‘Rising rents and labour costs’ damaging Ireland’s competitiveness

National Competitiveness Council chief highlights current challenges

The head of the National Competitiveness Council, Peter Clinch, said  Irish businesses face costs that are 65 per cent higher than their EU counterparts.

The head of the National Competitiveness Council, Peter Clinch, said Irish businesses face costs that are 65 per cent higher than their EU counterparts.

 

The head of the National Competitiveness Council has warned that rising rents and labour costs combined with the high rate of personal taxation are now posing a serious threat to the Republic’s competitiveness.

Peter Clinch told the Oireachtas committee on budgetary oversight that wage costs were now rising four times faster than the rate of inflation and in certain sectors were out of line with the UK and other peer countries.

He also highlighted the rapid jump in residential property prices, which are now roughly where they were at the start of 2005, and rents, which made it unattractive for high-skilled workers to move here.

On the tax front, Mr Clinch said the marginal tax rate for a person earning the average wage is the second-highest marginal tax rate at 49 per cent among the high-income OECD countries.

He was invited before the committee to discuss the council’s latest Cost of Doing Business in Ireland report, which presents an annual snapshot of the Republic’s cost profile.

Mr Clinch described the Republic as an expensive location in which to live and work.

“ So, while average prices are increasing slowly, they are doing so from a comparatively high base,” he said.

He said the council’s latest report identifies a number of emerging pressure points in the economy “which have the potential to significantly erode our competitiveness further”.

Cost factors

“The major cost factors for Irish businesses are labour costs, the rental price of commercial property, interest rates and the continued increase in insurance costs,” he said.

Mr Clinch also noted that businesses in Ireland faced higher interest rates than the average business in the euro area. In 2014 Irish companies faced a similar interest rate (3 per cent ) to counterparts in Germany and France, whereas now the rate is higher for Irish companies at 3.3 per cent and lower in these economies (2 per cent), he said.

“This means that an Irish business faces costs that are 65 per cent higher than their EU counterparts,” Mr Clinch said.

He said productivity, a key determinant of competitiveness, in Ireland was highly variable.

“Domestically, a small fraction of firms provides the major part of Ireland’s productivity performance, value added, exports and corporate tax receipts, disguising the majority of underperforming firms where productivity growth is stagnant or falling,” he said.

“The narrow range of exporters, products and services exported, and the reliance on a small number of export markets, pose serious concerns,” he added.