NCC: Further reforms needed

Further structural reforms are needed to improve Ireland’s competitiveness, according to the annual report from the National Competitiveness Council.

The council noted that many of the competitiveness gains made over the past few years can be attributed to cyclical factors owing to the end of the recession. The two key structural reforms that need to be implemented include changes to the social welfare system that encourage recipients to return to the workforce.

In its quarterly reviews of the economy during the bailout, the troika also highlighted the need to reform the sheltered sectors and in particular the legal profession.

“Ireland’s economy maintained its momentum through 2013 and into 2014. Improvements in our labour market, continued stability in the public finances, and a generally positive macroeconomic outlook reinforce the view that we can look to the future with a greater sense of optimism,” said Dr Don Thornhill, chairman of the NCC.

“However, we must also protect what we have — we must be quite clear that the hard won competitiveness gains that we have made since 2008 are in danger of being eroded as the economy returns to growth. These gains cannot be allowed to dissipate through either overconfidence or inertia.

“To protect and enhance Ireland’s international competitiveness, we must maintain the momentum generated through the hard work and sacrifices of the past five years, and continue with a programme of structural reform. Only a concerted programme of action will deliver the conditions necessary to support continued economic and employment growth into the medium term.”

Ireland’s current account balance has improved significantly since the economy hit the buffers in 2008, on the back of improving competitiveness. However, most of this improvement has been achieved through an internal devaluation.

The report notes that an improving economy could quickly erode these gains and choke off recovery if costs increase; skills become scarcer and the infrastructure becomes more congested.

“We must learn the lessons of past mistakes. A return to growth should offer the space to accelerate and deepen the pace of reform – rather than delay inevitable actions. It is important that we do not become complacent about the need for continuous reform. We must tackle those factors that affect our competitiveness negatively,” it says.