Part of the problem Ireland faced as boom turned to bust was a chronic worsening of our competitive position. Costs had risen sharply in many areas and the strong growth rate seen towards the latter half of the boom period was not based on firm foundations. Subsequently, our competitive position has improved significantly, but, as the latest report from the National Competitiveness Council (NCC) shows, there is more to be done. As we return to some kind of economic growth, this agenda must not be forgotten.
Competitiveness is influenced by a range of factors, many related to the costs business face but also to a wider agenda including education, productivity and innovation. The risk now is that as the economy starts to grow again, competitiveness is pushed into the background, thus storing up trouble for the future.
Most people have suffered significant pay cuts in recent years, which has been a factor in lowering costs for business. Now the challenge is to keep labour costs competitive as growth returns and employment begins to increase. Part of this involves making it easier for companies to pay their employees by lowering taxes on income and addressing key barriers. Amid demands for reform of tax and the other charges on income over the next few years, the NCC points to a few important priorities. In particular these include the need to reform the structure of PRSI and the way it imposes a significant burden at certain low income levels, as well as measures to lower the general income tax burden.
We also need a greater priority given to competitiveness in other areas of national policy. For example electricity costs remain high here, rising property prices are creating pressures and there are still problems accessing finance for small companies. None of these problems may appear overly important on their own, but taken together they impede growth and job creation. In the longer term investment in all its forms – in infrastructure, in education, in areas of social need – are also vital. Cuts in this area were particularly sharp and there is ground to be made up.