Broadening of tax base advised by report

FURTHER EFFORTS to broaden the tax base and more reform of the public sector are among the recommendations in the latest report of the National Competitiveness Council, published today.

The economy may have shown signs of stabilising but the Government should not become complacent, says the report, which uses more than 125 statistical indicators from the Central Statistics Office, Eurostat, the OECD and Forfás.

The report recommends continued investment in strategic infrastructure, such as next generation broadband, and says innovative financing solutions are needed to get around current financial limitations.

The Government must also look at broadening the export base, the council says. Exports have fuelled the economy in recent years, growing between 2008 and 2011 while private consumption slumped. However, the market share of exports has remained at the levels that existed before the recession.

The NCC said the focus must remain on implementing structural reforms, particularly those agreed with the troika. Domestic reforms could help to shield the economy from the worst of the effects of negative international developments in the short term, according to the report.

Chairman of the council Dr Don Thornhill recommended reforms in areas such as healthcare and legal services, where high costs could affect sectors dealing with international competition in the domestic market and abroad.

The report says savings of up to 4.8 per cent of gross domestic product (GDP) could be achieved with some reforms in the health system. “To achieve sustainable, long-lasting competitiveness gains, Ireland must maintain focus on implementing a range of structural reforms across all sectors of the economy. Such reforms will encompass policies relating to the labour market, competition policy, taxation, education and skills,” Dr Thornhill said. Equally important is an appropriately structured banking system that could supply credit to enterprises, he said.

Labour costs in Ireland are still about 2 per cent above the OECD average. Although personal incomes are still among the highest in the OECD in terms of GDP per capita, the country ranks below the OECD and euro area average in terms of GNP.

Unemployment is among the highest in the EU, with the standardised unemployment rate at 14.4 per cent. Only Spain and Greece have higher levels, at 21.6 and 17.7 per cent respectively.

In lifelong learning, Ireland also ranks below the euro area average, while primary school students aged between 9 and 11 get fewer hours of maths and science tuition than their OECD counterparts.

The report highlights the large proportion of society at risk of poverty, with 15.1 per cent of single people in work falling into that category.

Ireland also falls down in other areas, with its share of energy derived from renewable resources about one-third of the OECD average. Ireland is one of the most oil-dependent countries in the OECD. The Eurostat figures on renewable energy do not include wind, however, which is making an increasing contribution to the State’s electricity generation capacity.

Forfás chief executive Martin Shanahan said Ireland was now in a phase of transition.

“Many of our traditional strengths, however, have survived the recession intact – our pro-business enterprise regime, our supportive tax regime and our productive workforce – and Ireland remains an attractive location for investment and trading.”

Our ability and willingness to deliver reform will determine the pace and scale of recovery, he said.