Wednesday, 10 November 2004
Competitiveness and Consumer Protection Policy: Statements.
I am delighted to have the opportunity to address this House as Minister for Enterprise, Trade and Employment, particularly on the vitally important areas of competitiveness and consumer policy, which fall within the remit of my Department.
Last week, the Oireachtas Joint Committee on Enterprise and Small Business heard from the chief executive of a major supermarket multiple on the reason supermarket prices are higher in this country than elsewhere. Last month, the National Competitiveness Council published its statement on prices and costs and its annual competitiveness reports outlining the cost disparity between here and other countries.
We have very compelling evidence. We also have robust analysis and no shortage of prescriptions. The National Competitiveness Council has given us a set of recommendations highlighting the areas of action on which we should focus. We also have the recommendations of the enterprise strategy group to take us forward.
The first point I would like to make clear is that tackling the issues of competitiveness and costs, both consumer costs and the costs faced by business, will be one of my major priority areas over the coming two years. I will shortly set out the actions I will be taking in my Department to address the cost and competitiveness issues but it is useful, first, to set things in context.
It is interesting to reflect and recall where Ireland has come from in terms of prosperity over the past ten years. We are now the second wealthiest country in the European Union, after Luxembourg, having been one of the poorest as recently as a decade ago. This remarkable pace of development has brought us to a situation of virtually full employment. This is perhaps the most important factor in assessing the real level of prosperity here and one of which we should feel justly proud. Furthermore, our recent prosperity means we can now afford to look to the future in terms of investment in the sources of growth for the next generation, particularly publicly-funded research and development, and provide better for the social needs of the current population.
Behind this modern legacy lies a deep and firm commitment on the part of the Government to competitiveness and growth. Ireland's competitive success has been and continues to be built on key competitive strengths such as having one of the most favourable taxation regimes in Europe, access to the European Union's Internal Market, a well-educated and skilled workforce and a history of pursuing Government policies that are pro-business, investment driven and which provide a benign business environment. Furthermore, our modern legacy is uniquely and most importantly underpinned by a shared commitment between the social partners on sustaining the progress we have made.
I would like to give the House some figures, which I believe tell their own story. In 2003, the labour market was particularly resilient, with employment growth of 1.9% creating 33,600 new jobs. This strong employment growth, while much lower than some of the rates recorded over the past decade, kept average unemployment for 2003 at a comparatively low rate of 4.6%. Despite the appreciation of the euro, the Irish economy grew last year by 2.8% in GNP terms and 3.7% in GDP terms. The performance of business, both on the part of our overseas investors and our increasingly important home-grown industry, continues to strengthen even in the face of the recent adverse global trading conditions. The performance of Irish industry has also been robust. Last year, Enterprise Ireland reported €1 billion in new export sales and 60 new high export growth companies established.
These positive trends are continuing this year. Significant improvements have been recorded in the growth of GNP, employment and a reduction in the unemployment rate during 2004. Foreign direct investment, business confidence and industrial output have also all recovered strongly in 2004. According to the National Competitiveness Council the essence of national competitiveness is how we capture economic benefits available from industries ensuring that they locate and develop within our jurisdiction. By any standards we continue to perform well in terms of our attractiveness to industry and providing employment to our citizens.
Ireland's commitment to competitiveness and growth is a mirror reflection of the basic objectives of the European Union's Lisbon goal to make the European Union the most competitive, knowledge-based society. Ireland is playing a strong part in this process which I will briefly illustrate.
Ireland is set to maintain its public finances so that it continues to meet the terms of the EU Stability and Growth Pact. Sound public finances provide the basis for GDP growth averaging approximately 5% per annum over the coming period. That is well above the European 15 average.
Inflation levels here have also fallen significantly in recent years. Measured on a harmonised basis, the differential between Irish inflation and the euro area average has narrowed significantly since the start of 2003.
In line with the objectives of the Lisbon Agenda, tax policy in recent years has been geared to promoting a job-friendly environment in order to facilitate robust employment growth. Over the period since 2000, the Government has successfully continued its policy of alleviating the tax pressure on labour, particularly on the low paid.
Concerning the composition of public expenditure, Ireland's level of public investment, at 5% of GNP, is among the highest in the European Union and is twice the EU average. Public investment under the national development plan is targeted at addressing the infrastructure deficit, investment in research and development, education, employment supports and training. These are investments in our future prosperity and competitiveness. Significantly, they are also bringing us closer in our transition to the Lisbon goals.
Notwithstanding these facts, we cannot stand still and we should not be complacent. There are challenges and the Government is committed to taking action to address both the shorter and longer-term competitiveness issues that have arisen. The National Competitiveness Council and the enterprise strategy group have given us a set of prescriptions in the following key areas. These are enterprise development and entrepreneurship, innovation, science and research and development and the business and work environment, including regulatory reform, consumer and competition policy.
These are among the key foundations of our competitiveness in terms of how we influence the competitiveness and cost environment both now and into the future.
An enterprise strategy group was set up in 2003 to prepare an enterprise strategy for growth and employment in Ireland up to the year 2015. The group's report, published in July 2004, identifies the areas that need to be addressed to ensure success in the new knowledge economy. The report indicates the five key areas in which Ireland can establish sustainable competitive advantage which are as follows: developing an expertise in international markets so that business can be more responsive to the needs of customers; building a world-class research and innovation capability to support the development of high-quality, high value products and services; renewing Ireland's historic commitment to education and training to provide the skills base industry will need; maintaining a competitive tax environment to drive economic growth; and providing capable and flexible Government that can quickly identify policies for facilitating change and implement those policies in a cohesive manner.
That last point is important because many people who have located here have pointed to the responsiveness of Government to business and enterprise coming into the country and the capacity of Government to respond quickly to any obstacles or issues that arise and facilitate not just the location but the start-up and development of industry here. They would compare us very favourably with any other government in Europe. Sometimes the political system does not give itself enough credit in terms of the job creation agenda and the role it plays in facilitating both the attraction and expansion of industry in Ireland.
The outcome of the report of the enterprise strategy group will be significant in terms of setting competitive industrial policy for the Irish economy. The report identifies the need for firms here to complement their existing production and operational strengths with new capabilities. Irish enterprise will need to focus on developing expertise in international markets to promote sales growth. It will also need to focus on building technological and applied research and development capability to support the development of high-value products and services. That in turn will involve working with Enterprise Ireland in terms of restructuring and reorganising the skills sets so that Enterprise Ireland is in a position to assist Irish companies in their internationalisation process. The second major leg of that is to develop the research and development capability of indigenous enterprise, which is a significant challenge going forward.
I will shortly be bringing an action plan to Government on the implementation of the recommendations of the enterprise strategy group. This will focus on what is being done to give real effect to those recommendations. Enterprise in Ireland has supplied the oxygen for prosperity, provided the basis for unprecedented employment growth and the resources for social progress and investment. I want to ensure that enterprise and enterprise issues are embedded at the heart of Government policy and will be recommending new structures to see that this is achieved.
Today, Ireland is widely recognised for its high level of performance in an investment driven context. We secure a disproportionate share of foreign direct investment relative to our size and have become the location of choice for manufacturing and international services in areas such as electronics, pharmaceuticals and financial services. We are an exceptionally open economy, critically dependent on trade. As a result of our willingness to embrace openness we have benefited hugely from the creation of the Single Market within the European Union and from the wider trend towards global trade liberalisation but the process that has yielded those benefits also brings challenges. Put simply, the industrial structure which was appropriate to our development in the late 20th century will not serve us in the new millennium. Many developing countries are now competing to be the location of choice for routine manufacturing operations and lower value added industries, and rightly so. It is a step on the same staircase to prosperity that we took. As our competitors ascend the staircase, we must also keep moving upwards.
Our challenge is the direct and demanding one of moving from being an investment-driven economy to an innovation and knowledge driven economy. A central part of that is to dramatically improve our performance as a world-class research centre.
I view the research agenda as one of the most important parts of my wide-ranging departmental brief.
Our national research and development action plan has set an overall objective, namely, that Ireland, by 2010, will be internationally renowned for the excellence of its research and be at the forefront in generating and using new knowledge for economic and social progress within an innovation-driven culture. The action plan sets targets by which the objective can be realised. The most important of these are as follows: gross expenditure on research and development should increase from 1.4% of GNP in 2001 to 2.5% of GNP by 2010; business expenditure on research and development should increase from €917 million in 2001 to €2.5 billion by 2010; research and development investment in the higher education and Government sectors should increase from €422 million in 2001 to €1.1 billion by 2010; and the number of researchers should increase from 5.1 per 1,000 employees in 2001 to 9.3 per 1,000 employees by 2010. While these are challenging targets, they represent the kinds of metrics we need to achieve if we are to come close to the research and development performance of the economies we wish to emulate. More important, they are achievable.
If we want to be a world-class economy and generate the resources to support the level and quality of services to which we aspire, below average or average research spending is not good enough. We must aim to be one of the most research intensive countries in the developed world. In a recent speech on the challenge of research and development, I outlined steps I intend to take via the Cabinet sub-committee on research to set clear intermediate targets and put flesh on the bones of how we will achieve the Lisbon targets by 2010. We will ask the various funding groups involved in the research area to come together and chart the way forward on a step-by-step basis to enable us to benchmark and monitor progress over the next six years.
Regulatory reform, while perhaps not the most exciting subject, is one on which incremental progress can make a real difference to the red tape burden faced by business and, consequently, the costs it faces. I am pleased an initiative commenced during the Irish Presidency is bearing fruit. At the European Union Competitiveness Council later this month I hope we will be able to agree a list of priority areas of law for simplification. Following a joint initiative with my Dutch counterpart, we asked member states for a list of burdensome or complex rules amenable to simplification. This trawl around the European Union produced a list of 330 rules and regulations. The European Commission, in the context of its new rolling simplification programme, will examine each of these rules and address the problem areas. These EU rules have a bearing on the red tape burden faced by business here. This was a practical and effective initiative which will bring results.
In January this year the Government published its White Paper, Regulating Better, which sets out six core principles of better regulation and a detailed action plan. It covers actions to deal with the stock of existing legislation, including provision for sectoral regulatory reviews, an ongoing programme of statute law revision and a major review of pre-1922 legislation to streamline the Statute Book. In terms of the flow of new regulations, the Government White Paper signals the introduction of regulatory impact analysis in support of a more evidence-based approach to policy making. This will facilitate better understanding of the burdens and costs associated with proposed new significant regulations and provide for better consultation with the business sector and wider society.
With regard to sectoral regulatory reforms, progress has continued in a number of areas. There are ongoing reviews of certain building, legal, medical and construction professions by the Competition Authority which, when completed, may have regulatory implications. The Department of Justice, Equality and Law Reform has developed proposals for major reform in the liquor licensing area. Other work is ongoing towards codifying the law governing particular sectors, such as company and consumer law, conveyancing law, criminal law and social welfare law.
The consumer agenda is extremely important for a modern market economy. Knowing that we are getting a fair price and value for money for the goods and services we purchase is what matters to consumers and is critical to ensuring that our economy remains competitive. There is growing concern that consumers are paying more for many goods and services than their counterparts in other European countries. Why is this the case and what can be done about it?
The most effective way to positively impact on price levels in the interests of ordinary consumers is to facilitate effective competition. To do this we must ensure shoppers have a choice across the entire spectrum of consumer goods and services. We must guarantee that choice can be exercised in an informed manner in order that consumers can get the best value available in the goods and services they require.
Exercising choice is only part of the solution. Consumers must be protected from unscrupulous traders. A comprehensive and easily understood body of consumer protection law must be in place, consumers must know their rights and have easy access to redress when things go wrong. There must also be adequate sanctions against unscrupulous traders who break the law and take consumers for granted.
Considerable responsibility and obligations rest with business which must learn to value a satisfied customer and understand that giving value for money makes good business sense. Customers who have not obtained value for money will not return or encourage others to do so. Where choice does not exist, we must ensure a regulatory regime is in place which guarantees fair competition and allows others into the market to provide the choice customers want and deserve.
The Government is tackling the consumer agenda on all these fronts. We have legislation in place which ensures consumers are provided with clear price information prior to making a decision to purchase goods. Traders who do not display prices in the required manner are liable to prosecution. We have reviewed the level of fines for breaches of consumer legislation and I will shortly introduce legislation to update these and bring them into line with the demands of a modern economy.
My Department has worked closely with the Central Statistics Office, the Office of the Director of Consumer Affairs, the Consumers' Association of Ireland and Forfás on the issue of price transparency. This resulted in the publication last July, for the first time, of the CSO consumer average price analysis for Dublin and outside Dublin for May 2004. My Department proposes to continue to work with all interested parties to consider if there is further potential to build on this initiative so as to enhance price transparency for consumers and empower them to seek out the best value possible.
The Office of the Director of Consumer Affairs has published and highlighted the results of price surveys on products such as petrol, potatoes, over-the-counter medicines, compact discs and drink price increases coinciding with major sporting and social events. These provide valuable information for consumers wishing to make informed purchasing decisions.
I am also conscious that confident and discerning consumers play a key role in making the businesses with which they interact more competitive. If business listens to and acts upon customer comments and complaints, it leads to improved goods and services and the possible identification of innovations to win more customers.
The consumer strategy group was established last March to advise on the development of a national consumer policy strategy. The group is focusing on the key principles guiding the consumer agenda, namely, access, safeguards, advice and support, redress, consumer power and business and the consumer. In the performance of this role the group is carrying out a range of activities, including studies investigating issues of special concern. The studies are intended to identify areas where policy intervention could lead to improved consumer access, choice, and redress. I expect the group's recommendation to form the basis of national consumer policy over the coming years. I look forward to receiving its final report, which is due at the end of the year.
Commentators on consumer issues often raise the issue of price control as a possible measure to curb price inflation. Price controls do not have any part in a modern economy. Price control is a crude instrument, which has been proven to be ineffective. It does not encourage cost efficiency, positively discourages pricing based on market forces and it distorts markets by preventing justified price rises due to higher costs incurred by business. When we had stringent price control in the 1970s inflation was running at up to 25% and the maximum price set for a product was nearly always the minimum price. Consumers had little choice and considerable manpower resources were utilised in trying to police a system which had no real benefit to the economy and is now judged to have been detrimental to consumer interests.
There is a more powerful alternative to price control. Developments in sectors such as the airline industry have shown that competition is the key to bringing better value for the consumer. The Competition Authority has the resources and autonomy to investigate the reasons for price levels, which do not seem justifiable and to report publicly on its findings. I have already mentioned ongoing reviews of certain professions by the authority. The authority has the necessary powers to investigate price fixing and other anti-competitive practices. My priority is to ensure the removal of unwarranted restrictions on competition in all sectors of the economy.
The Government has tackled with determination the issue of high insurance costs. Initiatives such as the establishment of the Personal Injuries Assessment Board have helped to drive down insurance costs and business and ordinary consumers are reaping the benefits in the form of lower premiums and greater choice as a result of new entrants into the market.
The Government has taken decisive action to ensure a fair deal for the consumers of financial products. The new consumer director of IFSRA, the Irish Financial Services Regulatory Authority, has already demonstrated her determination to ensure the interests of consumers are adequately represented and protected.
These are just some of the actions being taken in the area of competition and consumer policy. For example, we continue to provide funding to the Consumers Association of Ireland and contribute to the anti-inflation group established under Sustaining Progress. A key issue identified by this group has been wage inflation.
A critical issue for the next round of social partnership talks will be the issue of wage competitiveness. The evidence we heard at the Joint Committee on Enterprise and Small Business is stark. The latest figures from EUROSTAT show that Ireland continues to be sharply out of line with other EU countries in terms of real wage increases for the period 1998 to 2003. During this period Irish wages increased by 12.1% compared with 5.5% growth in the then 15 EU member states. We cannot ignore this evidence if we are serious about sustaining our progress.
Competitiveness is not just an issue for the Government. The Government, for its part, is determined to address competitiveness and cost issues. We intend to do so in consultation with all the social partners to help create and maintain the dynamic, innovative, competitive economy which we aspire to now and for the next generation.
I welcome the Minister to the House for the first time in his new role as Minister for Enterprise, Trade and Employment and I warmly congratulate him on his appointment. I thank him for a comprehensive outline of his views and intentions and for addressing the many challenges ahead.
The maintenance of a competitive tax environment to drive economic growth is vital and a goal to which we all subscribe. I wish the Minister well with the outcome of the report of the enterprise strategy group and I hope the bringing of that report to the Government will lead to success for our economy. One of the biggest challenges referred to by the Minister was the demanding one of moving from an investment-driven economy to an innovation and knowledge-driven economy.
We wish the Minister well in regard to all of these challenges and goals, to which we all subscribe. However, the facts in the Ireland of 2004 are as follows. Two years ago the Government promised to keep personal and business taxes down in order to strengthen and maintain the competitive position of the Irish economy. In the following two years it implemented 31 stealth tax rises which cost the average family €1,800 per year. The average tax contribution per household this year increased by €2,800. Between 2001 and 2002, Ireland overtook the UK and Sweden to become the third most expensive country in the EU for consumer goods and services. By 2003, Ireland was almost on a par with Finland as the most expensive country within the euro zone, both countries being significantly more expensive than the next group of euro zone countries.
Dublin is now the 21st most expensive city in the world and more expensive than Los Angeles, Paris, Miami, Singapore, Honolulu, Vienna, Helsinki and Abu Dhabi. It is the fourth most expensive capital in the EU, behind London, Paris and Copenhagen. Ireland has gone from fourth in 2000 to 30th this year in the World Economic Forum's global competitiveness report, due mainly to the Government's failure to control prices.
The National Competitiveness Council stated that Irish prices rose 22% more than those in other EU countries in the years 1999 to 2003. Economic consultants Compecon Limited suggested the lack of competition in the banking sector is costing small business €500 million. The National Competitiveness Council stated in its 2004 annual report that the need to recover cost competitiveness was crucial to the country's medium-term economic future. Ireland came 14th out of 15 countries in terms of broadband penetration in a survey by the European Competitive Telecommunications Association. It has only 63,610 broadband telephone lines whereas Denmark, a country of similar size, has 839,170.
This, unfortunately, is the record of the outgoing Minister for Enterprise, Trade and Employment, Deputy Harney. In March 2000, she stated the Government was determined to tackle inflation by exposing previously sheltered sectors to competition. In September 2000 she stated that huge areas of the economy were still not exposed to competition, that this put pressure on inflation and that if competition was our yardstick, we had much more to do. She pointed to the telecommunications industry as an example, stating that the introduction of competition there had substantially reduced prices and improved quality, and that this must also apply in other sectors of the economy. She further stated that taxation of work was still too high and that in an environment where there was 20% tax on capital gains and 12.5% tax on corporation profits, we could not have a situation where the only people paying taxes above 40% and 20% were those who work. The Tánaiste also remarked that low to medium income earners — for example, those earning below the minimum wage — should not have to pay any tax.
In November 2001 she stated that job losses in Irish industry have less to do with the ownership of enterprises than loss of competitiveness. It is now almost 2005 and nothing has been done.
Small Business has borne the brunt of the Government's abject failure to protect our international competitiveness. The Irish Small and Medium Enterprises Association has warned that 35,000 small firm jobs are in danger. According to a survey carried out by the association, one quarter of companies stated they expect to be employing less people this year. The same survey showed that most small business owners perceive the Government as being regulators of small business instead of facilitators.
I wish the Minister well in achieving the goals he outlined in regard to a code of simplification. The Minister knows and we all accept that red tape and bureaucracy is bedevilling small businesses in particular in every part of the country. As I stated recently in the House, one of the best measures we could take on behalf of small businesses would be to increase the VAT threshold — the limit at which VAT applies. It would be an easy measure to take in an area that has not been touched for a considerable period and is crying out for redress. I urge the Minister to speak to the Minister for Finance in this regard so that, hopefully, this can be put right in the upcoming budget.
Mr. Jim Power, chief economist with Friends First, stated that Irish competitiveness has been seriously eroded by a sharp increase in the overall cost base, which will not be reversible. He further pointed out that to ensure the future prosperity of the Irish economy it is absolutely essential that investment in education to upskill the workforce, and a correction of the very damaging infrasturctural deficit, are given immediate real priority, not just lip-service. However, this is not the preserve of high-flying economists. Fine Gael's website, www.ripoff.ie, received 50,000 visitors in its first year.
I look forward to hearing from Senator Leyden on that as he was the first Senator to introduce the concept of "name and shame" to the House. Visitors to the website told us their stories first-hand. Lest the Government think rip-off Ireland is a myth, as a Minister from my part of the country stated last week, I will detail some of the e-mails received on this issue. One sober Dubliner wrote that by the time he had paid the entrance fee to a local pub and bought one glass of cola, he had forkedout €11.50. A ripped-off, health-conscious customer was charged €18.64 for a small organic chicken in a local supermarket. One visitor to the www.ripoff.ie site stated that he paid €19,000 for his new car. Later, a kind friend e-mailed him a link to a German car dealer who was charging €10,500 for the same vehicle. New homeowners e-mailed the website complaining that the builders requested €70 to install the necessary wiring for a doorbell. The cost of a bottle of Irish whiskey — distilled and bottled in this country — is cheaper in Boston duty free shops than in Irish airports. Rip-off Ireland is now as topical as the weather in conversation.
The solution to the problem must be rooted in a vigorous adherence to the principle of competition, ending the practice of the Government becoming the godfather of rip-off through more stealth taxes and increased charges. It must also be rooted in respect for the consumer in the same way as producers, employers and unions are respected. It must involve a reassessment of social partnership and a reappraisal of how things are done. The Fine Gael Party has already taken the first step by outlining its proposals on the creation of a consumer rights enforcer. I was glad to note the Minister spoke about introducing a similar post.
However, we propose that the consumer rights enforcer will conduct regular price surveys, highlighting good value while naming and shaming those charging excessive prices. The enforcer would create a price league website with tables on all major products and develop codes of conduct for service providers and retailers on issues such as passing on exchange rate movements. The enforcer would also devise and promote a good practice provider quality mark for suppliers of goods and services that agree to be bound by relevant codes of practice. The enforcer would work with local authorities to drive a pro-consumer agenda at local level involving regular price surveys and measures that protect consumers' interests against local cartels. The enforcer would also have the power to impose fines for non-display of price lists in petrol stations, pubs, hairdressers and restaurants up to a maximum of €3,000, from the current level of €127.
The enforcer would also represent the consumer in national partnership agreements. Recent agreements have been dominated by the producers with little thought given to consumers. As long as employees have trade unions, employers have IBEC and both have the Government's ear, the consumer is lost. The Minister has recognised this and spoke about his plans to address the situation, which is welcome. Without that powerful advocacy, prices soar, costs increase, competitiveness is eroded and rip-off Ireland thrives.
It is time for action to be taken. In his remarks, the Minister has shown he is prepared to address matters. We wish him well for the sake of the economy. To date, little has been done in this area and much must be done. I hope the Minister has a greater period in the Department of Enterprise, Trade and Employment than he had in the Department of Health and Children.
Senator White should not misinterpret me. I am trying to wish the Minister well. He is up against it and his speech showed all that has to be done. For the sake of the economy I wish him well, but it will not be easy. I look forward to the Minister reporting progress on his endeavours in this area. I hope the issues I outlined will prove helpful to him.
I thank the Minister for Enterprise, Trade and Employment for attending the House to debate this issue and I congratulate him on his new appointment. A change from a social Ministry like the Department of Health and Children to the Department of Enterprise, Trade and Employment is an interesting one. I went a similar route when, as a Minister of State, I moved from the Department of Health to the Department of Industry and Commerce with special responsibility for trade and marketing. The Department is an exciting one in which to work with an excellent and innovative staff who have great knowledge of the field. The Minister, Deputy Martin, will bring great innovation to his portfolio.
The Minister has an enormous responsibility, including consumer protection. In this regard the issue of costs is important. I criticise the rip-off mentality as projected by the main Opposition party. It puts forward the problems but not the solutions. Ireland has the highest minimum wage in the world at €1,183 per month. This compares to Japan at €906 per month, the US at €877 per month, Greece at €570 per month, Malta at €535 per month, Spain at €451 per month, Portugal at €365 per month, Hungary at €252 per month and Bulgaria at €56 per month. Is the Fine Gael Party advocating a reduction in the minimum wage? If a high minimum wage is necessary for our people — some of them are earning it in the supermarkets that Senator Coghlan criticised for high prices — then it follows there are higher prices. What solution is being put forward by the main Opposition party?
The Fine Gael Party claims its rip-off website had 50,000 hits. However, as the website is accessible internationally, it has discouraged people from coming to Ireland by highlighting prices externally. While I have no problems arguing the case within our economy, why is Fine Gael trying to jeopardise employment and tourism by discouraging people from visiting Ireland?
This has not been recognised on the Fine Gael Party's website. One company in north Dublin closed its business as it was highlighted on the website. However, the party does not take responsibility for this.
Take the example of petrol prices. The price of a barrel of crude oil has, due to the war in Iraq and other factors, increased to approximately $52. In June, AA Roadwatch published a comparison of petrol prices in Europe. In Finland, consumers paid 118 cent per litre for unleaded petrol and 96 cent per litre for diesel. In Germany, 120 cent per litre. I recently passed a filling station in the midlands where the price per litre for unleaded petrol was 107 cent and diesel, 103 cent. In other parts of Ireland, the price per litre is as low as 94.9 cent. With differences in prices, consumers are choosing to be more selective when purchasing motor fuel. More competition has resulted since prices are displayed in forecourts, allowing people to shop around for the best possible price. It is hard to compare like with like because of the big players in the petrol market. Concessions are given to their own stations and others to owner stations. However, the Fine Gael Party's rip-off website did not highlight how petrol and diesel prices in the rest of Europe are much higher. In Italy, for example, unleaded petrol costs 115 cent per litre. In Northern Ireland it is somewhat higher. We are relatively competitive in that regard.
The Minister will have a major input into the budget in December. It is vital that there is no increase in value added tax on diesel and petrol because such an increase would raise costs throughout the economy, in particular transport costs. This is an island economy and import and export costs are higher than on mainland Europe. Those factors must be taken into consideration.
The Joint Committee on Enterprise and Small Business is investigating supermarket chains and their costs and competitiveness. We have received interesting submissions, including one from the Director of Consumer Affairs. This is a very complex area but I hope we will soon submit a report to the Minister on the subject. The committee is carrying out extremely good work under its chairman and is meeting at the moment. It is considering all aspects of competition within the supermarket industry, including below cost selling and the size of supermarkets and superstores, all of which have a role to play. It has received good submissions in this regard which it will bring to the Minister's attention.
The Government has contributed significantly to progress in recent years. As a result of the national wage agreements our economy is extremely effective, efficient and wealthy. Employment has never been at a higher level. The Consumers Association of Ireland should be strengthened. The Minister should provide it with an amount in the region of €60,000 to €100,000 per annum. It is understaffed and does not have the necessary resources. I hope the Minister will look at that and expand the area of consumer protection to create a national programme working through an organisation such as the Consumers Association of Ireland or other methods. It is worth considering this.
I commend the Minister and the Government on bringing forward the decentralisation programme. This will spread 10,000 people around the countryside into areas where costs are lower than in the capital city which in turn gives people in rural areas the chance to create more business, competition and opportunities. That policy should be pushed because housing costs, for example, in areas such as Roscommon are much lower than in Dublin. The same is true outside the other major cities such as Galway and there is a major building boom. Already the decentralisation of the Prison Service to Castlerea has boosted that area and the Minister must see the benefits of decentralisation and development in his own constituency. It is difficult to attract some industries to areas outside major centres. Continued incentives in the Border, midlands and western area in particular, where 40% of all inward investment should be located, are essential. I urge the Minister to ensure revitalisation of those areas through inward investment.
I appreciate the scale of the task before the Minister. Many of the new member states of the European Union are looking at the success of "Ireland Incorporated", through Enterprise Ireland, the Industrial Development Authority and the ways in which we have been so progressive. The Minister's networks around the world, working through the IDA, in particular, Enterprise Ireland and the former trade board have been very effective. The trade missions in which Minister of State, Deputy Michael Ahern, and others in the Department are involved will highlight the new opportunities in China, the Middle East and elsewhere. While those areas may not relate directly to the subject of this debate the more success and progress made in the economy, the more competitive costs will be and the better the opportunities.
The Minister put forward an excellent manifesto today for his direction in this portfolio. There is no shortage of reports from his Department and now action is needed. The Minister will no doubt take the necessary action on competitiveness. The December budget will be vital to keeping Government charges down, such as the charges on telephone and electricity costs that have a knock-on effect on overall costs. Members of the public are more aware of costs and are more willing to contact the Department or their public representatives about competitiveness. As the Minister's predecessor said, it is important to shop around for the best supermarket prices. There is more competition in the market place than ever before.
The Joint Committee on Enterprise and Small Business researched insurance costs. We have made progress on this area of great responsibility. The Minister's predecessor set up the Personal Injuries Assessment Board which is progressing. That is a marvellous initiative and this Minister will be responsible for continuing the downward trend in insurance costs which were imposing an impossible burden on small industry and small businesses. There has been, and will continue to be, progress in this area. The more companies the Minister can attract into the economy, the better.
In its submission to the committee last week, Tesco outlined its plan to go into the insurance market with another overseas company. That will provide more competition in that area. Insurance costs are far too high and there is not enough competition but companies such as Tesco bring partners into the economy, although it is self-insured. I welcome the introduction of these partners, which will create more competition and allow people to shop around. I am concerned about fuel costs and hope the budget can at least contain the lowest possible costs for diesel and petrol which have a knock-on effect on the economy.
Finally, I urge our friends in the Opposition to put forward more solutions and do less highlighting of the difficulties. If they have the misfortune——
The opportunity to take over is becoming less likely because people realise the benefits of our stable, good quality Government, which will continue after the next general election. If the Opposition has the misfortune to be involved in any form of Government with whatever party, will it take down its www.ripoff.ie site because it is doing great damage to inward investment? When someone looks up Ireland, this pops up on the screen.
Let us argue about prices here. The Minister for Arts, Sport and Tourism said the other day that we are killing ourselves off by talking ourselves out of business. The label "rip-off Ireland" is damaging the Irish economy. If Senator Cummins wants to argue politics, he should argue it within the State.
He should not try to damage the Irish economy by adopting the irresponsible approach Fine Gael is taking at the moment. If that party ever has the misfortune to get into Government, I do not doubt that it will take down the website as quickly as possible.
When I hear references to Ireland being the most open economy in the world, I wonder if I am living in the same country. Senator Leyden, whom I understand to be Fianna Fáil's Seanad spokesman on matters such as trade, has suggested that we should draw a cordon sanitaire around the country. He thinks we should con people from other countries into coming to Ireland by failing to tell them about its problems. Contrary to what people think, one has to win the trust of those one is doing business with if one is to do business successfully.
If we pretend that Ireland is a low-cost economy, business people who come here will last for a couple of days before they disappear when they realise they have been conned. They will head for Taiwan, Singapore, Hong Kong or the free trade zones in China where they can access as much cheap labour and low costs as they want. Regardless of whether the website mentioned by Senator Leyden continues to exist, we will continue to have a free media. I think the term "rip-off Ireland" derives from the term "rip-off Britain", which was coined in that country a number of years ago. I am sure many people in Sweden and Denmark would say the same about their countries. We should ignore the peripheral nonsense of those who want to pretend this is not happening.
That Ireland is now an expensive country in many ways is the inevitable consequence of giving our people a decent standard of living. Only in those countries with governments which have conspired to facilitate the exploitation of working people have prices been maintained at a low level as a high standard of economic performance has been enjoyed. The minimum wage in the United States, for example, is equivalent to approximately €4 per hour, although it varies from state to state. It can be as low as €2 per hour in the catering and related industries because tips are regarded as part of normal income. If people want to live in a society with profound inequalities, they are welcome to do so. The engine of economic growth in such societies is essentially a vast number of poorly paid people who live in mobile homes because they are unable to afford proper housing and who do not enjoy job security or benefit from a proper health service.
I prefer the European model, based on enterprising economies which are vigorous and innovative and an environment in which workers who are adequately rewarded and properly protected enjoy a reasonable level of security of employment. This country needs to develop such a model, which involves the identification of anomalies and peculiarities. It is astonishing that Grafton Street, which is approximately 200 yd. from Leinster House, is the fourth most expensive place in the world in which to rent retail property. The cost of renting property on the street does not reflect the type of business being conducted there or any sort of historical accrued value. The market is being distorted. The Minister should examine how Grafton Street has become so outrageously expensive that a company that was tempted to sell two attractive and historical buildings on the street to capitalise on their value now has to close two of its restaurants because the rent they are paying to the owners of the buildings reflects the commercial value of the properties. That does not make sense. It does not seem to be a model of a functioning market economy.
Many of those who speak loudest about the need for competition and free markets usually want them for other people. The legal and accountancy professions, which are the most eloquent in the defence of the free market, run very effective closed shops — they do not use that term — to ensure that something as demeaning as price competition does not arise in their cases, whatever about other sectors. They restrict numbers and control entry to the profession, although who would ever suggest that they would restrict entry to the profession? Many people in this country who are keen for others to get involved in a competitive market economy are keeping themselves out if it.
If we are to make a serious effort to deal with rip-off prices in a rapidly growing economy, the first thing we should do is ensure there is serious competition in the market. In a civilised society, such competition should not focus on determining who can pay workers the least. I do not want that model, which has been successful in other countries, to be pursued in this country. I am sure most Irish people agree with me in that regard. One of the best modern economists, Dr. Paul Krugman, has argued that the idea of "national competitiveness" is a nonsense. He claims that while sectors within countries can be competitive, that has nothing to do with the nation or the state. From what I have read, I think he makes a valid point when he says there is no such concept as "national competitiveness".
If this country is to facilitate the sectors of activity and enterprise it is good at, it has to be able to access its markets which, in turn, have to be able to access it. One of Ireland's natural advantages in such sectors is that it can access an enormous market of 600 million people. Regardless of the type of business in which we are engaged we have to have a national and international transport infrastructure, within this country and serving this country, that does not put us at a disadvantage. It should be repeated that Ireland's national roads infrastructure is approximately 25 years out of date and its rail infrastructure is approximately 40 years out of date. I travel occasionally in carriages which were old when I started to come to the House 25 years ago. I am sure many other people have the same experience. I do not know which of our many Governments lost the plot in that regard.
We allowed our railway system to deteriorate almost to the point of collapse.
Our road infrastructure is primitive and worse than what one would find in a country such as Hungary, which I have visited within the past 12 months. Its motorway network is considerably better than that of this country. Members should go and look at the rail and road infrastructure of countries such as Italy that we are inclined to see as perhaps a little off the wall in comparison with our great economic achievements.
This country has a problem. It is a wonderful one to have, but we have not yet addressed it: how we can guarantee that we remain at this level of prosperity that the work of successive Governments has generated. Perhaps I might respond to something. No Government in the history of the State ever inherited a better set of economic conditions than that which came to power in 1997. At the time, the country was generating 1,000 jobs a week and had a significant trade surplus. The Exchequer had a substantial revenue surplus, and the beginnings of a spectacular period of economic growth were handed on a plate to the incoming Government. My party leader, Deputy Rabbitte, says that one of the things that will keep academic students of this country's politics going for 50 years is the question of how the coalition Government lost the 1997 election in the teeth of the best economic conditions that the country had ever had. The election was handed to the incoming Government on a plate, and the wrong decisions have been made since.
It was obvious from the 1980s that the country needed transport and telecommunications infrastructure. I have no interest in whether our infrastructure is provided by the private or public sector or by an efficient combination of the two. My interest is in what works efficiently regarding prices, delivery and time. Now we have a disaster in telecommunications. A company set up by taxpayers was privatised so that, ironically, people were paying twice for something. It went off on a tangential operation of asset-stripping on a scale that would have horrified us if attempted by anyone else. It sold off property and its biggest asset, which was its mobile telephone operation. Then it decided that it had to pay off the new investors, with the result that our telecommunications infrastructure is rapidly becoming as out of date as our rail infrastructure. How many people have been denied access to broadband because the last part of the telephone network is out of date and old? There are split and divided lines — things that were never known before. There has not been even the suggestion of investment to change that, with the result that there is now the ridiculous situation that a parallel telecommunications infrastructure is having to be constructed to deal with the ineptitude of a privatised monopoly. If we have learnt anything in this country it is that if one privatises monopolies, they will get worse without the kind of vigorous regulations so singularly missing here.
Ireland is slipping backwards on the World Economic Forum's competitiveness index. I do not have the report with me, but we are barely among the top 30 countries. Those countries in Europe with which we should compare ourselves are not large, powerful economies such as the United Kingdom, Germany and Italy but the small economies. The well-established ones, such as Denmark, Sweden, the Netherlands, Norway and Finland are all nearly 20 places ahead of us.
It is trite and simplistic to suggest that our competitiveness and achievements are all because of our low-tax regime. Such a regime does not even exist, since 55% of those paying income tax are now doing so at the top rate. Having said that, I admit that we made an attempt to reduce taxes. We inevitably discovered that, in a civilised, modern society, if one tries to reduce public expenditure or taxation revenue excessively, one ends up having to pay for things somewhere else because of the need for basic services. That is why we have such high waste charges, which may double within the next four or five years. This morning the abolition of waivers for people on limited incomes to pay for waste charges was mentioned. There are also extraordinarily expensive line rental charges to pay for the greed of those who now own Eircom.
We have charges all over the place and matters are getting out of hand, since one cannot do it on a low tax base. Countries in northern Europe have demonstrated how to construct civilised societies that function within extraordinarily efficient economies. That is what we should be considering. If we blink, we ignore it. Half of us look to the neighbouring island, which is no great model for anything, while the other half looks 3,000 miles away at an even less appropriate one. There are good models on our doorstep for how successful economies can match compassionate societies, but we do not attempt it.
The time is overdue for the Minister to examine the agencies supposed to facilitate and encourage competition, the Office of the Director of Consumer Affairs and the Competition Authority. As I said, the Competition Authority has singularly failed to get our banks and legal and accountancy professions to compete. It recently had a spectacular achievement in the courts when it managed to catch the credit unions. What good will that do for any consumer in Ireland? If the Competition Authority makes that system unviable, the credit unions will close down, and hundreds of thousands in this country will discover that no bank will lend them a penny, making them much worse off.
The other matter concerns the Director of Consumer Affairs. I have no idea what that office does; all that I ever see from it are warnings to petrol stations about their not displaying the correct price. That is not what the country needs. I would seek reliable comparable data on costs and prices. I would like to know how a publican in this city can have a margin of 200% or 300% on a soft drink. Why does that not apply in other countries? Why are things like that? Why are groceries in this country 25% more expensive than in Northern Ireland? Perhaps there are cost issues. I would like to know, and a Director of Consumer Affairs should be finding out and telling us what is wrong.
On the question of price competition, which, as I have tried to explain, is only a very small part of competitiveness, the ultimate solution is to tell the public as much as possible. For instance, any advertisement for a second-hand car should name a price. It is a deliberate deception to try to draw someone into one's premises by not telling the person the price before he or she gets there. Consumers are entitled to know clearly what is on offer, including the price.
There should be more publicity on prices, more analysis and reflection, and a greater willingness not to pull punches. The Food Safety Authority of Ireland is a model for an agency that has begun to do its job properly. One can see the improvement in standards regarding food services and hygiene because it is prepared to name and shame. We need the same vigorous activity from the Director of Consumer Affairs. I have never believed in price controls, since the best control on prices is vigorous competition policed by agencies that see themselves as exclusively on the side of the consumer.
I welcome the Minister of State to the House, and congratulate him on his promotion. I also thank the Minister, Deputy Martin, for his contribution.
Senator Ryan spoke of a compassionate model and said we should not look 3,000 miles away, or to our nearest neighbour who does not have a model to show us either. The model of a successful economy is the country in which we live. This country has created thousands of jobs in the past few years. Those jobs were filled primarily from the ranks of the unemployed, previously referred to as "human set-aside". We now have one of the highest rates of employment and the lowest rate of unemployment in Europe.
I am pleased to contribute to this morning's debate because I have run a small business since 1986. It is benchmarked from here to China. There is certainly competition within some sectors of the economy, although not all. However, some sectors have brutal competition.
With regard to insurance, I know the developments of the past few years will be vigorously continued by the new Minister. Prices used to rise phenomenally each year. When one got one's insurance premium, one was afraid to shop around because nobody would give one a quotation. One was afraid that if one did shop around, one would be asked why one was doing so. One was delighted to write the cheque and post it the following day in case insurance was refused.
Since 2002, the cost of building insurance has fallen from €12,230 to €7,800. These amounts did not come from the same insurance company, they came from shopping around. The previous Minister advised people to do so in order to get a competitive price. That is how competition will be effective in this economy. People are not forced to pay high prices; it is their choice not to shop around.
Competition is not evident in all areas, but it is in many. I witness it on a daily basis.
With regard to telecommunications, not a month goes by without my business receiving a call from a telecommunications provider offering lower charges. I have lower charges year on year by changing providers, not by being loyal to one. On a monthly basis, we are asked by telecommunications providers to submit our bill so they can cut it by 5%, 10% or 20%. That is what happens when one shops around. That is what competition is about.
Ireland is one of the most open economies in the world in terms of cross-border movement of goods and services. If Irish companies are to be in a strong position to compete in international markets, it is important our cost base is not out of line with our main trading partners.
In a week when the euro reached a new all-time high of €1.29 against the dollar, Ireland's cost competitiveness is cause for concern. The Central Bank's quarterly bulletins consistently refer to the risk of euro-dollar exchange rate movements to our competitiveness. Our loss of control over exchange rates means there is now a real challenge to develop new policy tools which cushion Irish competitiveness and growth from the effects of exchange rate volatility.
I acknowledge the work done by the National Competitiveness Council in tracking our competitiveness. The council was established by Government as part of the Partnership 2000 agreement. Its job has been to advise Government on areas in need of particular attention in order to maintain and improve our competitiveness. The recent publication of the council's seventh annual competitiveness report on the benchmarking exercise and its competitiveness challenge report regarding policy recommendations makes this debate very timely.
The basic principle of the NCC is that the Government can have the greatest impact on competitiveness through policy measures across key areas of the economy such as competition and regulation, the labour market, taxation and macroeconomic policy, infrastructure, education, enterprise development and research and innovation. The correct policy mix will deliver rising productivity, sustainable wage levels and a competitive cost base. If we are successful, benefits will materialise in terms of strong economic and employment growth, improved living standards and a better quality of life for all people on this island.
The NCC's benchmarking exercise has raised many interesting issues. The council acknowledges the tremendous success of the Irish economy over recent years, much of which can be attributed to the success of policies taken by Government. For example, the benchmarking exercise ranked Ireland second after the US out of 16 countries in terms of GDP per capita above Switzerland and Denmark; first out of 15 countries in terms of real GDP growth over the five-year period 1998 to 2003, which represents over 41% in real terms; and the fourth lowest unemployment rate out of 15 countries in 2003. Senator Ryan wondered about a compassionate society. The exercise also ranked Ireland as having the fourth highest employment growth in 2003 out of 15 countries.
The council notes the economy is doing well at present, but in order to sustain our economic success into the medium term we must sustain commitment to promoting national competitiveness. The Government has a key role in ensuring that commitment is honoured.
The international benchmarking exercise suggests that, on aggregate, Government policies proved a significant competitive advantage to firms operating in Ireland. Our key strengths are apparent. Ireland's standard rate of corporate tax, 12.5%, is the lowest out of 16 countries and has been a key factor in Ireland's success in attracting high levels of inward direct investment over the past decade.
On the issue of taxation, the council commends Government on changes to the structure of the Irish tax system, and in particular the lowering of direct taxes on both personal income and corporate profits. These changes have supported competitiveness and have been important factors behind our economic success over the past 15 years.
Ireland is ranked as one of the most open economies in the world in terms of trade in goods and services. Within the EU, it had the highest percentage of trade with non-EU countries, an indication of which is our close trade connections the USA. This high degree of openness leaves the Irish economy vulnerable to fluctuations in the value of the euro and global economic downturns. However, the NCC rightly points out there is no guarantee our future performance will be as good unless the right policy decisions are taken now.
It is important we take on the challenge of doing whatever is necessary to keep Ireland Incorporated competitive in business and at the top of the league of the most competitive economies. There are a number of areas on which the NCC and others believe our attention should be focused over the medium term.
With regard to competition and regulation policy, Ireland ranked 13th out of 16 countries in terms of the intensity of local competition. The council's statement on costs in September concluded that the lack of competition in some sectors was partly responsible for business costs and consumer prices in Ireland being out of line with other advanced economies.
The report ranked Ireland as the most expensive country in the euro zone, on a par with Finland, and significantly more expensive than the next group of euro zone countries.
In the area of taxation policy, the council points to the need to reinforce and sustain the advantages which our taxation system has generated for the economy, growth and employment over the past 15 years. I agree with its principal recommendation that we must keep direct taxes on profits low and lower the taxation of personal income. To do the opposite, as some members of the Opposition suggest, would jeopardise our economic growth and competitiveness. With over €1.5 billion available to finance his budget day measures, the Minister for Finance should allocate the bulk of what is available, after social welfare increases, to increasing tax bands and credits ahead of inflation.
Government investment in infrastructure has increased substantially in recent years. We see that right across the country. The Government's commitment to spend 5% of GNP will further add to our infrastructure. However, the council noted that in respect of infrastructure, Ireland performed poorly in a number of areas. It was 11th out of 12 countries in terms of public infrastructure relative to our GNP and 15th out of 16 countries in terms of the efficiency of distribution infrastructure, encompassing all forms of transport. There are few areas on which I agree with Senator Ryan but I could find common ground with him regarding Ireland's infrastructure. As an island nation we must ensure that our goods and services find destinations on foreign markets at a competitive price. Successive Ministers have worked to attract such markets. Ireland came 14th out of 15 countries in terms of broadband access and was 15th out of 16 countries in terms of the adequacy and efficiency of our energy infrastructure.
The major contribution to our economic success of our past investment in education cannot be overstated. We rank sixth out of 15 countries for the highest proportion of population aged 25 to 34 with at least third level education, but we need to be at the top of this league. The level of investment in pre-primary education is a specific concern.
We have a thriving economy. I am not saying that everything is rosy in the garden for the future. There are areas of concern on which this Government must keep its eye in order to maintain the level of inward investment we have been fortunate enough to win over the years. I look forward to this Government being very proactive in that area. We have seen, for example, in the insurance area where direct action by the Government can help small business and help this country generally by reducing costs and prices. I hope this type of policy will continue.
I wish to share my time with Senator Ulick Burke. I welcome the Minister of State, Deputy Killeen, to the House. I congratulate him on his recent appointment and wish him well.
Costs in Ireland are out of line with those in other developed countries. This was confirmed by the National Competitiveness Council in its statement on costs and prices published last September. This is a confirmed fact, despite what Senator Leyden said.
What is the Government doing to reduce the costs to Irish industry and has it any plan to combat the haemorrhage of jobs currently evident in many parts of the country? My own constituency of Waterford saw live register figures rise by more than 1,000 last month. In Waterford city we have learned of 75 job losses at Kromberg and Schubert, another 70 jobs at Nypro and other job losses in the city and county. This is a matter of grave concern which needs to be addressed. I ask the Minister of State to set up a jobs task force in Waterford now or bring all the relevant agencies together to ensure this situation does not deteriorate any further.
When we speak of competitiveness, most people immediately talk about our wages and labour costs compared to those of other countries, where they are relatively low. This is a major factor, but we must always play to our strengths by developing new bases for competitive advantage. We must develop our innovation potential by removing barriers to competition and also develop our economic and technological infrastructure.
The risk of a further sharp decline in the value of the dollar against the euro also presents a growing threat to jobs in Ireland and to our competitiveness. Waterford Crystal and other similar companies are hit badly by the decline of the dollar against the euro and many people pray that the current trend will be reversed in the near future.
Large sections of our economy suffer from low levels of research and innovation. Limited sales and marketing capabilities have also resulted in low levels of productivity compared to those in other advanced economies. Raising our productivity through innovation will be the key to improving the nation's living standards in the coming years. Increased resources for scientific research are necessary and we need to ensure they are well targeted and support the needs of Irish industry.
The lack of proper infrastructure is crippling many parts of our country, stifling growth and blunting the competitive edge which is so vital in these times. In Waterford city, access is still one of the barriers which prevents the city from growing and realising its full potential. This has been the case in the past and unfortunately still continues to be so. The development of the N9 and the proposed motorway is way behind that of routes to the other major cities. The train journey time from Waterford to Dublin is the same as it was 30 or 40 years ago. The city's airport is operating without a PSO licence, which places it at a competitive disadvantage compared to other regional airports. The city has advanced considerably in the past decade but the poor infrastructure and access problems which beset us must be addressed and allow us to rise to the competitiveness challenge which faces Waterford and every part of the country.
Human capital has become increasingly important to economic performance. Human capital consists of the education and skills of a country's supply of labour, which has a key input into economic development. Any increase in the level of education and skills increases the quality of our labour input and boosts productivity and economic growth. The Minister for Education and Science should issue a considered response to the report of the task force on the physical sciences, setting out clearly the Government's policy on science education and awareness, including a progress report on implementation.
In order to reduce bureaucracy, requests to industry from Government agencies should be consolidated through the use of technology. The Government should increase the representation of small businesses on the company law review group to ensure the promotion of entrepreneurship and enterprise in general. I also urge the Minister of State to consider the Competition Authority study on banking services to small and medium-size enterprises in Ireland and take some action in this regard.
The up-skilling of those already in employment should be a priority in order to protect existing jobs. There are many areas of concern outlined in the recent report by the National Competitiveness Council and I ask the Minister of State to address them as a matter of urgency. If we are not competitive where costs are concerned, we are in for a rough time as a nation in the years ahead.
I welcome the Minister of State. Having listened to the Minister for Enterprise, Trade and Employment as well as to Senators Leyden and Morrissey, it is obvious that the concept of rip-off Ireland is beginning to hurt politically. Throughout the year, lip-service was paid to the notion, but it was recognised by the Tánaiste, the then Minister with responsibility in the area of consumer prices, that a response was needed. She established the National Competitiveness Council to make recommendations before the end of this year, but prices continued to increase. There has been a 20% increase in prices over the past five years and a 24% increase in electricity charges. Senator Morrisey must have no electricity in his house given that he has not recognised that latter increase. Postal and TV licence charges have risen. Any service charge one mentions has increased. Is it ironic that today we are talking of consumer price increases and competition while it is the Government which has restricted competition?
In every area in respect of which it has responsibility, the Government has restricted and curtailed competition. A prime example of this is the airline industry. What happened in this area? Ryanair introduced competition and stifled the increases that would have occurred if matters had remained solely in the hands of Aer Lingus and if there had been no competition. Aer Lingus has been obliged to reduce its prices as a result of that competition. Those who want to criticise Ryanair state that its cabin crew are not as active as they should be in delivering in-flight services. That is humbug. The reality is that the Government has failed to allow competition in the area over which it has greatest control. That is some indictment.
Everything the Minister stated earlier is a clear indication that he intends to respond to the hurt caused by rip-off Ireland. On "Prime Time" last night he stated that the concept of rip-off Ireland is Fine Gael propaganda. Senator Leyden also attacked the concept earlier. This despite the fact that he stated in the House at the beginning of the year that he was going to name and shame all of those petrol stations with higher fuel prices on his route from Roscommon to Dublin. What happened? The Senator was afraid to name and shame those involved. He has failed, just like the Government in respect of the areas for which it has responsibility, to do anything.
The Tánaiste has made statements about the matter under discussion. The Minister for Arts, Sport and Tourism also made comments about good value in restaurants. However, while the Minister criticised the various hotels and restaurants throughout the country for the escalation in prices and the poor value for money on offer, he is withdrawing from his previous stance and has come to the realisation that rip-off Ireland is real and genuine.
The Consumers Association of Ireland is no longer effective and Carmel Foley seems to have become invisible.
I accept that but the person to whom I refer has ceased to be an effective agent as regards the control of prices. I do not know why that is the case but perhaps she is afraid to rock the boat for the Government, which has failed to take action.
There were reports in yesterday's newspapers — this matter will be of great interest to the Cathaoirleach — that the Revenue is going to investigate price-fixing among car companies such as Ford and others. The Government can make moves, through the Revenue, to stop such price-fixing. This is another area in which consumers are being ripped off.
The lip-service paid to consumers rights by various Ministers to date has fallen on deaf ears. It hurts the Government when we mention rip-off Ireland. The Minister must put in place effective measures to control price increases in areas over which it has greatest control.
I welcome the Minister of State, Deputy Killeen, to the House and I wish him luck. He has a tremendous reputation in Leinster House and in County Clare. I am aware that everybody in Clare is crazy about him. Even Senator Ryan stated that it is about time he was awarded an elevated position.
I may be accused of exaggeration but the Minister's speech is probably the best I have heard delivered in the House in respect of enterprise and employment. I have read Ahead of the Curve, the Annual Competitiveness Report 2004 and the Competitiveness Challenge 2004 and in my view the answers to the points raised therein are to be found in the Minister's contribution. The Minister showed vision while in the Department of Health and Children in driving through the smoking ban. It was a difficult Ministry for him but he will go down in history for what he has achieved. The points raised in the documents to which I refer and in the Minister's contribution provide an outline of what he must do. He has a tremendous opportunity to make progress.
Despite all the positive figures — the fact that unemployment has fallen to 4.5%, that GNP will grow by 4.25% this year and that business confidence, industrial output and FDI are all on the increase — I am concerned that the Government might become complacent and that people will believe the Celtic tiger economy, which is not, perhaps, as strong as it was previously, will remain in place. That is a dangerous assumption. There are threats abroad of which people are not aware.
The documents to which I referred earlier indicate how stands our cost base relative to those of our trading partners. According to the Annual Competitiveness Report 2004, the average cost of Irish goods and services, relative to that of our major trading partners, has increased by over 20% since 2000. There is no doubt that the rise in the value of the euro against the US dollar and sterling — about which we cannot do much — has been the biggest cause of deterioration in our competitiveness. However, fast growth in domestic prices and wages have also contributed. The Government further contributed to inflation but I believe it has learned its lesson. I am afraid to refer to stealth taxes but these were real and they added to inflationary costs.
The loss of competitiveness is already undermining the ability of many Irish-based manufacturing companies to compete in international markets. An article in the Irish Examiner last week stated that the Small Firms Association said that continuing job losses in the manufacturing sector are a major cause for concern. It is also stated in the article that more than 900 manufacturing jobs were lost during October — bringing the total number this year to over 7,000 and an overall total for the economy of over 20,000 — and that the Small Firms Association blamed deteriorating cost competitiveness for the 30,000 job losses in manufacturing and production during the past three years. The total number of people in employed in manufacturing has, therefore, dropped from 330,000 to 300,000.
If the decline in cost competitiveness persists, there will be a continued loss of employment. The growth in employment during the past four years has occurred mainly in the public and building sectors. A decline in our competitiveness has resulted in manufacturing jobs being lost.
Much of the Irish economy remains characterised by low levels of productivity, relative to advanced economies. According to the annual competitiveness report, people employed in Ireland produce an average 16% less for each hour worked than their US counterparts. This productivity gap is particularly evident in those sectors of the Irish economy less exposed to international competition such as retailing, agriculture and parts of the public services. Even in those sectors of the economy more exposed to competition, pockets of weak productivity and performance remain. Large sections of our industrial base, both Irish and foreign, remain beset by low levels of research and development and innovation and limited sales and marketing capabilities. The document produced by the Department of Enterprise, Trade and Employment, Ahead of the Curve, spells out exactly the failures of marketing capabilities and innovation.
An inconsistency exists. High technology production is not widespread. There is high production in the capital intensive multinational industries and from which Ireland's reputation for high productivity emanates. However, job losses have occurred in the manufacturing sector because it is not efficient, not sufficiently innovative, not competitive and does not possess the marketing skills.
Last year's budget introduced a tax credit scheme for research and development which was generally welcomed by industry. However, a survey of Irish exporters on the expected take-up of this scheme by both MNCs and SMEs indicated a significant resistance to further research and development expenditure as a result of the scheme.
The main problem with the scheme is twofold. Its incremental nature is seen as a fundamental weakness. A review of similar research and development tax incentive schemes in 30 countries was found to show that the vast majority were based on straight volume of expenditure. The fact that the scheme does not apply to internationally traded services research and development activity is a major shortcoming, given the focus of both IDA Ireland and Enterprise Ireland on moving companies up the value chain and into service-related activities. This scheme should be reconsidered in the forthcoming budget. This is also the recommendation of the Irish Exporters Association. It calls on the Minister for Finance to introduce a straight volume-based research and development tax credit system which would go a long way to ensure that the Government's targeted level of 2% of GDP by business in its research and development spend is achieved over the next few years. The scheme should be expanded to service export innovations. I appreciate the Cathaoirleach's patience and I apologise for reading a script.
I welcome the Minister of State to the House and I congratulate Senator White for lecturing the Government on its bad and ill thought out policies on competitiveness and consumer protection. The Senator is listening to the people on the ground, unlike some members of the Government. It is not often that I use the words "equality and fairness" when referring to the Government. However, today I wish to point out the interesting fact that under this Government there is a parity for our citizens and visitors alike — they are both being ripped off in equal measure.
The Competition Authority's strategy statement 2003-05, states that credible enforcement against anti-competitive behaviour is important in maintaining an environment in which markets benefit consumers. Fine Gael's rip-off Ireland website is a continuing testament to such anti-competitive and anti-consumer behaviour. As I have stated in the House on other occasions, the Government is throwing its citizens to the financial sharks. The other side of the House can deride Fine Gael's rip-off Ireland site and make accusations such as those made by Senator Leyden yesterday in respect of its effect on tourism, but the truth is that tourists are not fools and once bitten, twice shy, with the inevitable effects on our tourism industry.
In the four years to May 2004, the average price of Irish goods and services increased by 22% relative to our trading partners. Ireland's consumer price inflation has exceeded the euro zone and 15 EU countries for the past seven years. By 2003 Ireland was almost on a par with Finland as the most expensive country in the EU. Ireland is now the most expensive country in the euro zone for food, non-alcoholic beverages, tobacco and housing rental. It is the second most expensive country for alcoholic beverages and for the services of restaurants and pubs.
As with prices, wages in Ireland have been rising faster than in other EU countries for a number of years. There is considerable evidence to suggest that both business costs and consumer prices here are now out of line with other advanced economies. Our relative cost position is not justified by economic fundamentals and poses a threat to our continued economic success.
Improving Ireland's international costs competitiveness must be a high priority for the Government. Consumers must be entitled to know whether they are getting value or money. Retailers must not be able to blame high prices on high operating costs without the consumer being party to information about the retailer's turnover and profit. In order to achieve higher living standards and to provide more jobs, it is essential to increase the output and added value of goods and trade services which are produced by private and public enterprises. No corporate enterprise can be above accountability and none should have a get-out clause when it comes to declaring its profits for public scrutiny.
There is no escaping the reality that Ireland must and can achieve a higher level of industrial and commercial output. This is vital not only to the generation of additional jobs and higher living standards, but as a guarantor of all social benefits. A higher level of output in Ireland will have to be achieved in a less protected background. With 25 member states in the EU, less protection inevitably means the survival of the fittest. Ireland must offer a competitive environment for enterprise and enterprises operating from an Irish base must themselves be competitive in areas such as innovation management and quality as well as in terms of productivity. Great strides have been made in recent years in terms of the creation of a competitive environment for enterprise thanks to the foundations laid by former Deputies Alan Dukes and John Bruton. Ireland has an inflation rate lower than the EU average. Interest rates have fallen but a number of key business costs must be reduced if we are to maintain our competitiveness.
The fall in the cost of insurance for many businesses and consumers over the past year has demonstrated the potential of lowering prices for consumers and improving cost competitiveness for businesses. Shame on the Government for not bringing costs into line with other EU countries. We need to upgrade the following public economic infrastructure areas — transport, energy, education, health care, training, environment services, telecommunications, modern language training, airport development and tourism.
In terms of industrial development, it is vital to emphasise the important part technology can play in job creation. The Government performance in this area has been dismal in failing to harness more jobs and earning higher living standards.
Without Government action, the combination of the recent acceleration in Irish consumer price inflation, alongside the growing risk of a sharp decline in the value of the dollar against the euro, leads me to conclude that the possibility of a further deterioration in Ireland's cost competitiveness is all too possible, putting employment and living standards in jeopardy throughout the country.
In my own area of Longford, there is disgust and disappointment at the failure of the Cardinal Health project, with the loss of 1,300 jobs, and the let-down of being left out of the national spatial strategy with all the ensuing benefits.
I will deal with the Senator's comment in a minute. Given the infrastructure problems which have a negative impact on our development, this was a major blow. The lack of a quality and reliable train service from Longford town, which I highlighted last week on the Order of Business, the traffic congestion that would be alleviated by the widening of Richmond Street, a street that Senator Leyden often uses travelling east-west, and the fact that the national development plan cannot even produce a dual carriageway from Longford to Kinnegad or complete the Longford southern bypass, which is strapped for cash under this Government, are all symbolic of the problems preventing my area and others throughout the country achieving their full potential.
It is time for the Government to wake up and listen because the evidence from the results of this year's local and European elections is that the people in power are not listening. They must listen and if they are not prepared to listen to the general public on this issue and many others, it is time for them to quit. They have lost the plot.
This is an important debate. I incline towards the view that we cannot afford to show any complacency. We are in the euro system and that means we do not have the option of a depreciating currency to restore competitiveness. If one takes the perspective of the past 17 years, to quote the IMF report this week, the social partnership process has made an important contribution to Ireland's exceptional economic revival.
We cannot be doing everything wrong given that employment is rising. Inflation has been brought back to the European average. I recently came across a competitiveness table in a German magazine which gives the success index of the Bertelsmann Foundation for economies in 21 industrial countries investigated for 2004. It refers to index points for economic development and economic policy, and Ireland is top of the list, followed by the United States of America and then Norway. I am afraid France and Germany are at the bottom of the list.
I have some reservations about what one might call catchy tabloid phrases — they have been used by different people in different contexts — like rip-off Ireland. There is an element of truth in them but they are not the whole truth. It is the case that the ultimate guarantor——
——of competitiveness is, in many instances, market forces. If alcohol prices go too high, the volume drunk will fall off. The same applies to accommodation. If the price of accommodation goes too high, it will not be filled. We have particular concerns about the sheltered sector of the economy where the forces of competition are not what they should be. The Government has done a substantial amount to try to break the rise in the cost of insurance and to start bringing it down by a number of different measures; the Minister's predecessor deserves some credit in that area.
I share the Minister's emphasis on the importance of research and development. That is very important and it is important that in our third level sector, for example, the equipment and facilities are made available in terms of our competitiveness.
My colleague, Senator White, raised the question of the research and development incentive in the recent budget. To save money, it was to be applied only to additional expenditure so as to avoid dead weight and there is some suggestion that may not be working as well as intended. We have to look at what other countries are offering in this field and match them.
The Government is making an enormous investment in improving our infrastructure. I will not go into the details of that; we have debated it on other occasions. An enormous number of facilities are coming on stream. I notice in the IMF report that the greatest emphasis is put on investment in infrastructure.
Some of us believe, in terms of housing policy, that the price of housing has not been a positive contributor to our competitiveness. There is much interesting material in the IMF report on the effectiveness or otherwise of Government measures. Obviously, the Government has been extremely effective in terms of increasing supply, perhaps a little less successful in terms of affordability.
There is one issue on which I took issue with Senator Ryan yesterday and, therefore, I must also take issue with the Minister. It is unwise of us to use language in speeches to the effect that we are the second richest nation in Europe. That is using the GDP measure, which includes billions repatriated by foreign companies. The IMF report states that in 2003 we were at 99% of the EU average in terms of GNP, which is a far more accurate measure of living standards. One can assume that by the time the EU enlarged on 1 May, we were at 100%. We do not do any service to ourselves, however, if we make boasts that are not, strictly speaking, credible. It also leads to demands to the effect that if we are the second richest nation in Europe, why have we not done X, Y and Z? The answer is that we are not the second richest country in Europe. It takes many years of accumulating high levels of income to build wealth. High income in a given year is not the same as wealth, which takes time to accumulate. While we may be rich in terms of income, countries such as Germany, Britain and France are well ahead of us in terms of accumulated assets. Economic debate should be conducted on the basis of a realistic assessment of our position. We should not preen ourselves in the belief that we are far in advance of our real position.
Senator Ryan referred to a suggestion by the leader of his party, Deputy Rabbitte, that we will need a thesis to explain the reason the rainbow coalition lost power in 1997, despite the good state of the economy. That is not the case. There is one economic and two non-economic explanations. The rainbow coalition lost the confidence of the public in its ability to manage the important issue of law and order. In addition, the public strongly believed a Fianna Fáil Administration would be able to handle the peace process more skilfully — the first ceasefire broke down during the coalition's period in office.
In terms of the economy, the recovery started in 1987. To find impartial evidence in support of that statement, one need only look at the IMF report. The term "Celtic tiger" was a phrase coined by an economic journalist in the early autumn of 1994, before the change of Government.
I freely accept the rainbow Government kept the economy moving at a good pace, although perhaps without much flair or imagination. To suggest the Celtic tiger economy was created in two and a half years by the rainbow Government only makes one smile. I noted from a radio broadcast this morning that at least one economist, Dan McLaughlin, believes the Celtic tiger economy mark II is upon us. The period of progress since 1987 accelerated from the mid-1990s onwards. While I do not wish to deprive the rainbow coalition of any share of credit it may wish to take in this regard, it is false to paint a picture of a Celtic tiger created by the coalition and subsequently messed up by Fianna Fáil and the Progressive Democrats.
Although our economic achievements are highly respected, we are all conscious that we remain vulnerable and have a major agenda to fulfil. It will be necessary to maintain sharpness and competitiveness and avoid complacency.
I welcome the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Michael Ahern, and the earlier attendance of the Minister for Enterprise, Trade and Employment, Deputy Martin. I wish the Minister well in his new portfolio. This is an important and welcome debate.
I am amused by Senator Leyden's comments on the Fine Gael Party website, www.ripoff.ie. The site is a forum in which people can air their views and read the views of others. I am at a loss to understand the reason the Senator is so bemused by the availability of a website to allow those who have been ripped off to air their views.
As the Senator has pointed out on numerous occasions, it is for the Government to govern and the Opposition to raise issues. He has also frequently informed the House that he will not be stopped from raising issues. Perhaps he should use the website as a means to do so.
Senator Mansergh is correct that the economic recovery started in 1987. However, many Ministers who wish to highlight a point in the House go back only as far as 1997. The Minister for Finance in 1987, former Deputy Ray MacSharry, did a wonderful job but the House should also acknowledge the role of the then leader of the Fine Gael Party, former Deputy Alan Dukes. He should be complimented on agreeing not to force a general election provided the minority Government in office acted within specific parameters.
Two of the main reasons for the Celtic tiger were the introduction of the single currency and the reduction in interest rates. I recently saw an interest rate quote of 3.5%. I remember paying rates of up to 20%. No business could survive today if it had to pay interest rates of 15% to20%, which was the order of the day in the 1980s and beyond. In the early 1990s, the current Taoiseach, as Minister for Finance, was placed under considerable pressure by the Opposition to devalue the punt. During his term of office, interest rates exceeded 30% and he was forced to devalue the currency. The greatest contributory factors to the economic recovery were the single currency and reduced interest rates. Our currency was a target for many speculators and was vulnerable and membership of the single currency created greater stability.
Small businesses are under considerable pressure on a number of fronts, notably wages, insurance, rates and taxes, and many will be lucky to survive. A new set of taxes, imposed through increases in water rates, refuse and sewerage charges, is also placing them under significant pressure. At times, local authorities appear to believe the multinationals are a never-ending well. It is often the case that the main contribution to local authority funds comes from a small number of companies. County managers frequently favour increases in rates and charges on the grounds that they will only affect a small number of companies, rather than the largest groups in the local authority area. This practice will drive many multinationals and other companies out of the country.
In many areas, the roads network does not meet required standards. In recent weeks, the Allergan plant in Westport, which has complained for years that its produce for export was being damaged in transit, laid off 325 employees. Although the roads network was not the principal reason, it was a contributory factor. The company can manufacture its products more cheaply in other parts of the world.
I was amused by the Taoiseach's statement that he was delighted President Bush, rather than Senator Kerry, was elected because it would be better for Ireland from a tax point of view. I do not know how he could have come to that conclusion. One need only consider The Sunday Business Post report from Sunday last headlined, "US tax amnesty will take billions out of Ireland". The law it refers to was signed only days before the presidential election in the US. The report states:
In a report to be published this week, investment bank Morgan Stanley warns that US companies will reduce the amount they invest in Europe as they absorb the money flowing back home. Morgan Stanley has identified the US companies which will most likely repatriate huge amounts of profits. . . . The companies, which lobbied for the tax break in the run-up to the election, are also big-name investors in the Republic. They include Dell, Intel, Oracle, Hewlett-Packard and Wyeth. Irish tax lawyers have warned that the move to repatriate billions of euro from Irish subsidiaries back to the US will raise burdensome duties for Irish directors.
The Taoiseach stated he was delighted that President Bush was re-elected and that this would have positive consequences for American multinationals in Ireland. He went on to state that had Senator Kerry been elected, the Taoiseach would have lobbied him in regard to the tax laws. The Minister should ask the Taoiseach to outline the current position, which I would also like to know. This law was changed in the run-up to the presidential election and this will have serious consequences for companies here. The Taoiseach should immediately contact President Bush in this regard. It is a serious issue and we do not want companies to leave the country, as in the case of Allergan which is moving part of its business to another location.
To sum up, there is significant pressure on small businesses. Increases in rates, water, refuse and recycling charges will add further to the cost of production. I am in the restaurant business and see first-hand the increases taking place. We regularly read in the national press that the prices charged in restaurants are out of control. While restaurants are at the lower end of the market, it is difficult to keep prices down because costs are high. When one compares the inputs businesses in this country must take account of when calculating their costs, they are at a significant disadvantage compared with businesses in other countries.
The 1% increase in VAT is a contributory factor in many instances, particularly for the service industry, including the transport and restaurant business. The increase plays an important role in increasing charges and the Minister for Finance should consider reducing it.
I am delighted to have the opportunity to discuss competitiveness. I will not consider in detail consumer issues and the talk of a rip-off Ireland which has featured in the debate. However, some points need to be made on Ireland's competitiveness. It is significant that Ireland was renowned in recent years as one of the most competitive countries, possibly in the top five in the world, whereas we have now fallen past 30th place in terms of competitiveness. This is interesting and a wake-up call to all of us that we cannot, as Senator Mansergh stated, sit back on our laurels and expect to continue as successfully as in the past.
There is a wide variety of reasons for this and some clear tangibles upon which the Government must act and deliver if we are to reach a scenario where we have sustainable competitive advantage. Infrastructure is the most important issue, not only physical infrastructure but human infrastructure. If we are to achieve sustainable competitive advantage, the biggest investment we must make is in our human resources or human infrastructure because it is our human currency which will be the most valuable when it comes to procuring foreign direct investment or stimulating indigenous commercial activity.
The Government has made commitments to research and development and lifelong learning but more needs to be done. "The future belongs to small populations who can build empires of the mind" is a quote which could not be more apt in the context of Ireland's future competitiveness. If we are to build a knowledge-based economy which will compete among the nations of the world, we must seek to move away from manufacturing other people's ideas and come up with ideas of our own. It should be Ireland which, as a knowledge-based economy, generates the ideas which can move our manufacturing further up the value chain in regard to other countries and low-cost economies, thereby bringing income into this country.
Senator Paddy Burke pointed out that the fiscal management of the 1980s had much to do with the phenomenal success of Ireland's Celtic tiger. I acknowledge that the Tallaght strategy of the mid-1980s played its part in ensuring that the budgets of 1987 to 1989, inclusive, were successful. The then Fine Gael leader, Mr. Alan Dukes, deserves great credit for this, although it is ironic that it probably led to his ultimate demise as leader of Fine Gael. However, the foundations of success were laid even further back in the 1960s with the introduction of free secondary education and the planned expansion of third level education. We need to continually adapt and improvise as the changing needs of the global economy demand. The Minister for Education and Science yesterday stated that the attraction and retention of postgraduate researchers is critical. We must invest significantly in research and development and create our own intellectual property, or import it if necessary, to ensure we are in a position to compete.
Much has been said about physical infrastructure over the years but there is no doubt that while much has been done, more remains to be done. Dublin has experienced very significant investment and the benefits of this are becoming clear in the context of Luas and other projects. Coming from the north west and having spoken often about regional imbalances, I suggest a significant opportunity exists for the Government to embrace the national spatial strategy in terms of the nine gateway centres, particularly those outside Dublin, and the hubs. We must reach a scenario where we will invest multi-annual capital funding in key projects essential to allowing these areas to develop. In this regard, in unison with the human resources we must have the physical infrastructure to allow the development of telecommunications access, educational facilities and other sectors.
Tax may be an issue as companies look to Ireland as a location for investment. It is important we maintain competitive corporation taxes and worth noting that Costa Rica, Singapore and other areas have low corporation tax. I ask the Minister to consider these points.