Forbes Magazine editor Steve Forbes argues that low tax regimes such as Ireland's are the best model for economic growth and job creation, writes Conor O'Clery in New York
Ireland, argues Steve Forbes, is poised to become the "spiritual leader" of the new Europe. Here's how. "Resist EU attempts to crush your tax system," he says. "Continue to give out incentives, Whack personal income tax rates and corporate rates, whack 'em down. Become more like Hong Kong or Russia on tax rates.
"Brussels will scream, but new members from central and eastern Europe will embrace you. You have 10 nations coming in to the EU that want to grow, that want no part of stagnant, high-cost, low-growth, non job-creating economies such as you have in Germany and France. Ireland is their model. You may not realise it but a lot of countries are looking to you."
This is the sort of almost subversive advice that the editor-in-chief of Forbes Magazine delights in and which he intends to dispense liberally when he visits Dublin to address the Irish Auctioneers & Valuers Institute next week.
The former Republican presidential candidate will also bring heartening news on how the US economy is doing.
"Splendidly," he replies breezily when I put the question to him in his book-lined office in mid-town Manhattan. "Finally, after three hard years I think the business recession is over. Productivity has been phenomenal.
"Companies have taken the painful steps to become profitable again. That's why we are seeing the phenomenon of analysts underestimating corporate earnings instead of the usual tendency to overestimate corporate earnings. Now they are scrambling madly to revise upwards their estimates for the fourth quarter and the first quarter and second quarter of next year.
"Business investments are starting to pick up, which is where the real recession was. Information technology businesses are starting to increase.
"So, barring a disaster such as some idiot derivatives debacle or, more likely, the US talking down the dollar, which will frighten the market, barring some silly thing like that the US economy will grow from 4-5 per cent next year. This year's growth will probably be 3 per cent plus. It's not going to be a rapid upward trajectory but, given what's happened in the last three years, 4-5 per cent is very very nice. We'll take it."
"President Bush will take it too," I suggest.
"Well here you can see the reversal of what the Democrats thought," responds Mr Forbes. "They thought Bush would be vulnerable on the economy and strong on national security which is what happened in the mid-term election in 2002 when the Republicans did extremely well. National security may not be a trump card now but the economy will be."
He dismisses concerns about Washington's huge tax cuts made while big trade and budget deficits are being run up by the Bush administration.
"The tax cuts have already paid for themselves," he maintains. "Since they passed them in May, the stock market has increased in value by over a trillion dollars.
"The balance sheet here is what life is all about. For example, we will have a half-a-trillion dollar deficit this year. But when we have an economy with $60- $70 trillion (€51.4-€60 trillion) in assets, that becomes something you can finance without too much problems. Every time you cut tax rates the economy gets stronger which means government revenues will go up."
Tax rates are the key to future progress in Ireland, says Mr Forbes, who made a flat tax the central plank of his 1996 US presidential campaign.
"Ireland has done so much in the last 30 years, going from poverty to a most dynamic country. Ireland is seen in central and eastern Europe as a model for countries intent on attracting investment and very rapid growth and reverse immigration.
"If you prevent the EU from wrecking your stimulus on the tax side, Ireland will stay on the cutting edge. You are on the next phase of everything, medicine, health, biotechnology, technology..."
Joining the euro zone has made Irish interest rates subject to the European Central Bank but Mr Forbes sees no real problems in this. As the EU expands, "we'll start to see real disparity in interest rates, just as in the United States we have a common currency but California's access to capital markets and the rates they pay is very different than from, say, Colorado".
"The common currency shouldn't tie you to common interest rates. Obviously if you inflate or deflate the euro, then you've got to pay a price for it."
What Germany should be doing to recover from its slump, he says, is what the Russians have done - install a flat tax system. Recently he heard Russian president Mr Vladimir Putin boasting in New York about having the lowest personal income tax rate in Europe - 13 per cent - with cuts in VAT and corporate profits taxes to come. "Chancellor Schröder is trying to cut the top rate, which is a step in the right direction, but they are doing baby steps," argues Mr Forbes, one of north America's most influential economic commentators.
"They haven't tackled structural reforms the way Britain did in the 1980s. That's why Germany is now the sick man of Europe."
His views on Ireland's property market will be encouraging for his listeners in Dublin when he speaks on the theme "Real Estate in the Global Economy".
He does not foresee a collapse in house prices in Ireland as long as the economy keeps up. "The way you avoid a bust is by working to continue to have a vibrant economy," he says.
"The biggest home-owning bust we had was in Texas in the 1980s, when we had very serious negative equity. The joke was that if you register in a hotel in Texas, you had to be careful when you paid your room bill that you didn't end up owning the hotel. But that was because the Texas economy collapsed.
"Home ownership is distinct from commercial ownership. In home ownership you can have declines in value but they are usually not as precipitous as you find in financial markets. And people are loath to walk away from those obligations."
A collapse in housing values in Ireland would come "if you had a severe recession, a prolonged recession where people cannot make the monthly payment".
Could it happen without a recession? "You can have decline in values and that may mean less sales on the market and when people do sell they take a hit. But that's very different from the kind of general Texas collapse or what you see in commercial real estate when there is a temporary glut which New York goes through every 10 years."
Mr Forbes's magazine is known for its annual 400 rich list, which this year shows that, after two years of declining values, the rich in America are getting richer. Top of the pile is Bill Gates with $955 billion, followed by Warren Buffet with $36 billion.
What should rich people do with their money, I ask, recalling that philanthropist Chuck Feeney, who is giving away the almost $4 billion fortune in his Atlantic Philanthropies in the next 12-15 years, made the case in The Irish Times recently for giving while living?
Mr Forbes agrees. "One of the things that becomes clear from the rich list is how ephemeral that wealth is," he says. "It's not like having a pile of gold bricks We've seen it in recent years disappear very quickly. Either because of competition or over-investment, it goes.
"One of the things that people sometimes don't fully grasp is that commerce and philanthropy are two sides of the same coin. We have the most commercial public in the world and the most philanthropic. Commerce means meeting the needs of the people, philanthropy is the same thing, with different sets of people perhaps, and different skill sets, but the same goal. That's why often those who succeed in commerce are often very effective in philanthropy."
Some foundations lose their moorings, he adds. They give out grants but would be hard put to say what they have done in this world. "Rich people should be very careful about leaving it to bureaucracies that become more interested in perpetuating themselves than putting wealth to productive use".
"Give while living - yes, why wait until you're dead to do good if you can do it while you are living."
