The National Competitiveness Council (NCC) today launched its Costs of Doing Business in Ireland 2015 report which says that despite price falls during the recession, Ireland remains an expensive location in which to do business, relative to some of our key competitors. Ireland is also the 3rd most expensive location in the Eurozone for consumer goods and services.
Professor Peter Clinch, chair of the Council commented “It is vital that we continue to take action to address unnecessarily high costs wherever they arise. In this regard, there is a role for both the public and private sectors alike to manage proactively their cost base and drive efficiency, thus creating a virtuous circle between the costs of living, wage expectations, productivity and cost competitiveness.”
He continued “Recent price falls in Ireland are at risk of being reversed as the economy returns to growth and demand increases. Already there are warning signs and domestically determined cost competitiveness is no longer improving. The Irish economy should not rely on benign currency movements to protect our international competitiveness. To allow our companies to compete, and to support growth and jobs, we must minimise those costs over which we have some degree of control. Ultimately, productivity growth must be the basis for economic prosperity — only productivity growth can facilitate improvements in living standards and deliver sustainable employment, whilst simultaneously protecting our competitiveness relative to key competitors”.
The NCC says that property costs are again emerging as a significant threat to sustained competitiveness — increases in commercial rents are occurring alongside rapid growth in residential rents and house prices. The continued shortage of Grade-A office space in prime city centre locations, in part, is a result of Ireland’s success in attracting significant foreign direct investment. At the same time, however, supply constraints could damage Ireland’s attractiveness in future, unless addressed. The link between house prices and wage expectations means that developments in the residential property sector have a direct impact on competitiveness. The group says that while energy prices in Europe are higher generally than prices in the US, Ireland remains an expensive location for energy compared to most of our EU peers. This is a particular issue for energy intensive sectors. In terms of business services, upward cost trends are evident for many business services, after several years of price reductions. Specifically, while legal service costs have fallen recently after a long period of price stickiness, costs for a range of other services have increased — for example, air transport, computer consultancy, and postal services.
The report notes that while legal service costs have fallen recently after a long period of price stickiness, costs for a range of other services have increased — for example, air transport, computer consultancy, and postal services.
On productivity the NCC says that while Irish unit labour costs are improving in relative terms compared with ULCs in the euro area, "it is concerning that Irish ULCs are increasing, given the aforementioned modest wage growth."
Irish productivity data is massively distorted by tax avoidance such Google and Microsoft booking significance chunks of their global output in Ireland for tax purposes.
Eurostat: Comparative price levels of consumer goods and services