Irish productivity still below average

IRELAND’S PRODUCTIVITY levels remain below the OECD average and are affecting the State’s competitiveness, the chairman of the National Competitiveness Council (NCC) has said.

Addressing the Oireachtas Joint Committee on Enterprise, Trade and Employment yesterday, Don Thornhill said productivity was “absolutely vital” and there should be a policy focus on promoting productivity. “Competitiveness does not mean low wages. [It] can mean productivity.”

Dr Thornhill said that while Ireland’s multinational sector was highly productive, productivity rates for indigenous businesses were below average due to issues of scale, contributing to Ireland’s low rate of productivity per unit cost of labour.

According to the NCC, Irish productivity growth between 2008 and 2009 ranked 24th lowest in the OECD. In addition, productivity growth rates between 2005 and 2009 fell considerably from the period between 2001 and 2005.

Dr Thornhill said tax incentives need to be directed towards externally traded businesses, rather than on domestic activities such as the construction sector.

“As long as there are incentives to concentrate on indigenous companies, the temptation will be there to focus too heavily on domestic, non-traded businesses . . . we saw the consequences of that. There are only so many houses that can be built.”

The NCC also supports the introduction of a property tax as an alternative to increasing income tax rates, the committee heard yesterday. A broadly based property tax could raise between €1.5 and €2 billion a year, Dr Thornhill said. He suggested that one possible model for a property tax could see the introduction of a minimum annual tax of €300 to €500.