A political prisoner’s thoughts on the Irish 26-County State’s ‘gangster economy’

From 2003–2007 the size of the 26-County State’s economy was artificially inflated because of deals between the Dublin Government and US-based multinational companies. These deals are called ‘BEPS’ tools. They had the effect of creating the so-called ‘Celtic Tiger’ by greatly inflating the apparent GDP growth of the country, thereby increasing consumer optimism. The population increased borrowing to OECD record levels; and, more importantly, global capital markets optimism about Ireland also greatly increased, which enabled Irish banks to borrow 180% of customer deposits. The economy was a classic ‘Ponzi scheme’, built on the idea that the value of already existing assets would continue rising forever.


This chapter eventually ended in the economic crisis of 2008 as global capital markets – which had ignored the fact that the State’s GDP was being completely distorted by the US corporations’ tax evasion, and that the population had taken on massive debts against the value of hugely overpriced assets (mostly real estate) whose value was now falling. The creditors suddenly took notice. Their withdrawal from the credit system created the Irish property and banking collapse.
As mentioned, the deals which made the Ponzi scheme possible in the first place are called ‘BEPS’ tools – that stands for ‘Base Erosion and Profit Sharing’.

The Government’s use of these deals constitutes the largest tax evasion scheme in the history of capitalism – literally. US multinationals have used the deals to build up untaxed offshore reserves of $1 Trillion from 2004 to 2018. The scale of the tax evasion engaged in by the Free State is so enormous that they are greater than all of the Caribbean tax havens (Cayman Islands, Panama etc) put together. The scale is so massive that it actually distorts the trade surplus and deficit figures between the EU and the US, and is much bigger than the entire ‘economy’ of the 26-County State.


The 26-County State currently uses a BEPS tool called the ‘Capital Allowances for Intangible Assets’ (CAIA) tool (also called the ‘Green Jersey’ tool). The technical operation of these schemes is quite complicated, but the important thing to understand is that they are a method for some of the richest people and companies in the world to pay tax rates of around 0%, and they are by far the most important part of the 26-County State’s economic model. Why? Because they make it seem that the growth of international corporations like Apple, Facebook, Microsoft and many others are in fact a part of the State’s GDP growth – when of course in reality they are not.


When you read about the ‘knowledge economy’, ‘tech economy’, ‘intangible assets economy’, ‘competitive information economy’ (or my personal favourite) the ‘intellectual property economy’ – it all means the same thing. These are euphemisms for tax evasion. It is no different to a criminal cartel which sells illegally imported goods running its finances through a front-company in order to avoid paying VAT to the exchequer. The 26 County State is the front company, and the company’s finances look too good to be true, precisely because they are too good to be true.


You will remember that the economic collapse led to the banks being ‘bailed out’, that is to say that their massive debts built up during the bubble economy were transferred to the public balance sheet. So what happened to all of that debt? Well, it’s all still there. And as a result the economy is experiencing a period of what is called debt-deflation.


Simply put, when you extend credit for borrowing against assets which are already in existence (like houses) it bids up their price – that was the story of the Celtic Tiger. Potential homebuyers need to take on larger mortgages to get a home. When the value of the assets goes down, but ordinary people are still expected to pay their huge debts, these payments divert a large part of the revenue of consumers and businesses from being spent on consumption (buying goods and services) or new capital investment (companies buying more modern and efficient equipment). The effect is deflationary for the economy’s product markets, and so consumer prices and employment, and therefore wages. This is why we have now had a decade of very low CPI inflation (which measures goods and services) and very low wage growth (barely above the rate of inflation) but once again, just like the pre-2008 period, we have skyrocketing asset price inflation. The two trends are linked – in fact they are two sides of the same coin.


Why is there huge asset price inflation again? Because the 26-County State has doubled down on the economic model it had before the crash – bringing more and more US multinationals to engage in tax evasion in Ireland using new BEPS tools like the CAIA.


This has the effect of disguising the true state of the public finances. While the Fine Gael government would claim that Ireland’s Debt-to-GDP figure is about 78% (quite low by Western standards), this is simply a reflection of the fact that the State’s GDP has been completely manipulated by the massive scale of US corporate tax evasion.


The true Debt-to-GDP figure is definitely above 116% (based on a metric called ‘GNI’ which is more accurate, but economists say is still manipulated by the US companies’ tax evasion). The truth is that no one knows for sure quite how indebted the state is. We only know that public sector debt is far, far worse than the pre-2008 crash debt level, and that the 26-County State is in fact amongst the most indebted states in the world. When capital markets take notice of the huge imbalances and distortions of the public finances again during the next international economic downturn, and given the transfer of private sector debt to the public balance sheet which has already happened, it will not be possible to bail out the banking system again.

We are heading for a far worse economic crisis than 2008, followed by many years of more serious debt-deflation. As this continues to unfold you should have no doubt that the 26-County State’s ‘gangster economy’ is to blame.