In recent years Ireland has made massive strides. This progress is reflected in new jobs, strong inward investment, surging exports and record low government borrowing costs. Irish firms are winning new business, driving growth and putting people back to work

But major challenges remain. Across a range of important areas, the country is not working as it should and the Government needs to act.

Ibec’s new campaign, An Ireland that Works, sets out the views of business on the way forward. It identifies key economic and policy issues that will have a major impact on Ireland’s success: tax, regulation, investment, entrepreneurship and Ireland’s place in the world.

Ultimately, the objective must be to get the country working better for business and its citizens alike. We need to make sure those out of work have quality job opportunities, and we need to ensure it makes economic sense for companies to hire new staff.

The Government’s approach to both tax and infrastructure policy will have a significant impact on recovery.

Ireland’s tax system is not working for growth, either in terms of direct or indirect taxes. The tax burden is too high and is a drag on employment, investment and consumer spending. It makes the move from welfare into work less attractive and makes it difficult to attract mobile talent to the country. Yes, there was a need to overhaul the tax system to sort out the public finances. And yes, this necessitated significant increases in the tax take and a broadening of the tax base. But it has gone too far. Income tax acts as a disincentive to work, investment, consumption and job creation.

Steep marginal tax
At 52 per cent, we have one of the highest marginal tax rates in the OECD, well above the 36 per cent average. And the top marginal rate kicks in at just over €32,000, in the UK it starts at €180,000. This makes it harder to attract and retain top talent.

In the next budget, the Government should increase the income entry point to the higher marginal tax rate, reduce the marginal income tax rate below 50 per cent and bring the marginal tax rate for the self-employed back into line with other workers.

The unfair pensions levy should be dropped. And excessive excise increases should be reversed.

Such reductions will boost sentiment, support domestic activity and feed into higher exchequer returns. Tax cuts are also a means of increasing disposable income, without undermining the ability of business to create jobs.

Ireland’s cost base remains out of line and this affects our ability to compete internationally. We have the 10th-highest labour costs in the EU, 24 per cent above the EU average.

When it comes to spending, we are not investing enough in the future. During the crisis years, 70 per cent of public expenditure reduction was a result of cuts to the public capital investment programmes. In the past five years, Ireland fell 17 places to 21st out of the EU27 in terms of government capital spending on infrastructure. The World Economic Forum ranks Ireland 35th in the world and 22nd out of the 34 OECD members for infrastructure.

The Government should commit to spending 4 per cent of gross domestic product on infrastructure development by 2020. The Republic is expected to see the strongest population growth in the EU to 2060, rising to over 5.1 million by 2025 and 6.6 million by 2060.

A new national spatial strategy is needed to target this investment where it is needed most, so all parts of the country benefit from recovery.

We need to get the private sector more involved, through public-private partnerships, and we need the Government to tackle blockages in the planning system. Too often, infrastructure projects vital to the future of the country, particularly in the energy and environment sector, are subject to unwarranted delays.

EU exemplar
Ireland has the potential to grow at twice the EU average, but the Government needs to make the right choices.

If the conditions are right, business will deliver a new phase of strong growth and prosperity for all our citizens.

Mary Rose Burke is director of business representation at Ibec