The Government must make fighting inflation the key priority in the next budget, Ibec director general Turlough O'Sullivan said yesterday.
Announcing the key points of Ibec's pre-budget submission, Mr O'Sullivan called on the Government to freeze increases in administered prices, cut excise on auto diesel and provide financial support to encourage firms to improve the efficiency of their energy usage. He also called on the Government to allow more private sector firms to participate in public service provision and made a strong plea for greater transparency in benchmarking of public sector pay.
Ibec's director of policy, Danny McCoy, warned that the economy now had a "competitiveness problem". Rapidly rising costs and low productivity growth are causing Ireland's market share of world exports to fall, he added. Describing the next budget as an opportunity for the Government to acknowledge the imbalanced nature of economic growth, Mr McCoy said that policy leadership was required to tackle rising inflation.
"The paradox of the Irish economy is that we've had this explosion in cost and yet the economy seems to be going well," Mr O'Sullivan said. Growth had remained strong, because of continued strong growth in the construction sector and in personal consumption. "We are a small country and to think that we could sustain our economy on consumption or construction would be dangerous," he added. Mr O'Sullivan said the ability of firms to compete on world markets was being hampered by rising inflation and that the Government had a responsibility to tackle this.
"A substantial portion is accounted for by Government policy. We think Government can make a contribution to lowering the cost burden." The submission recommends a freeze on publicly controlled prices and charges for education, health, transport and local authority services for at least 12 months.
Mr McCoy said the Government would need to implement a suite of energy measures in the next budget, including a reduction in the auto diesel excise rate and a reduction in the rate applied to LPG and home heating oils.
"These measures would not be prohibitive in terms of cost but would be hugely beneficial to business," Mr McCoy said yesterday. Despite the volume of fuel consumed remaining unchanged, Government revenue from fuel excise has increased by almost 50 per cent, from €1.4 billion in 2001 to over €2 billion in 2005, the submission maintains, while the excise on diesel oil has risen by 40 per cent between 2002 and 2004.
To contain what it calls an "explosion" in wage pressures, there should be indexation of personal credit, PAYE and standard rate band to inflation. Ibec also called for a freeze on employer's or employee's PRSI. To provide the resources for this policy, public spending should grow by no more than 8 per cent, Ibec said. Mr O'Sullivan said the round of benchmarking public sector pay should result in less generous pay rises for public servants. "I think we've learned from the first benchmarking exercise and I think that's good."
