Richard Bruton (Dublin North Central, Fine Gael) | Oireachtas source

A Forfás report that was published recently, Costs of Doing Business in Ireland 2012, indicates that business costs have decreased significantly in recent years, with overall prices in the economy falling back to levels last experienced in 2002. This is an important report in the context of our need to continue to build an export-led recovery. It examines the relative importance of different areas of cost for different sectors. The improvement in business cost competitiveness has been driven by dramatic reductions in property-related costs, in terms of purchase and rent levels, and falling prices across a range of professional and business services. We have also seen relative improvements in labour costs in Ireland, which fell by 0.9% per annum between 2008 and 2011. By contrast, labour costs in the euro area increased by an average of 4.6% per annum in the same period. While these improvements are welcome and indicate that we are moving in the right direction, we must continue to focus on actions to promote further cost reductions across the economy. The report advises that over half of recent cost competitiveness gains are attributable to favourable exchange rate movements. The report also indicates that upward price pressure is beginning to emerge in some areas, while rigidities persist within the economy.

The report highlights the fact that Ireland is still out of line with our key competitors on a range of business inputs. Despite the reductions achieved to date, labour costs remain relatively high and are over 6% above the euro area average. Energy costs remain a cause for concern, particularly for the SME sector, with Ireland as the fourth most expensive location in the euro area for electricity. Waste costs in Ireland are higher than those elsewhere in Europe. Despite the recession, legal service prices are 11% above 2006 levels. The report shows that Irish consumer prices are 12% above the euro area average. This is a significant indirect cost for business because it puts upward pressure on wage expectations. Another issue highlighted in the report is the impact on our competitiveness of labour taxation. The marginal rates of income tax are 52% and 55% for employees and the self-employed, respectively. This is higher than in many of our competitor countries. In addition, these rates commence at a relatively low level of income. Tax rates of over 50% on average incomes damage inward investment and entrepreneurship and can act as a disincentive to work. It was in recognition of this issue that I said the Government must continue to keep its promise by avoiding further increases in the burden of taxes on work if we are to sustain and accelerate the transition in our economy and the jobs recovery that has begun. We must begin to reduce the income tax burden as soon as possible, starting with hard-pressed families on average incomes.

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I draw a comparison with our nearest neighbours in the UK, where one pays 20% tax up to approximately €37,000 and then a marginal rate of tax of 40% on income up to €175,000. The contrast highlights the mistake, in my opinion, of previous Administrations, under which 80% of fiscal correction was made through increases to income tax. The Forfás report makes a number of recommendations aimed at further improving our cost competitiveness position. Part of the Action Plan for Jobs has been the development of proposals each year that can improve our competitiveness. This report will be a valuable input into developing further proposals. Forfás is undertaking detailed work in areas such as licensing and regulation, ease of doing business and wider measures that would enhance competitiveness. This is intended to develop proposals that can be enacted in the years ahead. The implementation of these actions, combined with the Government's broader agenda to enhance productivity, will play a key role in improving our competitiveness and realising our ambition of making Ireland the best small country in the world in which to do business.

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