There seems to be a widespread belief that our material living standards have caught up with our British neighbours and the EU. This is an exaggeration. We've still got some distance to go.
The illusion derives, I think, from international statistics of Gross Domestic Product (GDP) which show that, when allowance is made for differences in price levels, the purchasing power of our GDP per head in 1997 - the latest year for which such OECD data is available - was fractionally ahead of that for Britain or the EU as a whole.
It is not a valid comparison. In our case GDP is not a satisfactory measure of economic performance, because it includes the Irish profits of multinational companies, most of which are remitted abroad. And, because of the disproportionate scale of external investment in Ireland, net outflows of profits etc. represent an exceptionally large share of Irish GDP - between a sixth and an eighth, whereas elsewhere in Europe such net flows are relatively insignificant.
Valid comparisons between the resources that we and our neighbours create and have available for use are best made by excluding this profit outflow. And this involves comparing Gross National Product (GNP) data rather GDP figures.
On that basis OECD comparisons of Irish and British national accounts show that in 1997 the purchasing power of our GNP at £12,430 per head was lower than the British £14,313 per capita figure by a 14 per cent margin. And private consumption per head - a measure of material living standards - at £7,525 per head - was lower than the British figure by as much as 20 per cent.
Of course, from 1997 to 1999 the catching-up process, which since 1985 had narrowed the Irish/British per capita GNP differential from over 40 per cent to 14 per cent, continued. By last year this differential must have dropped to less than 5 per cent - and within a year or so from now the purchasing power of our GNP will have reached the UK and probably the EU average.
But the gap in living standards between Ireland and the UK will not so easily be eliminated. This is because we allocate a smaller proportion of our resources to consumption than does the UK and, in contrast to the UK, this proportion has been declining. Why should this be so?
Because our infrastructure is that of the much poorer country we were until recently we have had to invest far more of our resources in infrastructural development than Britain. And our faster growth necessitates a much more rapid expansion of stocks. Taken together, these two developmental requirements absorb over half as much again of what we produce as in the UK.
So although the resources used up by the State in running this country absorb a much lower proportion of our output than in the UK - less than a sixth as against over a fifth - the amount of what we produce that is available for private consumption is far below that of our neighbour: just 60 per cent in 1997 as against 66 per cent in the UK.
While in Britain consumption has been rising faster than output, the opposite had been the case here. Because we invested heavily in our future from 1989 to 1999, consumption rose more slowly than output, reflecting wage restraint achieved through national pay agreements. As a result, the share of our output absorbed by private consumption fell from 66 per cent to 58 per cent, reflecting that over this decade the share of output dedicated to investment jumped by as much as two-fifths.
Because of the priority we have been giving to investment, the gap between Irish and British living standards has been narrowing much more slowly than has been the case with per capita output. By last year the living standards gap seems to have narrowed to 16 per cent - from a difference of almost 40 per cent in 1988.
We have probably now come to the end of the period in which investment in our future designed to improve our weak infrastructure has required a very high degree of pay restraint.
Our EMU participation has given us the benefit of very low interest rates, so we have to be careful not to allow pay rates to rise so fast as to make us uncompetitive, for that could damage our favourable job climate and reverse the fall in unemployment. But this still leaves room for higher pay rises than in the 1990s - perhaps of 5 per cent a year instead of the very low 2.5 to 3 per cent of the past 10 years. And that, in turn, will lead to a growth in consumption at a rate closer to our GNP growth rate.
Consequently, the slowing of our economic growth rate in the years ahead, because of labour shortages, may not be accompanied by a similar deceleration in the growth of our living standards, which may continue to rise at rates close to those experienced in recent years. What of the relationship between average living standards here and in Northern Ireland?
With the very large transfers from Britain, the Northern economy in 1997 enjoyed a level of GDP per head only about a fifth below England's - i.e. only slightly lower than for Wales.
BUT the differential in average living standards between Northern Ireland and the rest of the UK was smaller in that year, at 14 per cent - possibly because of lower investment there. Thus last year average living standards in Northern Ireland were still fractionally higher than here.
However, despite our higher priority for investment we are likely to match Northern Ireland in this respect within a year or so. One additional point: the fact that Irish GNP per head is still below the UK level is not due to our lower productivity. This difference is entirely accounted for by the fact that although our ratio of dependants to workers has been falling very rapidly since 1986 it is still higher than the low British figure.
However, in the next few years the ratio will fall to, or perhaps below, the British figure, and the benefits of our higher productivity level will manifest themselves fully in a higher level of GNP per head - and hopefully a higher standard of living.
Irish output per worker has risen above the UK figure, and is increasing far more rapidly. This reflects the faster modernisation of our economy, thanks to the influx of high-tech foreign investment and its spin-off effects on indigenous activity in sectors such as software. Of course, it has been easier for Ireland than for the UK to modernise in this way, as we had the advantage of effectively starting from scratch 40 years ago. Having virtually no manufactured exports then, it was possible for us to make provision for low, or even nil, tax on profits from manufacturing exports without much loss of revenue.
Then we were still a largely rural society, with a traditionally strong "underdog" aspiration to education, intensified by parents' concern that their emigrating children should have a chance of a decent life abroad. And we had a very small demotivated urban proletariat. These features of our society made it possible for us to carry through an educational revolution of a kind and on a scale that was impossible in England and Wales.
Somehow, the very disadvantages we had inherited from our colonial past were turned into advantages upon which our politicians started to build a solid basis for economic growth and prosperity 40 years ago, a full generation after independence.
Correction
In last week's article on the Budget I said as far as 85 per cent of taxpayers are concerned an increase in the undifferentiated PAYE allowance would have provided a ready means of dealing with the low level of income at which single people become liable to the top tax rate. This was incorrect. What I should have said was that it offered a means of relieving such single people of overtaxation of their incomes.