THE COST base in Ireland has not fallen enough to reverse the losses in competitiveness suffered during the bubble-economy years, according to the National Competitiveness Council.
In an annual report published today in which it makes a series of policy recommendations to Government departments and State agencies, the council urges a range of actions that it believes would boost competitiveness if implemented.
The council highlighted the continued non-implementation of the Local Authority Efficiency Review Group report, published in 2010 and containing 106 recommendations designed to save more than €500 million annually.
It proposed that the savings generated from reforming local authorities be used to ease the burden of commercial rates on businesses.
As regards wider public sector reform, the council proposed conducting external evaluations of the performance of government departments and regulatory agencies. Having outsiders independently assess the performance of departments and agencies would, the report says, better inform the reform agenda.
In order to avoid the inefficiencies associated with the pay and recruitment freezes in the public sector, the council recommends greater budgetary freedom for State entities in allocating their budgets. This freedom should be matched by new obligations to meet a series of output targets.
The council highlighted its concerns about disincentives that exist for those out of work to take up paid employment. It recommends that social welfare benefits should not exceed 70 per cent of the income a recipient could earn from employment and that the payment of housing benefits be decoupled from a person’s employment status and linked instead to income. It also warned against increasing marginal income tax rates, saying the highest tax rates kick in at low income levels compared to peer countries. The report noted that a single person now pays more than half of all income over €32,800 in tax.
Commercial property prices and rents are one of the biggest costs for most businesses, and while the council acknowledges the falls in prices and rents in the post-bubble era, it believes further declines are yet to come and that these will boost competitiveness.
In order for commercial property prices to reach a realistic floor, the report urged Nama to release the properties it holds onto the market in “a timely fashion”, to publish more information on its portfolio of assets and to set out more clearly how it intends to sell off these assets.
On energy, the council called for the phasing out of subsidies under the renewable energy feed- in tariff (Refit) scheme, which incentivises onshore wind generation, and suggested subsidisation of peat-burning power stations be scrapped as it was no longer justified.
The council also advocated a review of the current schedule for public investment in the electricity grid on the grounds that less capacity was needed owing to lower demand.
The competitiveness council’s 14 members come from business, trade unions and academia.
