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THERE’S NOT LONG to go until Budget 2015 is announced with much debate still to take place between now and 14 October on what the government should do on taxation and expenditure.
In the fourth in a series of articles Dr Daragh McGreal, an economic advisor to the independent TD Stephen Donnelly, examines the issue of competitiveness.
IT’S HARD NOT to be a fan of Padraig Harrington. From about 2000 to 2008 he birdied at will, was always in the mix, and quite often won events. He was competitive like nobody else, winning Ryder Cups and becoming a major winner in 2007 and 2008.
By August 2008 he was the highest ranked European golfer and things looked bright. But since then it’s downhill. He hasn’t won a tournament in six years. He plods along, hacking away, and you can sense he yearns for yesteryear.
But what has this got to do with economics?
Well it teaches us that once you become uncompetitive it is very difficult to get back on track. Harrington’s struggles since 2008 mirror those of the Irish economy: having been prosperous and admired throughout most of the 2000s, both have desperately tried to get back in the hunt again.
In Ireland’s case it’s about exporting goods and attracting foreign direct investment (FDI). We did that well during the Celtic Tiger, in spite of high costs, and the economy grew strongly. But when the recession hit we became both uncompetitive and unappealing. We had lost our edge.
Between 2008 and 2012, all the indications were that Ireland was becoming more competitive. Figures from Eurostat show that, across indicators like consumer prices, producer prices, and unit labour costs, there was a shift toward 1999 levels.
This was mainly due to wages falling and inflation being either small or negative. By 2013, gross earnings were below the EU-27 average, despite being amongst the highest in the world in 2007. With inflation so low, our previously high costs came down, but because our pre-recession costs were so high, our 2012 price levels were still 13 per cent above the EU average.
It is for this reason that Ireland slipped down the World Economic Forum’s ranking of international competitiveness, falling from 21st in 2007 to 28th in 2014. Meanwhile, during its recession, the UK moved up the ranking.
But what does this actually mean?
Effectively, we didn’t become competitive at a fast enough rate. While we were knocking in birdies everyone else was knocking in eagles.
The importance of all of this is that since 2012 Ireland has started becoming uncompetitive again. The downward push on wages and prices was driven almost completely by the private sector, but by 2012 there was little left to consolidate. So it was inevitable that prices would increase again.
That companies and workers drove Ireland’s improvement in competitiveness is important for policy makers. It highlights that competitiveness can be achieved in other ways. The World Bank’s Ease of Doing Business annual report is instructive here. It shows that Ireland ranks 15th globally, having peaked at 6th in 2008.
In general we do relatively well: starting a business isn’t too burdensome, but could be simplified, getting credit is possible, but could be made easier, and investor protection is strong.
On the other hand, dealing with construction permits is complicated and costly, registering a property takes too long, getting an electricity connection is well above the average cost found in other OECD countries, and exporting is expensive (even as an island). Hence there are numerous costs associated with both starting and growing a business.
In identifying best practice, the aforementioned World Bank report emphasises better coordination between the private sector and government bodies. Institutional and administrative barriers can be both simplified and strengthened, so that regulation is not compromised.
A one-stop shop for starting a business could reduce the current average waiting period from 10 days down to 1 day, electronic property registration would both speed up that process and give greater certainty to sellers and buyers, and traders and customs officials could be allowed exchange information online, thereby reducing exporting costs.
Becoming more competitive boils down to being smarter and more efficient than your competitors. The data shows that Irish businesses and workers did that during the recession but that Ireland still slipped in international rankings.
As we hit the bunker with our first effort, Budget 2015 offers the chance to hit the pin with our second.
Dr Daragh Mc Greal is an economist and human rights consultant currently working with Stephen Donnelly TD on Budget 2015 and other policies.
What would you do to increase Ireland’s competitiveness in Budget 2015? Let us know in the comments…
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Convenient they can blame the EU now
@Pj Browne: god forbid we follow laws and agreements.
I wouldn’t mind but it’s literally the government’s job to know how to pass laws and give enough notice to those affected. They’re getting away with doing it to renters, but it sounds like the people who have managed to afford a spare room are able to stand up for their agreed legal right to fair notice.
@Fiona Fitzgerald: sorry what do you mean they are getting away with it on renters ? If you mean not extending the temporary winter eviction ban I think you have that all messed up
Slightly confused about this article? What exactly is the delay? There has to be a reason for this but the article implies that it’s the EU who is for some unknown reason delaying the process. Clearer journalism would help
@Dave Phelan: It says they want to “engage with stakeholders”, which to me means they want to present the data from their analysis and need those at the top to prioritise it over other issues based on that data. The real question to me is why wasn’t this analysis done in the beginning when it was first proposed?
If you have bought a house, paid vat, paye, stamp duty etc, then the government should not be able to prevent you doing something lawful with it. Deflecting blame from their own failures
@Dave Harris: in fairness nobody is allowed do what they like once they buy something. It does seem unfair that somebody could suddenly find themselves living next door to an ever rotate number of strangers on holidays who often don’t respect locals. Think there is a place for short lets but it can’t go on as is.
@Dave Harris: lol lawful? The state decides what’s lawful. In this case lawful is changing it so that you have to have planning permission before turning your property in a domestic structure into a business. All the other people in the area/building bought based on it being a residence not being a hotel. And every other lawful accommodation business needs to register with bord fáilte and have the required standards and checks in place so why should these get away with it?
@Dave Harris: Laws change and rightly so as society evolves. Airbnb has had a huge impact on housing crises across Ireland and internationally. The government has failed on a number of fronts in relation to housing and regulating short-term rents is one thing they need to act on. We have tourists in home while homeless and refugees are in hotels.
@Emma Meehan: never sure on this “huge” impact in Ireland. Never saw any figures.
12,000 rental units – what a load of cobblers. As a former Airbnb host, I know that most rural hosts have a couple of rooms in their own house or a granny flat and they are definitely not viable accommodation long term. It’s probably different in the cities. But now the rules mean getting planning permission, registration fees, etc. So it’s an end to the farming community or elderly people getting the chance of a few quid in summer time and bringing much needed tourism to the regions. When something is not broken, why try to fix it? As the hosts I’ve been listening to are just getting out. Same as with small landlords, there’s too much hassle, beaurocracy and expense.
@Shelley Keary: As someone who uses Airbnb regularly for accommodation in rural parts of Ireland, I’d definitely agree that most places even those at the higher end in terms of standards are definitely not suitable for long-term renters. They are often in beautiful parts of the country and ideal for some quiet time away but located in very isolated areas, with limited access to services such as schools, medical centres etc, and only having a one shop village nearby that requires driving to. Flaky internet so not suitable for remote work etc, prone to dampness in winter, no childcare available & absolutely no transport options. A blanket approach to classifying all Airbnbs in the same way is ludicrous. The reality of available, suitable, properties is much less then the projections given.
@Shelley Keary: and taxes
Ireland, behind the curve as usual. https://www.nyc.gov/assets/buildings/pdf/MultipleDwellingLaw.pdf
@zephyrum: what has US laws got to do with Irish and EU laws?
The change of use planning rules which have not been announced for Short Term Rentals by the Housing Minister but form part of the proposed Tourism Register is the reason thousands of self catering tourist accommodation providers voiced their concerns to the EU via the TRIS submission process. Rural and coastal tourist accommodation is being put in the same boiling pot as urban short term let’s who are capitalising on higher rental rates and should be the target of the government but all offering these services will be put into the same net. This will have a significant impact on rural businesses that provide benefit to all local businesses whether food and bev, tourist attractions, etc. These rural businesses are already reeling from reduced numbers if accommodation in Summer 2022 due to 35 percent of accommodation contracted to the government for refugees.
Not sure why a Tourism Register is being linked to housing policy that hasn’t been announced? TRIS requires that such policies should be transparent. There was no indication either on what the registration annual cost would be, so I’m wondering why the Govt is surprised that this proposed legislation is at a standstill till Dec 23. Maybe Housing Dept should be looking at their shortcomings rather than trying to pin the homelessness problem on anyone and everyone but themselves.
have your say