Bernard Durkan (Kildare North, Fine Gael)
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Question 190: To ask the Tánaiste and Minister for Enterprise, Trade and Employment if she has evaluated the impact of the creation of a high wage economy; and if she will make a statement on the matter. [4010/04]

Mary Harney (Dublin Mid West, Progressive Democrats)
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It has been obvious for some time that our economy is undergoing fundamental change and this process has been taking place in both the manufacturing and services sectors. We have become a modern enterprise and service oriented economy. It is fair to say that our strength and competitive advantages, especially compared with low wage economies has inexorably changed. Ireland has now moved into a higher league of developed economies, one typified by high output, productivity and high returns to labour in the form of wages, salaries and better living standards. Ireland has become a more prosperous and wealthy economy while converging with the broad income and prosperity levels of other member states of the European Union.

It is clear from the analysis of many observers and the commentary from informed bodies such as the National Competitiveness Council and Forfás that high incomes are sustainable in the long term only if they are matched by expanding productivity and the production of higher value products and services. We have worked hard to achieve current levels of prosperity, employment and living standards and I doubt anybody in the country wants to see a return to a society of low incomes and low living standards.

The focus of enterprise policy must be to concentrate on economic and business activities with sophisticated characteristics that will justify continued levels of high income and productivity and that will allow us to sustain current levels economic growth and living standards. We have to concentrate on business investments that require high skill levels, that are, as far as possible, innovation rather than production orientated, and that link to an increasingly sophisticated business environment.

Enterprise in Ireland creates the employment, prosperity and tax base that has supported our phenomenal economic growth in past years. The onus is on my Department and the Government to influence the environment and design the framework conditions that encourage investment that brings about higher productivity, higher value added output and more sustainable higher quality employment. We are already making progress in this area. Forfás survey data on productivity and wage growth provides strong evidence of higher quality jobs in clients of the development agencies under my Department. This stems from an increasing focus on more skilled and knowledge intensive activities. According to the data, agency assisted firms enjoyed productivity growth of 4% to 5% in the period 2000-02. This was twice the estimated European Union performance over the same period.

Research and development is the genesis of higher productivity, new product innovation and the creation of new ideas that customers are prepared to pay more to acquire. The Government demonstrated substantial commitment to this objective during 2003, committing a total investment of €285 million for this year, which is an increase of 39% on the 2003 investment. My Department also increased support for basic research through Science Foundation Ireland, SFI, and applied research through Enterprise Ireland. SFI has made over €320 million in investment commitments since 2001, supporting over 750 world-class researchers in Ireland who are working in areas supporting biotechnology and information and communications technologies.

Measures introduced in the recent Finance Bill are clear evidence that my Government is prepared to shape the enterprise environment to encourage investment in higher order activities to meet our strategic enterprise policy objectives. The introduction of tax credits for research and development expenditure will be especially attractive to the manufacturing and technology sectors and should lead to an increase in the number of companies performing research and development. I want Ireland to be seen as the smart place in Europe to do this type of work.

My objective under Ireland's Presidency of the EU is to ensure that across the Union there is a step change in the research and innovation performance of Europe's enterprise base. Progress on the action plan for the creation of the European research area, or ERA, is a key item of the competitiveness council I am chairing during Ireland's Presidency. The ERA covers a wide spectrum of instruments and policies ranging from human resources, financial markets, intellectual property rights, etc. These are vital to helping achieve the Lisbon target of attaining research and development investment of 3% of GDP by 2010.

Last July I asked the enterprise strategy group, under the chairmanship of Eoin O'Driscoll, to recommend and prioritise new strategies and policies to ensure that the prosperity we enjoyed in the last decade will continue into the future. Some of the areas I have asked the group to examine concern what we need to do to strengthen our enterprise environment, to promote an innovation and knowledge driven economy and help sustain those industries already providing employment here. The group is working towards submitting a report to me by the middle of 2004.