Irish business will create growth we need if conditions are right
Opinion:Many challenges remain on the road to recovery
Ireland was hit hard by the economic crisis, but businesses adapted quickly to the new reality. As a result, growth has returned and Ireland is on a sustainable path to recovery.
It has been a difficult journey, however, and many challenges remain. High unemployment and weak demand are a drag on the economy. These are problems shared across the EU.
The challenge is to generate the growth needed to create jobs, overcome our debt burden and deliver the prosperity, public services and quality of life that we can legitimately aspire to. Three key issues will have a massive effect on our capacity to reach our growth potential: tax, investment and employment.
Recent budgets have seen the tax burden increase dramatically to offset the massive hole left in the public finances by the collapse of the property market and the rapid contraction of domestic economic activity. This rise was necessary, but it should now end.
The economy and Irish workers are already taxed enough. As a result of the introduction of the universal social charge and other changes to the personal tax regime, Ireland now has one of the highest marginal income tax rates in the OECD at 52 per cent, compared to an OECD average of 36 per cent. It also kicks in at a relatively low income level.
There should be no new tax rises over and above those already committed to in Budget 2013. The savings made on the promissory notes should also be partly used to ease the level of austerity over the next two years.
We need a tax system that not only rewards work, but also supports investment. The current capital gains tax regime, however, discourages investment.
This needs to be reviewed in the next budget. We need a system that supports genuine, long-term investment into Irish businesses. Investment is also needed by Government, notwithstanding the constrained public finances.
It is vital that a successor to the Croke Park deal deliver increased productivity and the savings required in current expenditure; but as a society, we still need to invest for the future. The Government needs to look again at the potential for alternative investment streams, such as public private partnerships, to support important public infrastructure projects.
At the household level, the stabilisation of the property market, a return to more normal spending and saving patterns, and increased access to credit should see confidence return and investment levels increase. The most pressing and perhaps most difficult challenge is the unemployment crisis. The latest Action Plan for Jobs includes many practical measures, which will improve the business environment, reduce the regulatory burden and make it easier for companies to take on new staff.
It is crucial that there is no increase in the cost of employment and that nothing is done to undermine the flexibility of the Irish labour market or the industrial relations environment.
If the conditions are right, Irish business can create the growth that will allow us to overcome the debt woes and create the jobs we so desperately need.