Dáil debates

Thursday, 26 April 2012

Other Questions

Multinational Investment

7:00 pm

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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Question 6: To ask the Minister for Jobs; Enterprise and Innovation his views on figures presented in the most recent quarterly bulletin from the Central Bank of Ireland which show that in 2010 15% of inward direct investment and 20% of outward direct investment moved between Ireland and Bermuda; and if he will make a statement on the matter. [20950/12]

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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Question 18: To ask the Minister for Jobs; Enterprise and Innovation his views on the impact of multinational investment in Ireland in relation particularly to companies located here for tax purposes in view of the fact that, as observed in the latest Central Bank of Ireland quarterly bulletin, while these types of companies have large balance sheets, their contribution to the local economy in terms of employment tends to be limited; and if he will make a statement on the matter. [20949/12]

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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I propose to take Questions Nos. 6 and 18 together.

The latest Central Bank Quarterly Bulletin contains an article on the statistical implications of the corporate structures of multinational companies. The decision of a multinational company to locate headquarters in Ireland can have a very substantial impact on reported direct foreign investment. Its balance sheet, its lending activities to subsidiaries and its corporate earnings all affect the Irish balance of payments and the Irish recorded foreign assets. The author points to the limited usefulness of this direct investment data for analytical purposes as a result. This must be borne in mind in interpreting the data. The article indicates that this data shows Bermuda as a source of significant inward investment to Ireland and a focus for outward investment. There are a number of reasons for this. First, Bermuda is an internationally recognised centre for the global insurance industry. Many of the world's leading insurers and reinsurance companies have operations there. As a result, IDA Ireland regularly visits Bermuda to engage with these companies to encourage them to establish a presence in Ireland to serve their European customers.

Second, the data in the quarterly bulletin captures, in part, the normal flow of investment capital from these Bermudan companies to their Irish operations and from their Irish operations to Bermuda. This is a standard feature of international trade and of intra-corporate capital flows. Following increasing international scrutiny of corporate tax arrangements, several companies based in Bermuda, which has a 0% rate of corporate tax, decided to re-domicile and establish offices in jurisdictions that actually charge corporate tax. A number of these companies selected Ireland for its transparent, internationally recognised and competitive 12.5% corporate tax rate. Bermuda is recognised as a global centre for insurance.

IDA goes to Bermuda every year to encourage companies to set up offices in Ireland and has been successful in that many such companies have set up here in Ireland. IDA stresses that these are companies employing staff and not "brass plate" operations.

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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The Minister must admit that some companies do funnel money through the country. This is borne out in the figures. The pharmaceutical industry, accounts for 34% of our total exports - which is just short of €57 billion - and employs only 2.6% of our workforce, which works out at €1.2 million per worker of export sales. If this were a reality, it would be magnificent. It would mean our workers were super human. The three largest multinationals here, Johnson & Johnson, Microsoft and Google export €24 billion between them but only employ 0.3% of our workforce. I welcome that they are creating employment here.

The Government continually says that the creation of jobs and tackling unemployment is its priority. The Minister must admit that until the Government addresses the problems of the domestic economy, wherein most people, 68% in SMEs alone, are employed there will be no resolution of the unemployment crisis. There are huge problems to be addressed. Things have not really improved much. Deputy Tóibín mentioned the Government received legal advice to the effect it could not touch upward-only rents, despite its promise to do so, because of contract law. I know the banks do not want upward-only rents to be touched because most commercial rents are now going directly to the banks. Will the Government consider the introduction of a special tax on upward-only rents that would allow the moneys in question to work their way back to the tenants who are affected by such rents? That might help to keep the tenants' companies alive.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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The Deputy has raised a number of points. While aggregate sales from foreign-owned companies are very large, it has to be recognised that the impact of such companies on the Irish economy is also very large. Even though the wage percentage might be small, total foreign direct investment accounts for almost 250,000 jobs in the economy. The companies in question spend €19 billion on Irish-sourced goods and services and have a €7 billion payroll. They have a substantial impact on the Irish economy. They have helped us to develop clusters of expertise. The presence in Ireland of companies like Microsoft, which was mentioned by the Deputy, has helped to create an ecosystem, as it is described in California, in which many other small information technology companies have developed. Ireland is the envy of many countries for its success in building clusters in areas like pharmaceuticals, information and communications technology and medical devices. These clusters are playing an important part in driving both the foreign-owned and indigenous export recovery.

I fully recognise there are issues in the domestic economy. Most of the initiatives on which we are focusing in the action plan for jobs relate to the needs of domestic companies. I refer, for example, to initiatives relating to access to finance, various elements of the cost base, various development capital needs, mentoring and supports of different kinds. There is a recognition that this country needs a strong international economy in which foreign and indigenous companies can complement each other. It is not a case of one or the other. We need to use that to develop a stronger domestic economy as well.

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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I agree we need both. I suggest the domestic economy needs more help than the other side mentioned by the Minister. I was interested to read what the Nevin Economic Research Institute had to say about this matter the other day:

The current levels of unemployment are unacceptable and constitute a serious threat to social cohesion and not just the sustainability of future public finances. Failure to make serious inroads on the level of unemployment will cost more in the long-run than any short-term savings in public expenditure arising from further fiscal austerity. The biggest single obstacle to creating employment is the depressed state of the domestic economy in both parts of Ireland.

I accept it is not easy to drive the domestic economy. I know from my own business that access to money continues to be a problem. The fact the banks are practically closed for many people is killing demand. The fundamental lack of demand is a serious issue across the domestic economy.

I will give an example. I have a site with planning permission for 28 houses. I cannot sell it for €15,000 per unit at the moment. Not only is there a lack of demand, but there is also a lack of access to money for anyone who might want to buy such a site. Planning fees are almost as high as current site values. I do not think we have seen the bottom of it. When people ask me whether prices have reached the bottom, I tell them I do not think they have. They will not reach the bottom until we tackle some of these serious problems. Similarly, house prices will continue to fall until we deal with the mortgage crisis. If someone asks me tomorrow whether they should buy a house, I will tell them to wait for another while because prices will continue to fall until these issues have been dealt with.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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The Deputy is raising issues that go well beyond the subject of his question. The Government is acutely aware of the problems in the banking system. The Minister of State, Deputy Perry, has been engaged in a roadshow with the Secretary General of the Department of Finance, Mr. John Moran. Deputy Wallace is aware the Department of Finance has received a commitment from each of the two pillar banks to lend €3.5 billion to small and medium-sized enterprises over the coming year. The Department is taking that commitment seriously and holding the banks to account in that regard. As part of the roadshow, we want to get closer to business and identify where problems are arising. We are seeking to equip businesses when they submit applications to banks and ensure the banks are in a position to act as bankers to business rather than as bankers to the property sector as they were in the recent past. Enterprise Ireland is working with us on the latter issue. The Deputy is aware the Credit Review Office, which was established by the previous Government, offers a valuable service. People whose credit applications have been turned down have the right to appeal to the office. A number of initiatives, such as the microfinance and loan guarantee scheme, are being developed. Legislation on those initiatives will be presented to the Oireachtas soon. We are acutely aware of the problems associated with access to finance and we are seeking to resolve them.