Ireland has transformed into one of Europe’s most dynamic economies since recovering from the global financial crisis in 2008. This remarkable revival is underscored by significant prosperity, yet beneath these headline achievements lie deep structural challenges that could threaten its long-term economic sustainability.

Recent data from Eurostat places Ireland among the European Union’s highest-ranking nations in terms of Gross Domestic Product (GDP) per capita. This impressive standing can be attributed mainly to the robust performance of Multinational Enterprises (MNEs) whose practices inflate economic output while failing to reflect local living standards or productivity.

In 2023, these companies represented 46.6% of Ireland’s total economic output, yet they faced a substantial contraction of 16.2%. This downturn has contributed to an overall GDP decline of 5.5%, raising concerns about the sustainability of Ireland’s economic growth in the face of such volatility.

To address these distortions, the Irish statistics office has adopted Gross National Income—a metric that excludes profit repatriation and intellectual property transfers—as a more accurate measure of national prosperity.

In 2023, GNI* grew by 5%, highlighting robust growth in domestic-focused sectors such as agriculture, forestry, and financial services, which recorded gains exceeding 14%. This divergence between GDP and GNI* offers a clearer picture of Ireland’s economic health, showing that local industries remain a vital pillar of the economy.

Profit Repatriation

Ireland’s success in attracting MNEs is rooted in its low 12.5% corporate tax rate, English-speaking workforce, and seamless access to EU markets. These factors have made the country a global hub for US-based technology and pharmaceutical giants, with the top 10 multinationals now paying nearly 60% of the nation’s corporate tax revenue.

However, the influx of multinationals brings challenges. Chief among them is the repatriation of profits. Data from the Central Statistics Office (CSO) reveals that in Q1 2024 alone, €48.8 billion in profits were transferred out of Ireland—a sharp €8.1 billion increase from the previous quarter.

This trend has raised alarms among policymakers and economists. Repatriated income, largely in the form of dividends and distributed profits, accounted for 78.7% of total outflows in 2024, up from 48.9% in 2021. 

Meanwhile, reinvested earnings—the portion of profits retained for local investment—fell to just 14.9%. These figures highlight a critical challenge: while multinationals boost headline GDP, much of the wealth generated leaves the country, contributing little to sustained domestic growth.

Adding to the complexity, Irish investments abroad also yielded lower returns in 2024, with income inflows declining by €2.5 billion. This creates a dual strain on the economy: reduced local reinvestment and diminishing returns from external ventures.

Tax Reforms and Economic Projections

Ireland has recently introduced a 15% minimum tax on multinational profits, in line with the Organisation for Economic Co-operation and Development (OECD) agreement adopted by over 140 nations.

Despite this reform, the 12.5% corporate tax rate will remain unchanged for companies earning less than €750 million annually, shielding over 99% of Irish businesses from the new measure.

Looking ahead, the European Commission’s Autumn 2024 Economic Forecast report projects that Ireland’s gross domestic product (GDP) will decline by 0.5% this year, primarily due to the contraction in the multinational sector during the first half of 2024.

According to the document, recovery, however, is on the horizon. Economic growth will likely increase in 2025, with GDP expected to rise to 4% next year and 3.6% the following year. Alongside this, inflation is gradually easing—from 1.4% in 2024 to 1.8% by 2026.

Is the American Protectionism risking the Irish luck?

A recent Revenue analysis revealed that US-based tech and pharma giants contribute nearly 60% of Ireland’s corporate tax revenue. However, this dependency faces a potential threat: US President Donald Trump’s economic agenda. His proposed reduction of the US corporate tax rate from 21% to 15% could erode Ireland’s competitive advantage, posing risks to its financial model.