State to become most expensive in euro zone

Report findings: Ireland will this year become the most expensive country in the euro zone, with price levels here 12 per cent above the average, according to a new report.

Responding to the findings, the National Competitiveness Council (NCC) has called on the Government to avoid further increases in indirect taxes and charges this year and next. Ireland was the second-most expensive country in the euro zone for consumer prices last year, marginally behind Finland, the report says. With inflation here remaining high, it is now likely that the Republic will become the most expensive country during this year, according to the analysis, undertaken by PricewaterhouseCoopers for the NCC and Forfás, the State industrial policy agency.

Prices in two other EU countries which do not use the euro, Denmark and Sweden, are also estimated to be higher than here, but Irish prices are now estimated to have caught up with UK levels. The study found that Ireland was expensive for a wide range of goods and services. Ireland was the most expensive country in the euro zone for foodstuffs from low-priced outlets.

An average basket of supermarket goods, costing €218 here, could be bought for €200 or less in all other euro zone countries except for France, where prices are similar.

Other items found to be expensive in Ireland are residential rents, alcohol and tobacco and eating and drinking in pubs and restaurants. The report also details high costs for some medical products. Looking at the factors pushing up inflation over the past three years, the report shows a high contribution from the non-traded sectors. The report estimates that the State - mainly through higher excise duties and rising charges for services such as hospitals and waste, contributed between 30 and 40 per cent of overall inflation in the year to the end of January 2003, equivalent to between 1.4 per cent and 1.9 per cent of the 4.8 per cent annual rate.

Pubs and restaurants are found to be key contributors to inflation, accounting for 30 per cent of the rise over the past year. Alcoholic drinks, tobacco and transport were other key categories.

Commenting on the report, the National Competitiveness Council, a group of business people, trade unionists and other representatives set up to advise on policy, called on the Government not to increase excise duties or VAT in the next Budget and to avoid pushing up the cost of services it provides to the public. The control of inflation must now be given the highest priority, it says.

Following the council's recommendation would be difficult for the Government at a time of pressure on the public finances and a spokesman for the Minister for Finance said last night that no budgetary commitments could be given at this stage.

The council believes the Government should set a firm inflation target, equivalent to no more than half a point above the euro average, that the wage terms of the new national agreement must be adhered to and that a new focus is needed on competition policy. Otherwise, according to the NCC chairman, Mr William Burgess, competitiveness will suffer and jobs will be lost.