Dáil Éireann debate -
Tuesday, 25 Mar 2003

Vol. 563 No. 4

Priority Questions. - International Competitiveness.

Eamon Ryan

Question:

104 Mr. Eamon Ryan asked the Tánaiste and Minister for Enterprise, Trade and Employment her views on whether the economic environment for the Irish business manager is currently one of inflation running at 5%, interest rates at 2.5%, pay rises at 7% with public sector benchmarking to come, astronomical insurance costs, poor physical infrastructure, weak and exorbitant electronic infrastructure and problems with housing, transportation and health care and her further views on whether the economy is best placed to put the need for increased competitiveness as the central theme of the forthcoming European Union presidency due to these circumstances. [8197/03]

Ms Harney

Ireland's international competitiveness has contributed in large part to our recent economic success. Now that we are facing a more uncertain and challenging time in the international economy it is all the more important to focus on competitiveness. For this reason it has been my objective to place competitiveness at the core of the new national agreement and this is now reflected in the agreed framework document. The partnership programme, Sustaining Progress, states that "renewing competitiveness both within the domestic economy and on the international stage is central to the overall macroeconomic policy of sustaining non-inflationary economic growth and high levels of employment".

We have recently seen some deterioration in key competitiveness dimensions at domestic level. The annual competitiveness report produced by the National Competitiveness Council, while confirming many of Ireland's strengths, has highlighted the many challenges we face and the difficult choices we have to make as we face an uncertain economic environment. Renewing competitiveness requires a number of actions and we are committed to taking those actions, as I have said on a number of occasions in this House.

We are taking steps to strengthen competition across the economy and to implement specific measures to tackle cost pressures in key areas such as insurance. We are continuing to invest in key infrastructure such as roads and broadband telecommunications. Of critical importance for our future is our increasing investment in research and development and innovation, which will provide the basis for future productivity growth. Sustaining our competitiveness and taking specific actions in areas of weakness is central to overcoming many of the current difficulties faced by the Irish economy and will be the key to placing Ireland in a position to take advantage of any global economic recovery.

At EU level, competitiveness is of no less concern. A strong, competitive EU economy is also good for Irish business. Strengthening competitiveness at EU level requires improving the framework conditions for enterprise so that business can play a full role in seizing new opportunities and creating jobs and wealth.

Additional informationThere is a real concern that the EU is losing competitiveness in the global economy, which is hindering progress towards the Lisbon goal for 2010. At the summit in Brussels last Friday, the heads of state and government did not lose sight of the Lisbon goal despite international preoccupations. The EU Competitiveness Council, which I will chair during our Presidency, will play a central role in delivering on these challenges.

Mr. Eamon Ryan

I am not sure whether the rest of the reply will provide an answer to the first part of my question, in which I asked the Minister whether she thought the economy could be characterised as having inflation of 5%, interest rates at 2.5%, a pay rise of 7% and so on. The reason I put that in is that it was a direct quote from Dr. Chris Horn, the new chairman of the IMI. The business community is telling the Government about the real problems in this economy for business people and the Minister should be concerned. Deputy Howlin is exactly right – we are facing an acute crisis and the possible loss of tens of thousands of jobs because of our lack of competitiveness. These problems are not solely due to external circumstances, although the Minister has said that conditions overseas determine the success of the Irish economy.

Acting Chairman (Mr. McCormack)

The Deputy should ask a question.

Mr. Eamon Ryan

Conditions in Ireland have a huge bearing on whether we are successful overseas. On that basis, why did the Minister agree to a recent tax policy that saw rises in VAT and excise duty, which account for some 2% of our 5% inflation rate? In the lead-up to last year's budget, why did she return money due for research and development to the Minister for Finance, when she has stated that research and development is the only way forward?

Ms Harney

No party in Government has done more to reduce taxes than the Progressive Democrats and Fianna Fáil over the past six years, not just for business but also for ordinary taxpayers. As the Deputy is well aware, both corporation taxes and capital gains tax, which affect investments and business, have been reduced dramatically and the yield has been substantially increased.

Mr. R. Bruton

Stealth tax is the Government's speciality.

Ms Harney

In fact, Ireland is one of the most favourable economies in the EU from a tax on business—

Mr. Howlin

With the smallest social spend.

Ms Harney

The Deputy wants taxes raised but the Greens obviously want to bring them down.

Mr. Howlin

No, I want equitable taxes.

Mr. M. Ahern

They are the most equitable as well.

Mr. Howlin

We have a capital gains tax of 20%.

Ms Harney

In my Department, spending on Science Foundation Ireland has doubled over the past year, notwithstanding the fact that the Department's Estimate is down by more than 5%. The Deputy is right: clearly there is a huge number of things we can do to make the economy more competitive. The tax system is part of it and infrastructure also has a key part to play in maintaining and, it is to be hoped, raising competitiveness. Clearly, higher skill levels in the work force and investment in education are also important because we are becoming a much more knowledge-based economy, requiring a higher level of skill and investment in research and development.

Mr. Eamon Ryan

The Minister's role over the past six years has been one of emphasising competition on every side. However, competition in the electricity market has not brought cheaper prices but raised them. Competition in the telecommunications market has resulted in higher costs. Would she agree that it is time to start thinking about economic policy based on co-operation, education or the development of a civil society, which is the best climate in which business can work, and that the emphasis on competition over the six years of this Government has failed?

Ms Harney

Competition generally reduces prices and improves the quality of service.

Mr. Eamon Ryan

Not in Ireland – what about telecommunications and electricity?

Ms Harney

It does. Electricity is an exception because of the manner in which competition was introduced. As the Deputy knows, investments plans and financial backing are required for investment in energy markets. Investment has been encouraged through higher prices rather than through guaranteed purchase for the supply. There are other ways of doing it.