"Employment in manufacturing and other production industries - the sectors of the economy most exposed to international competition - fell for the fourth successive year in 2004." This is perhaps the most important sentence in this year's National Competitiveness Council (NCC) Competitiveness Challenge report, published today, going as it does against the grain of unending positive economic news.
The economy's key strengths remain intact but its weaknesses are getting worse. We remain a low-tax, flexible and responsive business environment with an adaptable labour force. But non-pay costs are rising while productivity remains weak in sectors protected by regulation and restrictive practices. On top of this has come the long-term pressure of globalisation and short-term pressure of the euro's strength against the dollar. Hence the poor employment performance in the manufacturing sector referred to in the report.
Manufacturing industry is not the be all and end all of an economy. But it represents the front line. Rising cost pressures at home and falling cost levels abroad are key factors for the economy. Globalisation is changing the world around us in ways that require a rapid response. Far from manufacturing only textiles, China is increasingly competing for exports and foreign direct investment in high value-added products. The rising mobility of technology and capital is changing the world. The NCC has noted areas where the Government can respond.
Assessing the potential of the services sector to offset difficulties in manufacturing is the immediate challenge. IDA Ireland has begun to pay more attention to this potential, announcing its first service sector initiative with Citibank over the summer. Enterprise Ireland should also examine the role it can play in nurturing enterprises with the potential to create value, exports and jobs in the economy.
The Government has a profound impact on competitiveness by taxing and spending around one-third of the economy's annual production. That Ireland's taxation and regulation is not high by EU standards can no longer be a source of pride or complacency. The report implies that taxation levels in Ireland are still unmatched by value for money received from the public sector. And, in spite of our low rate of corporation tax, the burden of corporate taxation is shown to be higher in Ireland than in most of our key comparators. The suggestion to broaden the tax base by introducing a property tax comes after warnings that property prices here are overvalued. It also comes in advance of a near certain rise in interest rates.
The report has recommendations relevant to the forthcoming budget, notably in relation to tax reliefs. Its attempt to put the issue of taxing wealth on the agenda is welcome. This stems not from any begrudgery against the rich, but from a desire to incentivise the creation and redistribution, rather than the hoarding, of wealth.