Written answers

Wednesday, 10 December 2008

Department of Finance

Economic Competitiveness

10:00 pm

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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Question 130: To ask the Minister for Finance the steps he has taken or proposes to take to address the issue of competitiveness in this economy; and if he will make a statement on the matter. [45552/08]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The deterioration in the economy's competitiveness relative to that of our main trading partners has been driven by a combination of factors. These include a strong euro, wage increases in excess of productivity, and the relatively high rate of inflation that we have experienced in recent years. While CPI inflation has eased in recent months and may temporarily turn negative during the course of next year, it is important to note the level of prices here stands at more than 20% above the euro area average. Improving our competitive position is essential to facilitate a re-balancing of the economy towards more sustainable, export-led growth and to maintain Ireland's attractiveness as a location for inward investment.

In recognition of this, and notwithstanding the need to underpin the sustainability of the public finances, the Government took a number of steps in Budget 2009 aimed at supporting the economy's competitiveness. These included re-affirming our commitment to the 12.5% rate of corporation tax and maintaining and enhancing pro-employment business tax reliefs. We are also continuing to prioritise productivity enhancing capital investment. These measures will ensure that the Irish economy is well placed to take advantage of the global pick-up when it emerges.

The pursuit of national competitiveness is not, however, solely for Government. Rather it is a shared responsibility of all in society including the social partners — Government, employers and unions. Regaining our competitive position, which as a small open economy is critical to our economic success, will require each of us to play our part and work together to this end.

A key aspect of this will be to ensure sensible wage developments over the coming years. In this regard, the willingness of the various parties to adopt a realistic approach to wage developments will be required to ensure that we address the changed economic circumstances which we now face. In addition, it will be important to ensure that improvements in external factors that favourably impact on domestic costs are passed on in full.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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Question 131: To ask the Minister for Finance if he, his Department or the various borrowing or lending institutions under his Department's aegis have identified the extent to which developments in the domestic economy in each of the past eight years have contributed to the current situation; and if he will make a statement on the matter. [45553/08]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The main domestic reason for the current economic slowdown is the adjustment in the new house building sector, which is exerting a major drag on overall GDP growth.

For a number of years up to 2007, the annual number of house completions exceeded the estimated medium term requirement. While this very high level of output was a response to very strong demand, it was never expected to be sustained into the longer term. Unfortunately, the downward adjustment towards more sustainable levels of output has occurred much more rapidly than previously envisaged with the level of output undershooting medium term sustainable levels for the foreseeable future.

One of the reasons behind this very rapid turnaround has been the sharp decline in demand which, in turn, reflects an erosion of confidence brought on by the deterioration in global financial markets and the global downturn more generally.

The effects of the adjustment in house building have spread to other sectors of the economy and Government finances have not been immune either. We now need to re-focus our efforts towards enhancing competitiveness in order to promote economic growth based on exporting goods and services to the wider global economy. Otherwise we will not be well placed to benefit from a future resumption in world growth.

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