Competitiveness – more progress needed, or else

Last week’s report by Ireland’s National Competitiveness Council (NCC) is challenging, but also positive in that it clearly identifies the issues which must be addressed with urgency if Ireland is to emerge from this serious recession with a vibrant enterprise base capable of sustaining high living standards.

Without immediate and continuing action to restore our international competitiveness, we run the risk that Ireland will enter a prolonged period of depressed economic activity.  Targeting export led growth (of which tourism is a vital part) is the only sustainable route to maintain living standards and secure long-term prosperity, the NCC report points out.

Of immediate urgency is restoring the health of the public finances.  Additional revenues are urgently required and this will involve broadening the tax base.  Expect to see the introduction of a property tax and more user charges.  However painful, major reduction of current expenditure must be central to restoring public finances.  That must be accompanied by meaningful and lasting public sector reform.  We must rise to the challenge of delivering better public services with fewer resources.

The NCC report also strongly suggests that projects in the National Development Plan are reprioritised, with those having the most favourable impact on competitiveness being progressed quickly.

Ensuring that the banks channel credit to viable businesses will be a critical factor in the recovery process.  And the NCC report urges NAMA not to be slow in releasing the assets of failed developers into the market as, it says, that providing opportunities for strong and new businesses to purchase assets cheaply will help economic recovery.

On cost competitiveness and sustaining jobs, the report is very direct:

–  Adjusting incomes: The rate at which price levels generally and incomes adjust to the changed economic environment will have a considerable bearing on how quickly Ireland can recover;
–  Lowering energy costs: Recent energy price reductions are necessary but not sufficient.  Further actions are required to bring down energy costs;
–  Tackling administered costs: Despite general deflation, inflation in public services and administered prices (e.g. taxi/bus/rail fares; health insurance) is projected to average 13.2% this year.  Government needs to issue policy direction to regulators and agencies to ensure that national economic and competitiveness objectives are prioritised in all regulatory decisions; and
–  Supporting Competition: A number of outstanding Competition Authority recommendations require action.  Government needs to give priority to taking pro-competitiveness decisions on these recommendations.  It is critical that competition law is applied in all sectors of the economy.

The report stresses that as a small open economy highly dependent on trade and investment, rebuilding our international reputation will be an important element of economic recovery.  Continued emphasis on marketing Ireland overseas as an attractive location for investment, business and tourism will be vital.

Click here to access the full NCC report (PDF file) which is essential reading to understanding the road head that will deliver economic recovery.

July 1st 2009

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