Key Challenges

Reliance on global firms to drive growth; relatively mild pandemic-era shock
A key challenge facing the Irish economy relates to the role of multinational corporations (MNCs) in driving economic growth. Ireland’s economic performance over the last quarter of a century may be classified under five phases. Phase one, between 1994 and 2001, was a golden period of economic growth and rising employment, predominantly driven by the exporting activities of high-tech MNCs. Phase two, between 2002 and 2007, produced a change of direction with most of the growth emanating from the domestic property/construction sector financed by an out-of-control banking system. Phase three, between 2008 and 2012, was a period of economic implosion and heavy financial retrenchment arising from the banking and construction excesses of phase two, which culminated in the country’s financial bailout by the Troika of the European Union, ECB and IMF in 2010. Phase three was marked by severe cutbacks in fiscal expenditure, increases in taxation and sizable reductions in bank lending, allied with a significant reliance on international creditors. Phase four, starting in 2013 and continuing through to 2020, marked a new period of economic growth similar to phase one in that it was largely driven by MNCs. Phase five covers the period since the onset of the COVID-19 pandemic in 2020. The economic and social shock of the COVID-19 pandemic experienced in Ireland, while profound, was less severe than that experienced in other parts of Europe (Colfer & O’Brennan, 2021). The country has experienced sustained economic growth, which has been predominantly export driven with some 83% of exports emanating from the MNC sector. That said, several domestic sectors also experienced higher levels of economic activity in 2021, with the distribution, transport, hotel and restaurant sectors growing by 6.2%, and arts and entertainment by 12.6% (Gleeson, 2022).
Buoyant growth, but clouds ahead
Underpinned by export activity in the multinational-dominated sectors and a rebound in domestic activity, overall growth in 2021 surged to 15.2%, and is expected to reduce to 5.7% in 2022 and 3.9% in 2023. This relatively buoyant picture may, however, change in the wake of the Russian war on Ukraine and accelerating supply shocks in the global economy. Households’ pandemic-related savings and a projected labor market recovery are expected to further support consumer spending (OECD, 2021).
MNCs lead the
export sector
The economy remains dependent on the exports of MNCs in a small number of sectors. Ireland’s top exports in 2021 compromised pharmaceuticals (35.5% of total exports); organic chemicals (19.6%); optical, technical and medical apparatus (8.9%); electrical machinery and equipment (8.1%); machinery including computers (5%, which was worth $9.6 billion); perfumes and cosmetics (2.9%); dairy, eggs and honey (2.1%); other chemical goods (2.1%); meat (2%); and aircraft and spacecraft (1.8%) (Workman, 2021)
Employment, taxes depend on MNCs
Fully one-quarter of the Irish business labor force is directly employed by MNCs, while foreign-owned firms employed 32% of the private workforce in 2019 (Burke-Kennedy, 2021a). At the fiscal level, over 75% of corporate tax receipts, and 40% of income tax and Universal Social Change payments come from MNCs. It was believed that 2018 represented an exceptional year for the generation of corporate taxes in Ireland as a result of a one-off payment made by a single company in November of that year.
Tax receipts centered
on 10 large firms
Corporation tax receipts of €15.3 billion were recorded in 2021. This was €3.5 billion (almost 30%) higher than 2020, reflecting the strength of exports (DOF, 2022), and an increase of over 200% on corporate tax revenues for 2014, which were less than €5 billion. Receipts are heavily concentrated, with around 10 large firms (including Apple, Dell, Google, Intel, Microsoft and Oracle) accounting for 56% of all corporation tax generated in 2020. MNCs have a significant indirect influence on the employment market through labor employed in the services sector, notably in areas such as accounting, law, and building and construction.
Global tax changes reduce local advantages
As a small open economy, while it is re-assuring at one level to find that a large proportion of Ireland’s economic growth is export driven, there are important caveats that need to be noted on this front, which may become an Achilles heel for the economy in the years ahead. The main concern on this front relates to impending changes in the taxation of MNCs, which could make Ireland a less attractive location for FDI by MNCs. The 2021 OECD international tax agreement establishes a global minimum effective corporation tax rate of 15% for MNCs with revenues in excess of €750 million. There is also increasing pressure from the OECD for MNCs to pay more taxes in the countries of sale origin and less in the countries in which they are tax resident. Such a move may reduce the attractiveness of low corporate tax bases, such as Ireland, as well as reducing the amount collected in corporate tax from these MNCs.
Official figures overstate benefits
A second major concern is the way in which MNC activities influence Ireland’s main macroeconomic indicators, including GDP, investment expenditure, and exports and imports. As a result of the deep involvement of MNCs in the Irish economy, official statistics on Ireland’s economic performance present (a) an over optimistic picture of developments in the real economy, and (b) show increasing volatility with respect to key sectors such as exports and investment expenditure. The recorded figures for GDP growth have long provided an over-exaggerated picture of Ireland’s economic performance, because they include the transfer pricing activities of MNCs. When profit repatriation by MNCs is excluded from the national accounts, the resulting GNP estimates provide a more accurate (lower) statement of the real economy. A report by Brad Setser for the U.S. Council on Foreign Relations, Ireland’s Cry for Statistical Help, indicated that the GDP data compiled for Ireland had become so extreme “that it almost reads like a plea for a new system of national accounts.” Economist and Nobel Prize laureate Paul Krugman has dubbed this phenomenon “leprechaun economics” (Kelpie, 2016).
Volatile investment figures
Illustrative of this process, the statistics for change in investment expenditure have become increasingly volatile, as may be noted from the ESRI indicator on gross domestic fixed capital formation (50.8% in 2016, -6.8% in 2017, -21.1% in 2018, 45.1% in 2019 and 4.6% in 2020). The ESRI indicator reported that investment expenditure changed abruptly from 51% in 2016 to -7% in 2017 to -21% in 2018, followed by an estimated upward surge of 45% in 2019.
Statistics bear little relation to economic reality
These are topsy-turvy Alice in Wonderland figures rather than serious macroeconomic indicators. The key phenomenon here has been the onshoring of intellectual property rights in Ireland by MNCs. The transfer of intellectual property rights along with changes in aircraft leasing expenditures have played havoc with the compilation of statistics on investment expenditure. Notably, some 50% of all global aviation leasing contracts pass through Ireland.
Forecast growth may
not be real
The knock-on effects of these problems for economic policy are considerable. Ireland’s GDP is expected to grow by 5.5% in 2022 and by 4.5% in 2023 (Europa, 2022) to around €430 billion in 2022 and €450 billion in 2023. This may be significantly over-inflated by the activities of MNCs.
Windfall tax gains pushed into public sector
One major implication of the activities of MNCs has been the way in which corporation tax increases have fed into the financing of increased public sector expenditure – a phenomenon increasingly noted by the Irish Fiscal Advisory Council in its annual reports. Economists at the central bank have estimated that, since 2014, 40% of increased taxation has come from buoyant corporate tax revenues. Such a windfall gain in taxation is highly reminiscent of similar windfall gains from property-related taxes during the second phase of the Celtic Tiger boom between 2003 and 2007, which facilitated excessive public sector expenditure leading to the fiscal crisis between 2008 and 2013. In 2021, corporation tax receipts reached a record €15.3 billion and income tax receipts were €26.7 billion, up €4.0 billion (17%) on 2020 (DOF, 2022).
Future reductions in revenue likely
At some stage in the future, it is possible that there may be a considerable fall in corporate tax revenue resulting from the aforementioned changes in the global corporate tax landscape. While the Irish government established a “rainy day” fund to meet unforeseen contingencies, there is a strong argument for significantly increasing this fund because of the potential danger of a considerable reduction in corporate taxation in future years.
“Rainy day fund” now drained
In the 2019 budget, while a €1.5 billion contribution from the Ireland Strategic Investment Fund was made to seed the newly established rainy day fund this merely represented a shifting of money between government accounts. Only €500 million was earmarked for the rainy day fund from the 2019 budget – less than 1% of net current government expenditure. In the 2020 budget, based on the assumption of an adverse Brexit scenario, the minister of finance decided to cancel the annual €500 million transfer to the rainy day fund. In autumn 2020, in the context of the COVID-19 crisis, the government raided the €1.5 billion rainy day fund for the 2021 budget, while agreeing not to make an additional €500 million payment into the fund (Burke-Kennedy, 2020). In January 2022, Minister for Finance Paschal Donohoe announced that the fund was “well and truly gone”(Quann, 2022).
UK commitment to
Brexit deal unclear
At the time of writing, the implications of the United Kingdom’s withdrawal from the European Union for Ireland continue to play out. The outcome of the elections for the Northern Ireland Assembly on May 5 was historic, with Sinn Féin winning the largest number of seats. This was the first time a nationalist party had ever won an election in Northern Ireland. In the aftermath of the election, however, a deep uncertainty took hold as the largest unionist party – the Democratic Unionist Party (DUP) – refused to participate in government until the Northern Ireland Protocol was replaced. Ireland is the only EU member state to share a land border with the United Kingdom. The Trade and Cooperation Agreement (TCA) between the European Union and the United Kingdom, signed in December 2020, shifted the border, from a customs perspective, away from a land border on the island of Ireland to a border in the Irish Sea. From an Irish political perspective, this agreement represents a considerable improvement on a hard Brexit scenario. However, the UK government has repeatedly threatened to renege on the deal over concerns relating to the need for customs checks on goods traveling between Northern Ireland and Britain.
Ties to UK strong
but weakening
The United Kingdom accounts for a significant share of Ireland’s external trade. That said, Ireland’s traditional dependence on the United Kingdom for exports has greatly reduced in recent years and especially since Brexit. The United Kingdom’s share of total exports to Ireland has declined from 23% in 2015, the year prior to the United Kingdom’s referendum on EU membership, to 7.2% in early 2021. Meanwhile, the share of Irish exports to Britain also declined during this period from 10.9% to 6.3% (Burke-Kennedy, 2021b). This decline is partly the result of strong growth in high-tech and pharmaceutical exports from Ireland to countries other than the United Kingdom. The United Kingdom has traditionally accounted for over 40% of Ireland’s agricultural exports, with more than 50% of beef and pork, and over 80% of poultry exports destined for the United Kingdom. Indeed, in 2021, Ireland’s food, drink and horticulture exports to the United Kingdom were worth €4.4 billion (£3.7 billion), 33% of total exports across the sectors. However, data for the first three-quarters of 2021 showed a 9% fall in food, drink and horticulture exports to the United Kingdom, compared with the same period in 2020 (Roughneen, 2022).
Housing is most pressing political issue
One of the most difficult cyclical phenomena to manage is that of housing and construction. After the COVID-19 pandemic, housing is the pre-eminent domestic political issue of the day. Ireland’s housing and construction boom between 2002 and 2008 created a highly unstable banking and financial environment along with a fiscal system excessively dependent on taxes from this sector. The ensuing collapse led to an oversupply of housing marked by newly constructed ghost estates and villages. Building and construction activity fell dramatically and many key workers in this sector emigrated. The return to economic growth from 2013 onward meant that the building and construction sector was ill-equipped to meet increasing demand for new housing. In addition to this, several banks that had been adversely affected following the previous period of expansion have been reluctant to lend to builders and developers. This meant that only 4,575 new dwellings were completed in 2013, followed by 5,518 in 2014, 7,219 in 2015, 9,915 in 2016 and 14,446 in 2017. The situation improved somewhat in 2019 with almost 22,000 dwellings completed. In 2021, the number of new houses notified to the state was 30,724, compared to 21,686 the previous year – although the figures for 2020 were undermined by the government’s coronavirus lockdown measures (Paul, 2022).
Massive new housing program
The government’s Housing for All – a New Housing Plan for Ireland is a multi-annual, multi-billion euro program to improve Ireland’s housing system and deliver “more homes of all types for people with different housing needs.” It is estimated that Ireland will need an average of 33,000 new homes each year from 2021 to 2030. The program contains 213 actions designed to deliver a range of housing options for individuals, couples and families (DHLGH, 2021).
Homelessness a
severe problem
On 4 October 2018, the Irish parliament passed a motion declaring housing and homelessness a national emergency. The inadequate flow of new housing relative to shifts in demand has had severe repercussions on the rental market. Over the period 2010 to 2019, rental prices doubled in Ireland. Nationally, rents grew by 8.3% year-on-year in the third quarter of 2021, the highest national growth rate seen since 2017 (RTB, 2021) and housing prices rose by an average of 7.7% in 2021 (Slattery, 2021). In May 2022, it was revealed that there were only 851 properties for rent in the entire country, a reflection of the chronic shortage of supply. In addition, the average rent paid nationally stood at €1,567 per month, up 11.7% on 2021.
Sinn Féin a rising
political force
The most notable political development relates to the arrival of Sinn Féin as the third force in Irish politics, and the relative decline of both Fianna Fáil and Fine Gael. The housing crisis is identified as one of the key factors fueling the rise of Sinn Féin. In the 2020 general election, the party came first in the popular vote, but attained only 37 seats in the Oireachtas. Fianna Fáil came second after a loss of eight seats, also winning a total of 37 seats. The stalemate led to the resignation of Lea Varadkar as taoiseach in February 2020 and the establishment of a novel Fianna Fáil-Fine Gael-Green Party coalition in summer 2020. Ireland has never had a dominant left-right political cleavage and the rise of Sinn Féin is a historic break from the rule of the two center-right parties, which trace their origins to the two sides of Ireland’s civil war a century ago.
Complex party calculus
It is highly unlikely that any of the now three main parties will be able to govern alone and it will be difficult to find durable coalitions in the future. Alongside this realignment of Irish politics, factors including the ongoing implications of Brexit, the housing crisis and the legacy of the COVID-19 pandemic will continue to define Irish politics and society.
Burke-Kennedy, Eoin, ‘Just 851 homes to rent nationally as price inflation hits 5 year high’, The Irish Times, 12 May 2022,
Lorenz Emter, Peter McQuade and Caroline Mehigan ‘MNEs in Ireland: A Firm Level Analysis, Central Bank of Ireland Quarterly Bulletin, July 2019.
‘Top 250 Exporters in Ireland and Northern Ireland 2015,’ The Irish Exporters Association, 2015.
Brad Setser ‘Ireland’s Cry for Statistical Help’ U.S. Council for Foreign Relations, 2019.
For political events see: Michael Gallagher and Michael Marsh (2016, eds), How Ireland Voted 2016: The Election that Nobody Won. London: Palgrave Macmillan.
Summary of Social Housing Assessments, Housing Agency 2018
Irish Fiscal Advisory Council, Fiscal Assessment Report, November 2019
Initiative Ireland Housing 2031, February 2018

Burke-Kennedy, E. (2021a) Ireland’s reliance on multinationals runs way deeper than corporate tax, The Irish Times, 12 December.

Burke-Kennedy, E. (2021b) Brexit has seen Irish food exports to Britain decline by a quarter, The Irish Times, 21 December.

Burke-Kennedy, E. (2020) Government raids €1.5bn rainy day fund for Budget 2021, The Irish Times, 06 October.

Colfer, B. & O’Brennan, J. (2021) Ireland Report – Sustainable Governance in the Context of the COVID-19 Crisis, Bertelsmann Stiftung (Ed.), available at: rt-en

DHLGH (2021) Housing for All – a New Housing Plan for Ireland, Department of Housing, Local Government and Heritage, 02 September, available at:

DOF (2022) Exchequer deficit of €7½ billion recorded in 2021: Corporation tax receipts at similar levels to VAT, €13½ billion in Covid related expenditure to support recovery – Ministers Donohoe & McGrath, Department of Finance, 06 January, available at:’s%20Exchequer%20figures%20show%20that,the%20labour%20market%20last%20year.

Europa (2022) Winter 2022 Economic Forecast: Growth expected to regain traction after winter slowdown, European Commission Representation in Ireland, 10 February, available at:’s%20economy%20is%20projected%20to,Commission’s%20Winter%202022%20Economic%20Forecast

Gleeson, C. (2022) Exports drove Irish economy to growth of 13.5% in 2021, The Irish Times, 04 March,

DOF (2022) Exchequer deficit of €7½ billion recorded in 2021: Corporation tax receipts at similar levels to VAT, €13½ billion in Covid related expenditure to support recovery – Ministers Donohoe & McGrath, Department of Finance, 06 January, available at:,per%20cent)%20relative%20to%202020.

Kelpie, C. (2016) ‘Leprechaun economics’ - Ireland’s 26pc growth spurt laughed off as ‘farcical’, Irish Independent, 13 July.

Quann, J. (2022) ‘Ireland’s Rainy Day Fund ‘is well and truly gone’ – Donohoe’, Newstalk, 06 January, available at:

OECD (2021) Ireland Economic Snapshot, Economic Forecast Summary (December 2021), available at:,%25%20and%203.9%25%20in%202023.

Paul, M. (2022), ‘Revenue annual report shows €5,500 gender pay gap in favour of male tax officials’, The Irish Times, 12 May.

Paul, M. (2022) ‘Number of new housing starts up sharply to almost 31,000’, The Irish Times, 19 January.

Roughneen, S. (2022) ‘Irish food exports to UK declined in 2021, says Bord Bia’, The Grocer, 13 January, available at:

RTB (2021) RTB publishes the Rent Index Q3 2021, Residential Tenancies Board, 17 December, available at:,compared%20to%20the%20previous%20quarter.

Slattery, L. (2021) ‘Housing prices rose almost 8% in 2021, Daft finds’, The Irish Times, 29 December.

Workman, D. (2021) Ireland’s Top 10 Exports, World top exports, available at:

Party Polarization

Unprecedented politics
The 2016 general election was a watershed moment in Irish politics, producing a minority Fine Gael government, which was dependent on a confidence-and-supply arrangement with the other major party (Fine Gael’s erstwhile political foes, Fianna Fáil). Between them, these two parties had led every government since the foundation of the state a century ago, but never together. Under the arrangement, Fianna Fáil did not oppose the passing of the government’s annual budgets. The confidence-and-supply arrangement was produced on the basis of an agreed range of policy principles. By the end of 2019, this confidence-and-supply arrangement had facilitated the passing of four annual budgets.
Breakthrough of
third party
The February 2020 general election took place in the narrow window between the start of the new year and the arrival in Ireland of the COVID-19 pandemic in March. Fianna Fáil, Sinn Féin and Fine Gael finished almost neck-and-neck, with 38, 37 and 35 seats respectively. Sinn Féin narrowly won the popular vote, with 24.5% of the vote, against Fianna Fáil’s 22.2% and Fine Gael’s 20.9%. Each of the three main parties still fell far short of the 80 seats needed to form a majority (Colfer, 2020). The election ushered in a seismic shift in Irish politics with the breakthrough of Sinn Féin as a third force, and in the form of a new coalition government of Fianna Fáil, Fine Gael and the Green Party. For the first time, the role of taoiseach would rotate at the mid-point of the government’s five-year term.
Difficult era to govern
This government has had to come to terms with the triple challenges of the country’s political realignment, the coronavirus pandemic, and the ongoing protracted withdrawal of the country’s nearest neighbor, the United Kingdom, from the European Union. (Score: 7)
Colfer, B. (2020) Ireland’s caretaker government, and the shattering of a century-old duopoly, OpenDemocracy, 26 May, available at:
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