Professor Peter Clinch:

I thank the committee for inviting me here today. The National Competitiveness Council was established by the Government in 1997 and serves as an independent voice advising on Ireland’s competitive position and the means by which it may be enhanced. The council’s role is, therefore, an advisory one. We do not formulate policy but rather advise on areas of focus to improve competitiveness. Our membership includes people with relevant expertise in competitiveness, business people and representatives from employer and trade union organisations. The CEOs of Enterprise Ireland, IDA Ireland and the chair of the Competition and Consumer Protection Commission are also members.

Each year the council publishes three annual reports. The Costs of Doing Business in Ireland report is a requirement under the Action Plan for Jobs and benchmarks key business costs and highlights areas where Irish enterprise costs are out of line with key competitors. Ireland’s Competitiveness Scorecard provides a comprehensive statistical assessment of Ireland's competitiveness performance. Ireland’s Competitiveness Challenge uses this information along with the latest research to outline the main challenges to Ireland’s competitiveness and the policy areas to enhance our position. The council’s annual submission to the Action Plan for Jobs is also included as part of this year’scompetitiveness challenge report. We also publish a series of two to three page bulletins on various aspects of competitiveness.

Ireland’s ability to compete and sell goods and services abroad is the key determinant of economic growth, our ability to provide sustainable jobs, the wage rates that people are paid and, importantly, our ability to provide quality public services. Our recent competitiveness challenge report, a copy of which was provided to members, reports that the economy is in its strongest place since the onset of the recession. This is a significant achievement and the council wishes to acknowledge the role of Government and the Oireachtas.

Ireland’s improving competitiveness performance has been central to the recovery in employment and economic growth. Since 2011, Ireland’s relative international competitiveness, as measured by a range of international indices, has improved. Ireland moved from 16th to 7th in 2016 in the IMD’s World Competitiveness Yearbook, and from 24th to 23rd in the World Economic Forum Global Competitiveness Report. In addition, the World Bank’s most recent Doing Business 2017 report shows Ireland is now ranked 18th out of 190 countries, but down one place since last year’s report.

The concern of the council is that our significant improvement in competitiveness is largely the result of a cyclical cost competitiveness adjustment, that is, the economic crash putting downward pressure on prices, and external factors beyond our control such as the low value of the euro, low interest rates and low energy prices. The recovery was also helped by the record levels of investment in infrastructure in the run-up to the crisis. This allowed an expansion of output after the crisis without a consequent increase in prices or shortages. However, we are now seeing significant price pressures and hidden inflation in the economy.

At the same time, the economy now faces a significant threat from other external factors beyond our control, including Brexit, a potential shift in economic policy in the US, and the uncertain nature of the political economy of the EU. This makes it crucial that we address those factors within our control, these being maintaining cost competitiveness and investing in supporting infrastructure and talent. The decisions made today will determine the competitiveness of the economy in the future.

Importantly, these factors also determine the quality of people’s lives. Overall living standards, wages, housing, transport options to and from work, leisure time and access to social protection, education and health care are all dependent on how competitive we are in international trade. As such, a message of sustainable recovery is at the heart of the competitiveness challenge report we published in December. We must rigorously pursue cost competitiveness, address barriers to investment and growth, drive productivity performance and be responsive to the competitiveness challenges and opportunities that are emerging. The challenges posed by Brexit provide additional motivation to pursue cost competitiveness across a range of business inputs, including legal, property and insurance where costs continue to be a concern. It brings into sharp focus Infrastructure bottlenecks and skills mismatches, which have also become more acute, while issues such as increasing industrial unrest are emerging as threats.

The report covers a lot of ground but I will refer to five key areas.

In regard to public finances, efforts to bring fiscal stability and improved performance have been exceptional. It is important to ensure our fiscal position remains sustainable in the face of an uncertain international trading and investment environment. The council is of the view that we should avoid any narrowing of the tax base which might leave us exposed in the future and we must ensure the tax system supports and rewards employment and work. Second, housing affordability has a direct and significant effect on the competitiveness of the economy. The solution is clearly on the supply side. We welcome the Rebuilding Ireland plan but believe that it will take time to implement and to effect change.

Research suggests the single greatest factor that explains differences in prosperity between countries are the demographics and skills of the population. With increasing corporation tax competition, skilled labour must now be the key emphasis for retaining and winning foreign direct investment and the growth of a cohort of internationally trading indigenous companies. Failure to tackle the under-resourcing of higher education is placing Ireland at a considerable disadvantage internationally and will have a significant medium-term impact on competitiveness and productivity in the economy. We would urge follow-through on the recommendations of increased State funding alongside income contingent loans.

Delivering world class water and waste-water infrastructure is a long-term project, but it is a project that must commence today. The Council supports a funding model that delivers an adequate and reliable funding stream for public water services, is consistent with the user pays principle, protects vulnerable citizens and rewards conservation.

Finally, our medium-term competitiveness is being affected by the restrictions on capital investment. Our past investment in capital was a crucial ingredient to our rapid recovery, and we support any Government and Oireachtas efforts to have the restrictions on capital investment eased. We encourage that the fiscal space remaining goes towards investing in the future productive capacity of the economy.

This is just a brief summary of the council’s views.

In closing my statement, I would like to say that we appreciate policy-making and legislation are being carried out in very difficult and uncertain times. Following years of fiscal retrenchment, and a general reduction in living standards, it is understandable that people wish to see a degree of payback from all of the sacrifices made. We understand that this makes Government and Oireachtas decision making extremely challenging but crucial to Ireland’s future prospects. In the pursuit of equity within this generation we must also consider equity between the generations. We need to ensure that, in efforts to satisfy short-term demands, we must also work to secure the prospects of future generations.

I would like to express the gratitude of the council for affording us the opportunity to meet the committee today and I am happy to answer, as best as I can, any questions members might have.