Business Week: Panama, inversions, and job news

Unemployment rate lowest in eight years, but jobs to be cut at Paddy Power Betfair

Public officials, world leaders, royal families, and sports stars were among those revealed this week as having squirreled vast quantities of wealth away in various manoevres designed to cut their tax bill .

Dubbed the Panama Papers, the cache of 11.5 million records showed how a global industry of law firms and big banks sell financial secrecy to politicians, fraudsters and drug traffickers as well as billionaires, celebrities and sports stars.

The revelations centre around a Panama-based law firm called Mossack Fonseca which specialises in building corporate structures that can be used to conceal assets. Among 143 politicians that were exposed were 12 national leaders.

The Panama Papers is also part of a wider story - the growing public ire at how big companies and rich individuals manage to avoid paying a lot of tax, often entirely legally, by the use of various devices.


The Republic's own role in global tax avoidance was also in the news, as US drug giant Pfizer called off its planned $160 billion takeover of Dublin-based Allergan. The deal collapsed due to new rules in the US aimed at preventing corporate "inversions", which is the practice of companies moving overseas in tax-avoiding paper-based mergers.

The move would have led to Pfizer’s relocation to Ireland and allowed it to cut its tax bill by an estimated $1 billion annually by domiciling in Ireland. US president Barack Obama this week called the practice “one of the most insidious loopholes out there”.

Speaking after a third round of restrictions aimed at curbing the practice were unveiled, he accused companies of enjoying the rewards of being American “without fulfilling the responsibilities to pay their taxes the way everybody else is supposed to pay them.”

As another week went by without the formation of a government, there were more rumblings of discontent. This time, the warnings came from stockbroker Goodbody which said the longer the current power vacuum persists, the greater the risks become.

In an economic report by the company, its chief economist Dermot O’Leary said that despite the fact the current stalemate had caused no harm to date, there could be no way of knowing how the situation would affect the economy going forward.

He also recommended tweaking the Central Bank mortgage lending rules which introduced higher deposit requirements. He said they should be adjusted to recognise both the stage of the housing cycle and geographical differences in markets.

Small business group Isme also weighed in on the "developing circus" over the formation of the next government. Chief executive Mark Fielding put the boot into all parties and called the "lack of confidence" to govern "a disgrace".

The stalemate has also had an effect on Irish consumer sentiment, according to the latest KBC Bank Ireland /ESRI survey, though as ever it is impossible to define exactly what is affected the consumer mood. It recorded its largest monthly drop in 17 months during March with the report's main index dropping from 105.8 to 100.6 - a six-month low. KBC's chief economist Austin Hughes said the dip was largely a reflection of "fewer positive views rather than an increase in particularly gloomy assessments".

As talks continue on the formation of the next government, exchequer data for March were mixed. They showed income tax collections were 12 per cent behind target in March and that VAT collections were 4 per cent behind target.

Another surge in corporate tax payments however helped bring the overall monthly return ahead of target. Overall, tax collection reached €11.14 billion to end-March. "This represents a year-on-year increase of €667 million (6.4 per cent) and is €119 million (1.1 per cent) above profile," said the Department of Finance. But analysts will be closely watching income tax and VAT trends to see what is going on. The evidence that Dublin house prices have stalled, and even started heading into reverse, is stacking up. After Central Statistics Office figures last week showed a fourth consecutive monthly decline in prices, a report by and stockbroking firm Davy said "affordability constraints" in the capital were likely to lead to a lag.

It would not appear to have dampened seller confidence too much yet however, as the property website, which is owned by The Irish Times Limited, reported that "renewed price momentum" in the first three months of the year saw asking prices for newly listed properties rise 2.1 per cent nationally and by 0.9 per cent in Dublin.

New figures also emerged showing Irish mortgage borrowers have lost €17.6 billion of their combined “wealth” since the property market crashed. In a report which said the housing and mortgage markets are struggling even as economic growth accelerates, credit rating agency Standard & Poor’s found that more than 40 per cent of borrowers remain in negative equity.

There was a mixed bag on the jobs front. On the one hand, new figures showed the Republic's unemployment rate hit a new eight-year low of 8.6 per cent last month, but that news followed an announcement by bookmaker Paddy Power Betfair that it plans to cut 300 jobs from its Irish operations.

The move stemmed from the €10 billion merger of the two gambling businesses in February. One of the deal’s aims was to deliver savings of £50 million (€62 million) a year. Jobs will go in legal, finance and HR, as well as technology, and trading and risk.

It will be scant consolation for the 300 workers in the immediate term, but the latest unemployment figures show the number of workers classified as jobless fell by 2,900 to 187,700 in March, reflecting an annual decrease of 23,400.

This brought the headline rate down to 8.6 per cent, the lowest rate recorded since December 2008, and down from 8.8 per cent in February and 9.8 per cent 12 months ago. The Republic’s unemployment rate is now well below the euro zone average of 10.3 per cent, which is not bad going if you consider the State had one of the highest jobless rates in Europe only a few years ago.

Minister for Jobs Richard Bruton said pharma was a key sector as part of his jobs plan and welcomed the news that US pharma giant Eli Lilly is to invest €35 million in its Kinsale plant. The company is to establish a new high-tech manufacturing facility at the Cork facility.

In Dublin, HubSpot, a US company behind a popular software platform for inbound marketing, said it’s to create 320 jobs over the next three years across sales, marketing, services, support and engineering.