Time to tackle obstacles to competitiveness
Opinion: Why we should move into line with UK on income tax
Photograph: Getty Images
We were once a regular top-four finisher. Then we let things slip, ignored the changes that needed to be made, fell down the league tables and suffered massively as a consequence.
Now with hard work we have started to climb back up the table and are starting to see the results – but we have a long way to go, and where we end up is far from certain.
I am not talking about Newcastle or (perish the thought) Man United in the future, but about the Irish economy.
The role of the property and banking collapse in causing our jobs crisis is well-known, but people often overlook the part played by the collapse in our competitiveness. In the bubble years our international competitiveness rankings fell steadily, from fourth in 2000 to 14th in 2007 and 24th in 2011. This destroyed a carefully-built, export-led economy.
After years of double-digit export growth in the 1990s, our share of export markets fell steadily from 2003 and we lost large numbers of jobs in exporting companies. When the crash hit, 300,000 jobs were lost.
In the past three years, supported by the Government’s action plan for jobs, we have started to turn things around and have steadily climbed up the rankings, from 24th in 2011 to 17th last year. This played a key role in the overall jobs growth of 61,000 across the economy in the past year.
However, a report by the National Competitiveness Council last week found our overall cost competitiveness has started to deteriorate after several years of improvement. At 11.8 per cent, our unemployment is still far too high and the recovery is precarious.
No easing up
Now is not the time to ease up on the structural reforms necessary for continued jobs growth. We have delivered reforms in many areas. However, as the latest warning signs show, further action by Government is necessary.
I believe we must deal with three key areas in responding.
First, Government plans to act on issues that can directly influence competitiveness.
For example, international reports repeatedly identify the time taken for businesses to get electricity connections and construction permits as having a detrimental impact on our competitiveness.
Shortly, the National Competitiveness Council will report back to the Cabinet committee on jobs with concrete recommendations on how to deliver improvements in these areas, and over the coming months this structure will tackle other areas where we are out of line with our international competitors.
Second, we must recognise the role consumer prices play in competitiveness. High consumer prices start a vicious circle of increased wage demands and increasing business costs, which ultimately directly threatens competitiveness and jobs.
Last week we published legislation to create a strong merged watchdog with new powers and staff, and a new focus on the consumer interest that can combat that vicious circle.
Finally, we must not forget the role that income tax plays in competitiveness.
As I have said previously, in Ireland the 52 per cent marginal rate of income tax is much higher and kicks in at a much lower level of income than in competitor countries – at €32,800, the marginal rate kicks in below the level of average incomes.
In the UK, by comparison, while there are other factors to consider, workers pay 20 per cent on incomes up to €38,000 and 40 per cent on incomes above that up to €180,000.
This directly harms competitiveness and job creation in Ireland and is an issue that comes up often in boardrooms of multinational companies considering creating jobs here.
Reducing income tax
I believe we must move as soon as finances allow to reduce the income tax burden, starting with hard-pressed families on average incomes. A medium-term ambition should be to move into line with competitor countries like the UK.
The Irish economy has started the difficult journey back up the league tables. However, nobody should be in any doubt but that we have a lot of hard work ahead of us if we are to get back up the rankings and create the jobs we need.
Richard Bruton is Minister for Enterprise and Jobs