There have been two major obsessions in Ireland this week, the Rugby World Cup and the Government’s Budget announcement.


First a few comments on the rugby.


Any suggestions that the Rugby World Cup would lose its fizz when England was eliminated were totally misguided. The tournament is generating huge publicity and excitement, particularly in Scotland, Wales and Ireland and among Southern Hemisphere supporters.


The exterior of Aer Lingus planes are adorned with large portraits of Irish players and Cardiff was a sea of green last weekend, with the Irish outnumbering the French by around three to one.


Reasonably priced tickets are as scarce as hens’ teeth for the two Cardiff quarter-finals while Ireland’s Kiwi coach Joe Schmidt is obtaining cult-like status in his adopted country.


The RWC is getting bigger and bigger and is a huge economic boost to host countries and cities. An economic analysis estimated that the 2011 RWC contributed $573 million to the New Zealand economy and added 7840 part and fulltime jobs. The economic benefits of the current Cup are probably much closer to $1.8 billion.


The quality of Cardiff’s sporting facilities illustrates the disjointed nature of New Zealand’s sports stadiums, particularly in Auckland.


The Millennium Stadium, which has a capacity of 74,500, is in the centre of Cardiff while Cardiff City Stadium, with a capacity of 35,000, is where Cardiff City FC plays its home games and is only a short walking distance from the city centre.


Sophia Gardens, Cardiff’s cricket stadium which hosted the first Ashes test this year and has a 16,000 capacity, is also close to the city centre.


The Cardiff region has a population of 890,000 compared with 1.45 million for the Auckland region.


Auckland’s disjointed stadium strategy reduces the economic benefits to the city from hosting major sporting events.


For example, Australian league supporters could be enticed across the Tasman to support their team against the Warriors if we had an attractive inner city stadium instead of the relatively unattractive and inaccessible Mt Smart Stadium.


The Irish economy, which was a basket case a number of years ago, has made a remarkable recovery. Finance Minister Michael Noonan and the Minister of Public Expenditure and Reform Brendan Howlin used the ‘recovery’ word 24 times in their Budget addresses to Parliament this week.


The economy has been through a major boom, bust and recovery cycle over the past 20 years with the residential property market playing a major role in the ups and downs.


The first phase of the boom, from the mid-1990s to the early 2000s, can be described as the catch-up growth period when Ireland caught up with the rest of the European Union after a long period of below average economic growth.


There were a number of additional contributors including:


  • A high net migration inflow.


  • Favourable demographics, in particular a young and well-educated work force.


  • A 12.5 per cent corporate tax rate which encouraged overseas companies to establish operations in Ireland and get free access to the rest of the EU. This boosted Irish exports.


However, from 2002 until 2007 there was a dramatic change in the country’s main growth drivers. The economy continued to experience high growth rates but this was increasingly based on the rapid expansion of credit and an accompanying build-up of personal indebtedness. This was fuelled by soaring property prices, particularly in Dublin. During this period, construction activity grew strongly, accounting for a much larger share of the economy and employment than was previously the case.


The speculative property bubble was supported by a surge in bank lending, and the balance sheets of Irish banks grew disproportionately large relative to the size of the economy. The banks had traditionally relied on their deposit base to fund their lending activity.


However, greater financial integration, spurred in part by the birth of the euro, allowed them to turn more and more to short-term borrowing from abroad, particularly from wholesale money markets. This period also saw a global increase in risk appetite by financial markets, and Irish banks were caught up in this.


Over the past two decades Irish residential property prices have increased by 199 per cent compared with 232 per cent in New Zealand.


However, there has been a major difference between the two countries as the growth in NZ house prices has been relatively steady whereas Irish prices peaked in mid-2007 and then plunged 50 per cent by early 2013. Since then they have recovered 31 per cent but are still 35 per cent below their 2007 highs.


Dublin house prices dived 57 per cent from top to bottom but have recovered nearly 50 per cent from the 2013 trough.


The average Dublin house price has declined from a peak of €431,000 ($730,000) in 2007 to €285,000 ($485,000) at present. This compares with Auckland’s current median price of $771,000.


The major Irish economic policy objective, from both the Government and central bank, is to have an economic recovery while avoiding the disastrous consequences of another residential property bubble.


Earlier this year the Irish central bank introduced new regulations regarding mortgage lending by regulated financial services providers. These included mortgages of no more than 80 per cent of LTV (loan to value) on the principal private dwelling and no more than 70 per cent LTV on investment properties.


In addition, mortgage loans on the principal private dwelling are restricted to 3.5 times gross income compared with 4.5 times in the UK.


These regulations have slowed the Dublin housing market in recent months. They would have a major impact on New Zealand housing prices as the house price to income ratio for the country as a whole is nearly six times and almost nine times in Auckland.


Meanwhile, the Irish Budget offered a large number of tax cuts and spending increases after a number of years of major tax increases and savage spending cuts.


But one of the most interesting features of the Irish economic policy, particularly from a New Zealand perspective, is the way the Government treats companies compared with individuals.


One of Ireland’s major economic strategies over the past few decades has been to encourage economic growth by incentivising companies to invest and grow. This has been achieved through a company tax rate of only 12.5 per cent compared with 28 per cent in New Zealand.


This week’s Budget cut the company tax rate from 12.5 to 6.25 per cent for a new tax category that is pegged to companies’ patents and other intellectual property.


The Irish Government has been criticised for giving favourable tax treatment to multinationals and this new tax category could benefit a large number of well-known companies, including Apple, Google, Facebook and Microsoft, all of which have significant operations in Ireland and substantial intellectual property.


However, Irish workers are much more heavily taxed.


The top marginal income tax rate in Ireland is 52 per cent compared with 33 per cent in New Zealand and the VAT rate is 23 per cent compared with NZ’s 15 per cent GST rate. In addition, Ireland has a comprehensive capital gains tax and estate duties.


Ireland & NZ; A different approach to tax rates



New Zealand




GDP Growth – past 12 months



GDP per capita



Tax rates:






         Top personal







The Irish economy is recovering but it still has a long way to go even though it achieved GDP growth of 6.7 per cent in the June 2015 year. The unemployment rate is 9.4 per cent, compared with 5.9 per cent in New Zealand, and the country continues to have a net migration outflow.


The clear message from the recent performance of the Irish economy is that countries can take a long, long time to recover from a major housing market collapse.


Brian Gaynor

Portfolio Manager

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.