales of products produced abroad under contract were added to Ireland’s trade in goods, the balance of trade in goods and services in the national accounts doubled from €35 billion to €70 billion between 2014 and 2015.

In the past, the impact of contract manufacturing activities on exports of goods was largely offset by imports of research and development services, as Irish companies made payments to non-resident parts of the group for the use of intellectual property. However, when the intellectual property is located in Ireland, these offsetting charges do not occur, and the full effect of contract manufacturing is attributed to GDP, as seen in the results for 2015.

Additionally, the capital assets in the relocated balance sheets have also led to significant increases in the estimates for depreciation of assets in the national accounts. As a result of this increase in the depreciation charged in Ireland, foreign direct investment profits attributable to the rest of the world are reduced. These profits are a major part of the difference between GDP and GNP. The lower levels of profits, due to the increased depreciation charges, leads to a narrowing of the gap between GDP and GNP. GNP is often seen as a better measure of the underlying level of economic activity in Ireland, but as an indicator, it is now also elevated by these relocations.

To illustrate the impact of the relocations on GDP and GNP results for 2015, net national product, an alternative indicator, also published by the CSO in July from the national accounts framework that measures economic activity after the effects of profits and depreciation, grew by 6.5% between 2014 and 2015, compared to the 26% growth in GDP.

EUROSTAT visited the CSO on 30 August as part of the normal gross national income, GNI, verification process for national accounts and balance of payments statistics. The meeting was very productive and the results for 2015 were verified. EUROSTAT's summary report of the visit will be discussed at the upcoming GNI committee meeting on 17 and 18 October and the minutes of the GNI committee meeting will be publically available.

Ireland's macroeconomic statistics are built on the information supplied directly by companies and our broader range of data providers to the CSO’s large cases unit, LCU. The LCU is a unit dedicated to engaging with the largest 75 companies in Ireland.

As well as data supplied directly by the multinational enterprises, MNEs, the large cases unit has access to a wide range of data from CSO's balance of payments and business statistics surveys. Additionally, the LCU has access to data sources such as trade in goods data and corporation tax data. The broad range of information available to the LCU ensures consistent recording of activity across CSO outputs and its engagement with the largest multinational companies ensures that the complex structures of multinationals are correctly profiled and reflected in the statistics. In 2015, the companies covered by CSO’s large cases unit accounted for approximately 70% of industrial production, 60% of exports of goods, 40% of exports of services and 60% of imports of services.

The CSO is one of the few national statistical institutes in the EU to have a unit dedicated to profiling and to ensuring the quality and consistency of data provided by large multinational enterprises, MNEs, and the unit has developed significant expertise in globalisation activities during its years of operation. This expertise is recognised internationally through, for example, CSO’s chairing of the United Nations Economic Commission for Europe task force on measuring global production and invitations to CSO to participate in the global inter-secretariat working group on national accounts where changes to the international standards for national accounts statistics are discussed.

In a broader context, the growth in globalisation activities presents a significant measurement challenge for the CSO, EUROSTAT, the UN and the IMF, particularly around providing indicators of domestic performance for national users. It is increasingly difficult to represent the complexities of activity in highly globalised economies, such as Ireland’s, in single headline indicators such as GDP and GNP. The CSO currently publishes sector accounts as part of the national accounts framework which give insight into the household sector and also publishes a breakdown to separate economic activity by multinational enterprise dominated and indigenous sectors.

A cross sector group has been convened by the CSO to discuss how best to meet user needs with national users and international observers represented on the group. Indicators currently published by the CSO such as information on personal consumption and data on employment and earnings will form part of the solution, but the discussions of the group will also cover whether there is a need for additional indicators or for developments of detail in existing indicators.

The group has met twice and will meet a further four times before the end of November 2016. The group will report to me, as Director General of the CSO, and the report will be published on the CSO’s website along with the CSO’s response to the report.

I thank the Chairman.