Hidden economic vulnerabilities might be concealed beneath inflated economic figures - NCC
Ireland faces significant competitiveness challenges, according to the National Competitiveness Council (NCC) in its 2017 report. The major challenges highlighted include the high cost of doing business, infrastructure deficits, and an over-reliance on multinational enterprises (MNEs) for corporate tax revenue.
The high cost environment, including energy and infrastructure costs, poses a challenge for competitiveness, particularly in export sectors dominated by foreign enterprises. Persistent gaps in infrastructure, including transport, energy, and water systems, and lack of distinctive regional economic identities reduce overall economic resilience and capacity for sustainable growth.
Government revenue, especially corporate tax, is heavily reliant on a few large MNEs, creating vulnerability to external shocks and tax base erosion. Corporate tax accounts for around 30% of revenues, with just three firms generating about 40% of this tax.
Sustaining and improving productivity growth channels remains a focus, with concerns over whether past performance advantages can be maintained in the future under current conditions.
Addressing these challenges requires a strategic focus on infrastructure investment, diversification of the economic base, cost containment, and enhancing indigenous enterprise capacity alongside MNEs to improve Ireland’s medium- and long-term competitiveness.
Despite these risks, the NCC found Ireland's competitive performance continued to improve over the last year. The labor force in Ireland is highly educated, young, and supportive for business. Economic growth, improved public finances, trade performance, and a strong labor market performance have all contributed to Ireland's improved international competitiveness.
However, the NCC did not discuss any potential upside threats to Ireland's economic competitiveness in its 2017 report. Neither did it provide a forecast for Ireland's future economic growth or a detailed analysis of Ireland's current economic situation.
The NCC emphasized the need to ensure the environment in which to do business remains competitive, focusing on costs, skills availability, infrastructure capacity, and productivity. The competitive taxation regime in Ireland remains a traditional strength. The Council advises policymakers to avoid narrowing the tax base and instead ensure the tax system supports and rewards employment, enterprise, investment, and innovation.
Developing Ireland's infrastructure base, while complying with the EU's fiscal rules, is a fundamental challenge to enhancing competitiveness. The risks include Brexit, a potential shift in trade and taxation policy in the US, and uncertain global growth.
Professor Peter Clinch, Chair of the NCC, stated that Ireland is at a critical juncture in terms of ensuring foundations for future competitiveness. The NCC's 2017 Competitiveness Scorecard for Ireland emphasizes the importance of addressing factors within Ireland's control. The Council did not specify what factors within Ireland's control it was referring to, but in this context, it seems to include the resilience of the enterprise base, the competitive business environment, and infrastructure development.
The exporting sectors of the economy in Ireland continue to perform strongly. The NCC also highlights the potential for slower than projected growth in both the UK and US as a downside threat.
The competitive taxation regime, being a traditional strength, should continue to support and reward employment, enterprise, investment, and innovation in Ireland's business environment. A strategic focus on infrastructure investment, diversification of the economic base, cost containment, and enhancing indigenous enterprise capacity will help improve Ireland's medium- and long-term competitiveness.
