Incoming Taoiseach Brian Cowen said today that over the last number of years prices here have risen more rapidly than elsewhere in Europe. At the same time productivity growth has eased. Therefore, on any measure, we have lost competitiveness. He said he is concerned at the very significant payments being made to senior business people and the signal these payments send out to the majority of workers in relation to two key principles of social partnership; fairness and equity.
The Tánaiste, speaking at the ICTU Economic Conference Globalisation and Irish Workers, said that if we are to ensure that we continue to enjoy the high standard of living we have so quickly become used to over the last decade or so, we must focus on being competitive, so that we continue to attract knowledge-intensive investment.
The factors that determine a country's competitiveness are many and varied but in broad terms they can be narrowed down to two overarching and inescapable determinants: price levels and productivity or GNP per person employed.
Cowen said that from the mid 1990’s to the early years of this decade
Ireland was in a strong position to compete in global markets.
Ireland was very successful in attracting FDI in this period and exports grew strongly. This resulted in us becoming a relatively low cost economy with strong productivity growth. Over the last number of years prices here have risen more rapidly than elsewhere in Europe. At the same time productivity growth has eased. Therefore, on any measure, we have lost competitiveness.
"As I have said in the past, it is very important that we enhance our productive capacity if we are to ensure that we sustain the benefits of economic growth into the future. In this regard we all have our role to play and Government is playing its part by for example investing in physical infrastructure. Underdeveloped infrastructure constrains our economic development, and we are tackling it through policies such as the National Development Plan 2007-2013, and Transport 21. The Government is also investing in innovation, research and development via tax credits and other measures." Cowen said.
He also said that by investing in education we can support a more knowledge based economy. Central to this is the need to encourage more science, maths and IT focused graduates who have the skills that businesses will require in the future. Government has committed increased funding to support more of this type of graduate as well as increased “fourth” level funding – to encourage more graduates to achieve PhD’s.
Finally, the Government is working to maintain and improve our pro-enterprise tax and policy environment which helps to attract both new and top-up investment, which provide jobs. T
Cowen said that measures to increase productivity take time to bear fruit; in the meantime it would not be appropriate to respond to externally generated price increases by simply increasing pay costs to match such increases. This would be futile and self-defeating. It would add domestic price increases to imported ones. It would not only fail to improve living standards but instead would lead to widespread job losses, thus leaving those without jobs much worse off than before.
He said that future pay increases must be linked to a number of factors:
"I note that in addition to the pay issues, Congress has concerns in relation to pensions, equal treatment for agency workers and trade union representation rights. I am also concerned at the very significant payments being made to senior business people and the signal these payments send out to the majority of workers in relation to two key principles of social partnership; fairness and equity," Cowen said.
He said that the public service paybill remains the biggest single element in public expenditure accounting for over a third of all current expenditure. Each 1% increase in the public service pay bill costs just under two-hundred million a year. The development of public service pay costs must be such as to ensure that resources allocated to public service pay do not cause a shortfall of resources for other key priorities.
The Tánaiste did not make any comment on the salary increases in the range of 14%-36% that were agreed in respect of ministers, senior public servants and related pensioners, in October 2007. The ministerial increases were subsequently put on hold until 2009.
