A key concern of the National Competitiveness Council (NCC) is a slow erosion of Ireland's price advantage which risks reversing the impressive gains made in recent years. A competitive economy, as the NCC chairman Professor Peter Clinch has pointed out in the council's annual Cost of Doing Business in Ireland 2016 report, can both benefit from the upturns in the global economy and survive the downturns.
Strong economic recovery since the financial crisis has been greatly helped by improved cost competitiveness and by a range of positive external factors beyond our control: a weak euro, low oil prices and low interest rates. All have contributed to boosting exports, increasing tax revenues and expanding employment. But now, against the unfolding of an increasingly uncertain global economic environment, as global growth falters and sterling weakens and as fears mount about the outcome of the Brexit vote, controlling domestic costs becomes a matter of critical importance.
The NCC identifies some areas of specific concern, notably the property sector where a dysfunctional market has developed. It warns that: “Rising rents and increasing house prices will inevitably impact upon wage demands, increase the cost of living and will damage competitiveness”. In addition, it notes the prohibitive cost of lending where Irish business borrowers pay some 80 per cent more for loans than the euro zone average. This places them at serious disadvantage, deters investment and means fewer jobs can be created.
The NCC also highlights child-care costs which were the second highest among the developed economies of the OECD. For couples with children, the latter are a financial disincentive to both parents working. As domestic labour costs have begun to rise faster than those in the euro zone and the EU, the council is rightly fearful lest wage growth outpace productivity growth and a damaging wage spiral ensues.
In that regard the pay award made by Ornua – formerly the Irish Dairy Board – to its top management is a poor examplar in the face of the pay moderation mantra that is being delivered to much lower paid workers across the economy. Over the last two years, nine top executives in the company have shared more than €9 million in pay, bonuses and pension contributions. And in addition, directors’ fees have increased by 44 per cent in the period. These payments occur despite a global collapse in milk prices and a fall in the income of dairy farmers with little prospect of an improvement before next year.
The challenge of improving Ireland’s competitiveness needs to be addressed as a priority by the incoming government. As the NCC chairman says: “This is the only way to secure jobs and incomes and to provide quality public services”. And without such an approach, Ireland’s economy recovery will be in serious jeopardy.