Dáil Éireann Debate, Wednesday - 22 November 2006
229 Mr. Durkan asked the Minister for Finance if he has identified the inflationary tendencies which might lead to the lack of competitiveness in the economy; and if he will make a statement on the matter. [39567/06]
View answerEnhancing national competitiveness is a key priority for this Government. The Government is keenly aware of the importance of Ireland's exporting sectors to investment and jobs — and in turn of the importance of competitiveness for these sectors. Competitiveness is influenced by many factors not just inflation. Exchange rates, moderate wage inflation, sustainable public spending growth, capital spending on infrastructure as well as inflation are all major determinants of competitiveness.
Inflation, as measured by annual changes in the Consumer Price Index (CPI) was 3.9 per cent in October. However, a better measure of underlying inflation is the EU comparable measure of inflation, the Harmonised Index of Consumer Prices (HICP). The HICP differs from the CPI in terms of coverage. The most notable difference relates to the exclusion of mortgage interest repayments from the HICP. Annual HICP inflation in Ireland was 2.2 per cent in October.
A large proportion of the rise in the annual inflation rate during the year has been due to external factors such as higher oil prices and recent rises in interest rates by the ECB. Given that the increase in our inflation rate is largely determined by external factors over which we have no control, we can seek to ensure that our domestic cost base does not add to it. Annual services sector inflation is currently running at 7.8 per cent and this is a cause for concern. This highlights the need for more competition in the economy as well as pay and profit restraint in all sectors in order to keep our cost base down.
The Government is taking positive actions in areas that it can influence to contain inflation by implementing responsible fiscal policies. For example, we have not increased excise duties for the last two years, and we are promoting greater price competition by removing the Groceries Order. We have also agreed a reasonable wage deal in order to maintain and improve our international competitiveness. In addition we are investing in public infrastructure which will enhance our ability to produce more goods and services and keep inflation down in the process.
230 Mr. Durkan asked the Minister for Finance if he is satisfied regarding the continued competitiveness of the economy with particular reference to inward investment; and if he will make a statement on the matter. [39568/06]
View answerThe Government's economic and budgetary strategy is based on pursuing economic growth and full employment as the basis of continued prosperity and enhanced living standards for all. In this regard maintaining and improving Ireland's competitive position is imperative in order to ensure Ireland continues to grow strongly and remains an attractive location for inward foreign direct investment.
According to IDA Ireland, 2005 was another positive year with regard to new investment projects coming to Ireland. New business projects, involving a total investment over the coming years of more than €760 million, were announced with 46 of these locating outside Dublin. 50 R&D projects were supported involving a total investment in excess of €275 million, a record in number and value and an 85% increase over 2004. Close to 40% of all new jobs in IDA-backed projects now pay in excess of €37,000 per annum. Total employment in IDA supported companies has increased to 132,728. The number of new jobs created during the year was 12,623. This was offset by job losses of 9,211 giving a net gain of 3,412, the highest gain since the year 2000.
We have no control over some of the factors influencing competitiveness, such as the exchange rate. However, we must always seek to ensure that our domestic cost base does not undermine competitiveness. In this context, it is important to maintain low inflation, pursue sensible incomes policy and keep public spending growth at sustainable levels in the medium term. This will allow us to keep the burden of taxation low in order to protect competitiveness and maximise our economic potential. In terms of wage costs, the Government remains focused, through the partnership process, on securing a responsible approach to earnings growth in the economy.
I am confident that Ireland remains well placed to maintain our position as an attractive location for overseas investors. The taxation system has been reformed. Our workforce is highly skilled. Infrastructural development has been prioritised. These key policy orientations equip Ireland with the skills, infrastructure, facilities and overall operating environment that will allow us to compete effectively for projects at the upper end of the high skill/high wage spectrum, which is where our competitive advantage now lies.
