Written Answers. - Economy's Competitiveness.
Desmond J. O'Malley
Question:
27
Mr. O'Malley
asked the
Minister for Enterprise and Employment
his views on whether the economy of this State is less competitive than the economy of Northern Ireland; and his further views as to whether employment policies are hampering the creation of a single-island economy.
[4482/96]
There are many factors which through their interaction constitute the economy of any State, and determine the overall competitiveness of one economy as compared to another. However, because these various factors operate to differing levels of performance or efficiency, it is not possible to compare the absolute competitiveness of our economic vis-à-vis the economy of Northern Ireland. For the purposes of addressing the Deputy's question I propose discussing some of the more significant issues which contribute to the State's economic performance, and consider how these individual factors affect the competitiveness of this economy as compared with the economy of the North of Ireland.
The performance of any economy and its competitiveness with the economies of other trading partners will, amongst other issues, reflect the influence of the following factors;
Unemployment/Employment rates.
Taxation policy.
Productivity of labour and capital.
New investment in the economy.
Monetary policy and exchange rate movements.
Public spending policies.
Cost competitiveness of industrial inputs.
Infrastructure quality particularly transport and communications.
Education and skills of workforce.
Inflation rates.
I would comment briefly on some of the above factors as follows.
Labour costs are a very important component in the competitiveness of any economy and as representing the market price for labour in any economy they reflect unemployment levels, skills or otherwise of the workforce and other influences. In this context average manufacturing labour rates in this State compare reasonably favourably with similar rates in the UK as a whole. However, the more difficult economic climate in the North of Ireland relative to the UK generally results in lower labour rates in some industrial sectors in the North of Ireland as compared with the UK overall.
Since 1990 up to 1994 hourly wage rate movements for the overall business sector in this State have been lower than corresponding UK wage rate movements when compared in terms of national currencies. Partly due to the weakness of sterling during this period this hourly wage rate movement expressed in common currency terms indicates a somewhat lower rate of increase in UK hourly wage rates relative to the Irish position. In terms of unit labour costs, however, a comparison of Irish manufacturing industry rates with corresponding UK rates indicates that while this country has recorded a slight reduction in unit labour costs since 1990, corresponding UK unit labour costs have increased. While overall UK labour costs do not necessarily reflect the precise situation in individual geographic regions such as the North of Ireland, the above data are likely to reflect the broad trend of labour rate movements in the North of Ireland also. Despite the above favourable unit labour cost performance of this country during the period 1990-94, I am conscious of differences in performance of individual industrial sectors from the overall pattern, and I am particularly aware of the competitive difficulties of some of our more labour intensive indigenous sectors in competing with UK and North of Ireland based competition.
In terms of overall cost increases, Ireland's record on inflation, assisted significantly by wage moderation over the past number of years, continues to be satisfactory. Our annual rate of inflation has been below the EU average rate and that of the UK every year since 1989 up to end 1994.
The competitiveness of the North of Ireland relative to this State is also influenced by the substantial funding transfers which the British Government provides for the North of Ireland economy particularly in regard to transport infrastructure facilities. Notwithstanding the above this State has in recent years also benefited substantially from major investment to our principal road networks and our transport infrastructure generally, consequently significantly improving the competitiveness of transport costs for industry. Similarly in recent years substantial investment in telecommunications infrastructure in this State has resulted in one of the most effective telecommunications systems in Europe which of itself is a major competitive advantage, particularly in the context of its ability to attract high-tech industry and services, as evidenced by a strong electronics industry sector here and a successful and growing international financial services industry.
In terms of taxation policy, this country has for many years adopted a policy of assisting industry's competitiveness through the provision of a 10 per cent corporate tax rate for manufacturing industries and international services. This year's budget introduced a low rate of 30 per cent corporate tax on the first £50,000 taxable profits for non manufacturing activity. The 10 per cent rate of corporate tax for manufacturing industry represents a considerable competitive advantage for manufacturing firms in this State relative to the North of Ireland. In the past three budgets substantial improvements have been made to the employer's PRSI contribution structure with a view to increasing the competitiveness of industry in this State, particularly in regard to UK and North of Ireland based industry.
Besides the 10 per cent rate of corporate tax one of the most highly regarded competitive attractions for overseas investors in this State is the high level of skill and training of our workforce, and the high percentage of graduates from third level educational institutes relative to the total of new entrants on to the workforce each year. Further substantial progress on improving infrastructural facilities and training of our workforce will be facilitated by the substantial funding assistance provided by the EU through the Operational Programme for Industry over the remaining years of this decade. Consequently in a number of key economic areas I believe that this State is more competitive than the economy of Northern Ireland, while in other areas I believe we are making rapid progress in closing whatever gaps in competitiveness may exist at the moment.
The whole purpose of the Government's policy is to promote enterprise, reward those in work and encourage those seeking work. The recent budget contained a considerable number of new measures to advance these objectives. The general direction of such measures will be continued in order to further improve the employment response of the labour market.
In the light of the above analysis. I can see no real basis for the suggestion, in the second part of the Deputy's question, that employment policies here are hampering, in any way, the creation of a single-island economy.
