Irish living standards and prosperity face “a serious and imminent threat” if Ireland fails to rein in costs, the National Competitiveness Council warns.
The council also joins with the IMF and the EU in urging the Government from taking steps that would narrow the tax base, saying that high levels of economic growth are “masking” underlying threats of rising costs.
Set up 20 years ago to advise on ways to sustain economic expansion, the council said the Government should, however, shape a taxation system that rewards “employment, enterprise, investment, and innovation”. It also wants to prioritise projects to ease bottlenecks in national infrastructure.
Those themes are unlikely to jar with the Government as Finance Minister Paschal Donohoe prepares for his first budget in October.
In its latest scorecard, the commission says that Brexit and plans for US corporate tax cuts by President Donald Trump pose significant challenges to Ireland’s competitiveness.
“The scale of the challenges which confront us have magnified over the past year since the Brexit referendum result,” says council chair, professor Peter Clinch.
“It brings into sharp focus the need for Ireland to maintain and improve our competitiveness performance across a range of areas such as infrastructure, ease of starting a business, talent, tax and innovation.
“Only a renewed focus on competitiveness will enable us to achieve sustainable improvements in living standards to help us withstand external shocks and factors beyond our control.”
Strong economic growth is “masking weakness” in costs that could affect future productivity, it warns.
The scorecard urges the Government to follow the EU spending rules and manage carefully its finances and “to ensure that the economy does not overheat”.
It finds that Ireland’s 12.5% corporate tax regime continues to deliver.
The cost of credit to Irish business has fallen but firms still face expensive high interest rates compared with international rivals in the eurozone.
On education, it finds that the quality of third-level graduates “is among the highest” of developed economies, but warns about the low levels of research and development.
“Employment growth is strong and total employment is still below pre-crisis employment levels. Long-term unemployment and youth unemployment levels are declining, but remain high. Ensuring skills and labour market mismatches do not grow and aligning labour market needs with education and training output remains critical to competitiveness,” it says.
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