Cost of Doing Business in Ireland

  • Another excellent report from Forfás, just released, looks at how Ireland has been doing in improving our cost competitiveness.
  • Well, it’s a case of some decent progress made but, and it’s a big but, there are still issues to be concerned about.
  • Business costs have reduced significantly over recent years with overall price levels in the economy falling back to levels last seen in 2002.  That may not be readily evident to all businesses however, many of whom are tied into existing contracts.  Furthermore, the report points out that over half of the recent improvements in Ireland’s cost competitiveness is accounted for by more favourable exchange rate movements.
  • Costs in Ireland remain out of line (i.e. above costs in our key competitors) for a range of business inputs: labour costs, which account for the largest proportion of location sensitive costs for most businesses remain relatively high (over 6% above euro area averages), notwithstanding the reductions achieved to date; energy costs remain a cause for concern, particularly for SMEs where Ireland is the fourth most expensive location in the euro area for electricity; waste costs in Ireland are higher than similar costs elsewhere in Europe; and legal service prices are 11% above 2006 levels, despite the recession.
  • From the perspective of the individual consumer, the cost of living in Ireland remains high.  On average, Irish consumer prices were found to be 12% above the euro area average and Ireland was the 3rd most expensive location in the euro area for consumer goods and services.  In particular, Ireland was found to be relatively more expensive for food and non-alcoholic beverages, while the cost of health and education services has steadily increased since 2000.
  • The cost of the majority of business and professional services has fallen since 2006, though readers will not be surprised to learn that the cost of legal services is the exception.
  • Consumer prices represent important indirect costs for business.  They are a reflection of the overall cost environment.  Outside of work, employees purchase goods and services.  Movements in these prices impact upon wage expectations, and so the impact of price changes in consumer markets spill over into the cost base of the enterprise sector.  Lowering the cost of living would have an impact on Ireland’s overall competitiveness, particularly through the impact that lower consumer prices would have on wage expectations and labour costs.
  • The report rightly points out, the marginal rate of income tax, at 52% for employees and 55% for the self-employed, is higher than in most of our competitor countries.  It also kicks in at a much lower level of income – in fact, at €32,800 for a single person, the threshold is below the average income.  Tax rates of over 50% on average incomes damages inward investment and entrepreneurship, and makes too many people question whether they would be better off not working at all.
  • On transport costs the report finds that Ireland is the 4th most expensive country in the Euro area for diesel.  Prices for transport related services have remained stable since 2006, the exception being the cost of air transport which has increased significantly since 2010.
  • This is an important and very interesting report from Forfás.  It examines 7 different cost components:  labour, property, utilities, transport, credit, professional services, and general cost environment.
  • CLICK HERE to read the Press Release. 
  • CLICK HERE to read the report, and don’t be put off, there is an excellent 10-page Executive Summary.
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