Dr. Tom McDonnell:

Mr. Nugent might talk about real wages versus nominal wages. I will talk about labour share versus capital share and employer social contributions. Regarding the Deputy's comments, it is difficult to disagree with much of anything. He made the point about management practice and technical skills. The point was made earlier about our education system. We do underfund education on a per-pupil basis but where we really fall down is adult education. We really fall down in allowing people to have those opportunities once they are out of college or past their mid-20s to reskill, upskill or whatever. The research and development spend that we talked about it is not just about being in a lab and coming up with inventions. It is partially about the innovation system and having those linkages with business to enable them to better improve their management practices. There is the potential issue of the golden cage effect in Ireland, where a lot of talent gets sucked into the multinationals, which arguably creates a problem. It is difficult to quantitatively identify that, of course.

On the Deputy's specific questions, we do have a very low labour share. We know why that is. It is because of the very large multinational sector which is highly capital-intensive and has all those profits. It does distort Ireland's figures fairly dramatically. Notwithstanding that, we would still have a low labour share relative to other European countries. In terms of labour costs, northern and western Europe are the only reasonable comparators. It is not reasonable to compare us to lower-wage eastern Europe and places like that with very different business models. We want to have high wages so we can have high standards of living. We are in no way an outlier there. One thing that does bring us back towards the pack is employer PRSI and PRSI contributions. This does have implications for the longer-term revenue base of the State. There is a plan to gradually increase employer PRSI, very modestly, to help pay for the pension over the longer period. We would like to see some of those future employer PRSI increases going to adult education and training and things like that, which can benefit business as well. I know there is the National Training Fund too. Employer PRSI is the elephant in the room and has been historically. It leads to Ireland having a lower revenue to output ration than other western European countries. That is the elephant in the room, that is the difference. I know it has arguably been part of Ireland's model to a certain extent. Other areas where we are low include capital taxes, as the Deputy mentioned, such as property tax.

Capital owners and the income they get are treated preferentially to labour, by and large, which is a distortion in favour of the passive income versus earned income. We would see that as problematic. Additionally, capital taxes generally are associated with enormous generous tax expenditures and subsidies, which means that effective rates are often very low, and that also creates a distortion. We would prefer to see a rebalancing that benefitsvis-à-viscapital. That would also help the business community in terms of wage demands. Mr. Nugent will speak briefly on this point as well.