2009 Index of Economic Freedom

Quick Facts

Population:

• 4.3 million

GDP (PPP):

• $171.9 billion
• 5.7% growth
• 5.3% 5-year compound annual growth
• $40268 per capita

Unemployment:

• 4.6%

Inflation (CPI):

• 3.0%

FDI Inflow:

• $12.8 billion

Ireland's economic freedom score is 82.2, making its economy the 4th freest in the 2009 Index. Its score decreased by 0.3 point from last year, reflecting modest declines in fiscal freedom and labor freedom. Ireland is ranked 1st out of 43 countries in the Europe region, and its overall score is well above the world average.

Ireland's dynamic economy is open to global trade and investment, and its efficient business environment continues to attract significant foreign investment. Financial freedom and freedom from corruption are high. Financial markets are transparent and open to foreign competition. Property rights are protected by an efficient, independent judiciary. The corporate tax rate is a competitive 12.5 percent.

Even with its high overall score, Ireland can improve, particularly in government size. Government spending accounts for just over 34 percent of GDP. The government aims to cut spending to achieve better and more balanced management of public finance.

Background Back to the top

The Anglo–Irish Treaty of 1921 formalized partition of the island roughly along Catholic–Protestant lines into Ireland, which in 1948 became the Republic of Ireland, and Northern Ireland, which remained under British rule. Sectarian violence declined significantly in the 1990s, and the Irish Republican Army formally renounced armed struggle in 2005. Ireland, once the source of an estimated 4.5 million immigrants to the United States, has become a destination for hundreds of thousands of foreign workers, mostly from other European Union countries. Its modern, highly industrialized economy performed extraordinarily well throughout the 1990s and earned Ireland a reputation as the “Celtic Tiger.” Ireland enjoys the EU’s second-highest GDP per capita but is struggling with an underperforming health sector, and the provision of public services remains a major topic of debate. In 2008, Ireland became the only EU member to hold a referendum on the EU’s Lisbon Treaty, which failed to achieve majority support.

Business Freedom 93.0 Back to the top

The overall freedom to conduct a business is well protected under Ireland's regulatory environment. Starting a business takes an average of 13 days, compared to the world average of 38 days. Obtaining a business license requires less than the world average of 18 procedures and 225 days. Bankruptcy procedures are simple and straightforward.

Trade Freedom 85.8 Back to the top

Ireland's trade policy is the same as that of other members of the European Union. The common EU weighted average tariff rate was 2.1 percent in 2005. Non-tariff barriers reflected in EU policy include agricultural and manufacturing subsidies, import restrictions for some goods and services, market access restrictions in some services sectors, non-transparent and restrictive regulations and standards, and inconsistent customs administration across EU members. Government procurement rules are restrictive. Ten points were deducted from Ireland's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 69.2 Back to the top

Ireland has a high income tax rate but a low corporate tax rate. The top income tax rate is 42 percent, and the top corporate tax rate is 12.5 percent. Other taxes include a value-added tax (VAT), a tax on interest, and a tax on property transfers. Authorities are discussing the introduction of a carbon tax. In the most recent year, overall tax revenue as a percentage of GDP was 34.0 percent.

Government Size 64.9 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 34.2 percent of GDP. Despite considerable progress in privatization, the government maintains some control of several key sectors of the economy. Public expenditures on an aging population and a slowdown in the overall economy contribute to a growing fiscal deficit.

Monetary Freedom84.3 Back to the top

Ireland is a member of the euro zone. Inflation is relatively low, averaging 2.8 percent between 2005 and 2007. As a participant in the EU's Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. It also influences prices through state-owned enterprises. Five points were deducted from Ireland's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom90.0 Back to the top

Ireland welcomes foreign investment, and domestic and foreign firms incorporated in Ireland receive equal treatment. Restrictions apply to airlines owned by non-EU residents and the purchase of agricultural lands. There is no approval process for foreign investment or capital inflows unless the company is applying for incentives. There are no restrictions or barriers with respect to current transfers, repatriation of profits, or access to foreign exchange. Most land purchases are legal for residents and non-residents.

Financial Freedom90.0 Back to the top

Ireland's competitive financial system is well developed and facilitates dynamic entrepreneurial activity. In 2007, 86 banks and other credit institutions, a majority of them foreign, were authorized to conduct business. Irish banks are well capitalized and profitable, and domestic banking is dominated by two Irish banks that together account for over 70 percent of deposits. Credit is allocated on market terms, and there is no discrimination against foreign firms in accessing credit. All financial institutions are in private hands, as the government sold its shares in the last state-owned financial institution (ACC Bank) in 2002. As a member of the European Union, Ireland is also a member of the European System of Central Banks. Increasingly an international hub for insurance, fund management, and venture capital, Ireland has about 230 insurance companies and subsidiaries. Capital markets are well developed.

Property Rights90.0 Back to the top

Expropriation is highly unlikely. The courts protect property, and contracts are secure. Ireland has one of Europe's most comprehensive legal frameworks for the protection of intellectual property rights.

Freedom From Corruption75.0 Back to the top

Corruption is perceived as minimal. Ireland ranks 17th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. It is illegal for public servants to accept bribes, and the police investigate allegations of corruption. Ireland has ratified the OECD Anti-Bribery Convention and is a member of the OECD Working Group on Bribery and the Group of States Against Corruption.

Labor Freedom79.7 Back to the top

Ireland's flexible labor regulations enhance employment and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee is relatively easy. Restrictions on the number of work hours are flexible.