Wage moderation a priority, says Forfas

Wages in the Republic are rising faster than in any other OECD state and the economic downturn is worse than expected, Forfβs warned yesterday.

The National Competitiveness Council said continued growth could not be taken for granted.

And it added that the social partners should co-operate to ensure wage moderation and higher productivity.

In addition, it warned that the Government's roads and telecoms programmes were behind target and said the education sector should be restructured.

Business conditions had changed fundamentally, according to council chairman Mr Brian Patterson, but tighter public finances should not lead to a curtailment of the National Development Plan.

The Government was faced with "much greater than normal uncertainty and volatility" in the world economy at a time when high pay and poor infrastructure were likely to constrain growth after the record expansion in the late 1990s.

Pay rises ahead of all other OECD states "should scare us", Mr Patterson said, and the situation was more serious because such increases did not reflect productivity growth.

The Republic had the fourth-fastest rate of unit wage costs, which adjusts absolute wage growth to allow for increases in productivity. Given that the Government had no control over interest and exchange rates, he said a "major effort" was required to moderate wages and prioritise productivity through the partnership system.

On infrastructure, Mr Patterson had concern about the delivery of the National Development Plan roads programme and said slippage was already occurring.

Only 33 km of new road had been completed from the 1,369.1 km projected by 2008 and 17 of the 67 projects were delayed.

In addition, project price inflation was particularly worrying because the plan was "very end-loaded".

On telecoms, Mr Patterson said the Government had no option but to fund the development of high-speed broadband networks because the private sector would not provide the money.

"Progress in developing telecoms infrastructure has been extremely disappointing," Mr Patterson said. "We've got to get on with it."

The Republic was ranked 27th out of 30 in the OECD for broadband penetration, he said.

In addition, a digital subscriber line proposed by Eircom was among the most expensive in the OECD, and the local loop - the last section of the telephone line from local exchanges into individual homes and offices - had yet to be opened to competition.

A strategy was "urgently required" of the Department of Public Enterprise to provide infrastructure on a low-cost, national-access basis.

"Broadband is something we've got to do. It's not an option."

Asked about an allocation of more than £40 million (€51 million) for broadband development in the Budget, Mr Patterson said that was not enough. Certain estimates had put the cost of national roll-out at £400 million, he said.

He said the perception that the Republic's education system was one of the world's finest was wrong.

Fresh approaches to restructuring the sector were needed, with the focus on changing demographics and lifestyles, and competitiveness.

Of particular concern was a decline in the number taking science subjects. This was the subject of a task force study that should report early in 2001, Mr Patterson said.

A revision of curricula and the examination system, and additional funding for laboratories and measures to attract science graduates into teaching were required.

Research and development spending remained low.

While the low corporation tax regime meant international firms were encouraged to establish manufacturing operations in the Republic, this was a disincentive to investment in research.

Waste management and projected curbs on greenhouse gas emissions were the most pressing environmental issues for business. Mr Patterson said a national waste management agency should be set up with step-in powers where local authorities did not move quickly enough to develop disposal facilities. Any tax on greenhouse emissions should be signalled well in advance, he said.

Main Points

Economy robust but continued success cannot be taken for granted as downturn is sharper than expected. Global economic situation difficult

Flexible social partnership more important than ever because Government has no control over interest and exchange rates

Moderate wage growth; prioritise productivity growth

Restructure education, with particular focus on science

Continue road programmes, despite lower public revenues

Re-examine road budgeting and scheduling

High road project inflation should prompt continuing review of National Development Plan

Private sector investment in high-speed telecoms unlikely so Department of Public Enterprise should develop new broadband strategy