Often in life, experiences from one sector can point out glaring issues in another. Building Wayflyer, as a lender, one of our biggest worries was always putting too many eggs in too few baskets. Bankers call this ‘Concentration Risk’, and when borrowing money from the biggest banks in the world (JP Morgan, Credit Suisse), they put limits on how much money we could lend to our biggest customers.

To quickly paint the picture, normally lending limits are in the range of 5% exposure for one customer, ~20% for your top 10 customers, ~30% for your top 20 customers and so on.

The biggest risk always for a lender is a few major customers failing and bringing down the entire business, but in theory, managing this risk should get easier as the company gets bigger. When we think about Countries, they are really the largest companies or operations in the world, so they should be equipped to manage this risk.

This is just the typical “Diversification” story that we’ve all heard many times. Pension funds have rules to follow. Banks have rules to follow. Countries should have rules to follow too. Unfortunately, here in Ireland we seem to think we are above these basic fundamentals and have entirely ignored the dangers a lack of diversification brings.

Ireland has neglected to diversify

Tax revenues make up ~80% of Ireland Inc’s Total Income. This is ultimately how we generate cash that can be used for spending and investing in the country’s future. In 2023 Ireland’s total gross receipts were ~$128bn with ~$102bn of gross tax receipts.

This is pretty typical of any country in the world - charge taxes on doing business in the country. However, it’s the make up of these tax receipts that’s worrying and ultimately could put us on the precipice of another financial disaster.

Of the ~$100bn of tax receipts, over 50% consists of Income Tax ($33bn) and Corporation Tax ($24bn). And when diving into the breakdown of these tax receipts, a very worrying trend can be seen. Today, over 60% of Ireland’s Corporation Tax receipts come from 10 companies, while 53% of all Payroll Taxes come from Multinationals.

Now if I was running a lending business, bank, pension fund or any company for that matter, and my top 10 customers made up 60% of my book I’d be f****d out onto the street for forgetting one of the basic rules of Finance - Diversification.

Tax Haven to Tax Headache: Ireland Must Act Now

Europe woke up to the tax haven Ireland created many years ago, and has been on a mission to correct it for quite a while. Back in 2021, Ireland along with 137 other countries signed a Global Minimum Tax (GMT) reform bill. Why is this important?

Well, 2024 is the first year where the Minimum Corporation Tax rate of 15% comes into effect. This means that 2024 is the first year where big corporations in Ireland will feel the effects of the change. And there’s nothing like paying an extra few billion dollars in taxes, to lead companies towards reevaluating their current set up.

Even more concerning, 2024 is the first year where Pillar 1 of the OECD reform comes into effect. This means profits are to be reallocated to where Sales (customers) are located. From estimates done by the Irish department of Finance, we will lose $10bn at least from this change (10% of the country's income).

It’s not as if this has happened overnight. We’ve had a diversification issue for years - but instead of thinking ahead for solutions, we’ve doubled down on it. Now we’re in catch-up mode and my fear is that we’re nowhere near developing a coherent strategy going forward and that this is not deemed urgent.

How We Should Address This

As an entrepreneur, I’ve never been one to just complain - we leave that to the politicians! Instead we need to get focused on what actions we need to take. So here are some things I would do:

1. Generate more homegrown businesses

For an economy to thrive, you need successful entrepreneurs. In Ireland over the last 40 years, our focus has been on FDI (which we’ve done incredibly well), but that bubble is going to burst. It’s essential that we increase our focus on encouraging more & supporting Irish entrepreneurs so we can create an island of homegrown startups. 

The current approach of government bodies in Ireland is to match capital for entrepreneurs who have raised money. While this helps, it doesn’t encourage people to take the leap into entrepreneurship, but rather it (slightly….) helps people that have already made the decision to go for it. At the end of the day, entrepreneurs who are successful, are likely going to be successful with or without matched capital. The fact that the majority of Ireland’s successful start-ups didn’t take matched funding backs up that story.

Because the success rate of entrepreneurs is low, we need to find a way to increase the volume of entrepreneurs. Like any good sales process, you need to feed the funnel to increase conversion. 

Starting a business is a huge risk, and often this risk is too high for intelligent, skilled individuals who are earning high salaries. And in the country of Ireland where we (thankfully & unfortunately!) don’t have the brimming confidence that most Americans have, we need to work extra hard at pushing people in this direction. By providing these entrepreneurs with salary & tax incentives at the beginning of this journey, we have a fighting chance at developing the next wave of unicorns here in Ireland. 

If it was me, I’d be taking some of that $13bn from Apple and attempting to generate an additional 1,000 entrepreneurs a year across the country!

2. We need to get creative again 

Our Corporation tax policy that generated so much wealth in this country was beyond creative for its time. The best start-ups are those that are the most creative, so to move Ireland Inc on, we need to do the same.

A) We must shift our attitude towards encouraging not just indigenous start-ups but also on attracting foreign start-ups. The IDA was once a radical idea - why not expand their mandate to include attracting foreign start-ups to Ireland. Increasing the number of homegrown entrepreneurs in Ireland will take time, so it’s critical to attract foreign start-ups so we can hit the critical mass needed to supercharge our ecosystem. (Credit to Domhnal Slattery & his Project-i report for this suggestion).

B) Current Investor tax incentives (EIIS) aren’t fit for purpose. Neither are Employee share incentives. Why not get extra creative around developing tax incentives or reliefs for startups who set up here in Ireland. It's hard to see a down-side here, the success of start-ups drives job creation far beyond any tax revenue generated from the founders/employees. And it is these founders/employees who seed capital as angel investors into future start-ups in the ecosystem so it gets re-invested anyway.

3. Lets double-down on tourism, like New Zealand

Talk to any hospitality business around the country and you’ll quickly realize that things are tough in 2024. Without the US tourists this year, a large number of businesses wouldn’t be around anymore (look at the number of high profile restaurants & bars closing down).

People’s perception of Ireland is amazing - but we need to build infrastructure and market the country much better than we currently do.

The Wild Atlantic Way did wonders for the West, but we should be doing more of this. I spent the first two months of this year in New Zealand where they’ve created Greenways, beautiful hiking trails & activity centers throughout the country. Why in a country just as beautiful and ⅓ of the size haven’t we been able to replicate this?

All of the Greenways we have built to date have been roaring successes and it’s great to see future budget allocated towards building more of them. We have so much natural beauty, so lets take a leaf out of New Zealand’s book.

4. To save Dublin’s economy, we must build up

We talk about how great our service industry is, but look again at NZ, a similar sized economy. Their night-time economy is worth almost $10bn (€5.6 billion), supporting more than 180,000 jobs. By contrast, in Ireland the pubs and nightclubs industry only pulls in €2.6 billion in revenue (as of 2023) and employs 43,316 people (Thank you David McWilliams!).

Strangely, I think a lot of this comes back to our residential planning restrictions. In Dublin, there’s a clear lack of housing in the city and this leads to a serious lack of footfall. High rents have been pushing people out of the city for years and this has led to a flight of people and money out of the city. 

Look at New York, a city with high-rises everywhere. Despite having 8.5 million people, you can get anywhere in the city in 30 minutes. Apart from the obvious benefit of making city-living more affordable, there’s a less obvious benefit that’s often overlooked. High rises create people density and people density means that cafes, restaurants, bars can thrive. In New York, a Cafe/Bar/Restaurant will do 3 - 4 times the revenue of the exact same sized property in Dublin. Prices aren't 3 - 4 times more expensive, Dublin is only marginally cheaper than NYC these days, it is all driven by people density.

If we truly want our cities to be capable of maturing beyond their current positions, we need to adapt. Now, I’m not saying we should start firing high-rises up everywhere, but certain parts of the city, require verticalization.

5. Successful people in the Private Sector are trying to help - Let them!

No sane person could argue against the fact that the Collison brothers are among the world's greatest thinkers. And they are not just Irish, but proud Irishmen. John Collison recently made himself available in Dublin to speak with Paddy Walsh at Dogpatch, surrounded by young founders and the brothers just funded a ThinkTank privately to work on solving some of the national issues we’re facing.

In a recent interview John Collison did with The Currency, he points out that the issues we’re facing aren’t overly complex but rather that the systems and processes we’ve created are preventing decisions that are of national importance from being made (housing, data-centres, infrastructure etc). 

These are some of the most well thought of people in the world and they want to help. It’s time to let go of any stubbornness and recognise the olive branches they are offering. Let’s listen to them.

The Time to Act is Now

I recently read a fascinating 2019 report called ‘Project i’ funded privately by Domhnall Slattery (Avolon). Despite being 5 years old, most of the recommendations hold true.

The report identifies areas for the country to improve. It was not written to critique but rather to drive this amazing country we all call home on. I love this country and speak so highly of it to everyone I meet. Let us take note, take action and make sure we aren’t sitting here in 5 years time, looking back at today and thinking if only….