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Why is the Republic of Ireland such an expensive country?

We have Scandinavian prices but without the salaries

Survey after survey put us at the top of the price charts. Accusations of price gouging abound. What is it that makes Ireland such an expensive country?

High taxes; a lack of competition; our island status? They all contribute but there’s no real smoking gun. We seem to have Scandinavian prices but without the salaries to match. Is there perhaps a cultural component to our cost-of-living woes?

Take Tesco’s row with US food giant Heinz. The UK supermarket chain last week pulled Heinz baked beans and ketchup from its shelves after the US brand upped its prices in the face of higher input costs. A Tesco spokesperson said: “With household budgets under increasing pressure, now more than ever we have a responsibility to ensure customers get the best possible value, and we will not pass on unjustifiable price increases to our customers.”

The supermarket added it was “laser-focused on keeping the cost of the weekly shop in check” as food price inflation surges, adding to the cost-of-living crisis.

Whatever has gone on behind the scenes, Tesco is undoubtedly using the controversy to enhance its customer-centric credentials.

What’s interesting from an Irish perspective is that Tesco Ireland quickly reassured consumers here that the debacle wouldn’t affect them, meaning Heinz products would continue to be sold in Tesco’s Irish stores. Put another way, we’ll be paying the higher Heinz prices that Tesco is shielding the UK consumer from.

What can we infer from this? That we’re seen as a soft touch internationally? That we’re less likely to complain?

Market research has shown that UK consumers tend to put price considerations first whereas Irish consumers tend to be suspicious of cheaper products. Might this explain Tesco’s twin-track approach?

Daragh Cassidy, head of communications at price comparison website Bonkers.ie, believes that one of the factors driving Ireland’s relatively high cost of living is cultural, namely our awkwardness around complaining, demanding a better service or shopping around to seek out better value.

“Irish people have a morbid fear of being seen as tight-fisted,” he says. “If we were like the Germans, prices here would be lower...Would they be as low as Germany? No, because there are other reasons why prices are high but that cultural thing of not wanting to make a fuss when money is concerned, not wanting to complain when the service is bad, has an impact.”

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“Businesses know then they can charge a premium because we’re not as laser-focused on price as consumers in other countries,” Cassidy says.

His pushover thesis has a definite ring of truth to it. That said, there are some hard data points underpinning living costs here.

While VAT – at 23 per cent – is high, it’s not massively out of kilter with other countries. In contrast, the excise duty loaded on alcohol is. A bottle of wine attracts over €3 in excise duty, €6 in the case of sparkling, the highest rate in the EU.

Despite the adoption of renewables, electricity costs are also among the highest in Europe. The banking sector and its dwindling set of participants also charge a premium on lending and have done so since the 2008 financial crash on the rather spurious notion that the Irish market is a riskier proposition than its European peers. Irish consumers can expect to pay at least €80,000 more than their European counterparts on a €300,000 mortgage over 30 years.

High insurance costs, which the industry blames on big payouts, also play a role.

The boss of Ireland’s largest hotel chain, Dalata, last week blamed rising hotel room rates on pent-up demand in the wake of the pandemic and the refugee crisis. Dermot Crowley said the market was experiencing “a period of exceptional pent-up post-pandemic demand at a time when supply is temporarily reduced as a direct consequence of the war in Ukraine”.

Public criticism of hotels over their room rates has grown in recent weeks amid reports that weekend room rates of €300-€400 per night were being charged by modest hotels in Dublin. Whether Crowley is right or wrong, senior Government figures have been drawn in. Tánaiste Leo Varadkar warned the hospitality sector that any evidence of price gouging could result in the Government opting to restore the higher rate of VAT for the sector in 2023.

You might deem staggered prices for drinks in a pub or nightclub over the course of a night, now the norm in some Dublin venues, a form of price gouging.

You might also wonder why leaving it late to book an airline ticket comes with such a financial penalty when the product is the same. Airlines blame it on their algorithms. It goes unchallenged.

In the US there are laws against price gouging, which presuppose definitions of what exorbitant or excessive pricing is. We seem to make a lot of noise about excessive pricing without ever going after it legally.