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Economic Competitiveness

Dáil Éireann Debate, Thursday - 18 October 2018

Thursday, 18 October 2018

Questions (1)

Billy Kelleher

Question:

1. Deputy Billy Kelleher asked the Minister for Business, Enterprise and Innovation the actions being taken to reduce the costs of doing business here and reverse Irish competitiveness deficiencies; and if she will make a statement on the matter. [42974/18]

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Oral answers (6 contributions)

What actions are being taken to reduce the cost of doing business in Ireland and to reverse Irish competitiveness deficiencies? Will the Minister make a statement on the matter? The reason I ask the question is we consistently accept we are an expensive place to do business in terms of the regulatory burdens placed on business and equally the costs that are built in across the broader economy, including finance, insurance, credit, childcare, housing and all those key areas. What is the Minister doing to address these issues which are a barrier to business?

I thank the Deputy for raising the matter. Ireland’s overall competitiveness performance remains positive. Our improved fiscal position and increased cost competitiveness have all contributed to Ireland’s improved international competitiveness. This improvement is reflected in a range of metrics, notably economic growth, increased employment, falling unemployment and a strong trade performance. Notwithstanding this strong position, addressing Ireland’s cost competitiveness remains a key economic priority for Government and we continue to monitor Ireland's cost base and analyse the factors that are crucial to improving our cost competitiveness.

Recent reports published by the National Competitiveness Council found that the cost base for enterprise is internationally competitive across a range of metrics, for example, the cost of starting a business, communications costs and average income taxes. The council also highlighted that Ireland remains a relatively high-cost location and cost pressures are evident in residential property, credit, energy, labour and business service costs.

A range of initiatives in the Action Plan for Jobs 2018 are in train across Government to enhance our cost competitiveness and productivity, improve the ease of doing business, reduce the administrative burden and drive greater efficiencies across the enterprise base. Through the Action Plan for Education and Pathways to Work, the Government is working to ensure the pipeline of talent can meet the demand for labour to reduce labour cost pressure. My Department has reviewed the policies underpinning the current employment permits regime to ensure it is fully supportive of Ireland’s emerging labour market needs, whether they are skills or labour shortages in certain sectors. The work of the Personal Injuries Commission, whose second and final report was published in September 2018 by my Department, the implementation of the report on the cost of motor insurance and the complementary work of the cost of insurance working group should help to reduce insurance costs for businesses.

I launched the €300 million Brexit loan scheme in March 2018 which supports the working capital needs of companies on which Brexit has, has had or will have an impact. My Department, in conjunction with the Department of Agriculture, Food and the Marine, the Department of Finance, the Strategic Banking Corporation of Ireland and the European Investment Fund, is developing the €300 million future growth loan scheme as announced in budget 2019 to allow businesses to borrow for up to ten years to support capital investment.

Enterprise 2025 Renewed also places increased emphasis on enhancing our competitiveness position by developing Irish-owned enterprises. We are placing a spotlight on innovation and skills. Enterprise Ireland also places strong emphasis on competitiveness. It supports exporting enterprises with initiatives in Lean, research and development and innovation, as well as management development.

Additional information not given on the floor of the House

In addition to the wide range of existing supports provided by my Department and agencies, budget 2019 allocated additional funding for my Department to boost business productivity such as a doubling of the allocation for the retail online pilot scheme to €1.25 million. An additional €2.75 million was also awarded to Enterprise Ireland for its SME regional innovation and technology clusters programme. The budget provides an extra €8 million for my Department’s Brexit response and global footprint.

In ensuring our cost competitiveness there is a role for the public and private sectors alike to proactively manage the controllable portion of their respective cost bases, drive productivity and continue to take action to minimise costs.

The reason I raise this issue is it is a concern. There is no point in us highlighting the positives if we fail to accept that there are significant pressures such as the cost of finance, childcare, property, labour, insurance, transport, energy and other business services. Equally, I can identify many areas in which we are doing exceptionally well in terms of competitiveness. Overall, however, there are significant pressures within the economy. While there is rapid expansion for the next few years, these costs can often be camouflaged. Owing to increased cash flow to businesses, it can hide these costs for a while, but it is inevitable that it will have a major impact in the time ahead. The time to undermine these pressures is now, rather than in several years when it will be too late. The key issues have to be addressed, namely, the cost of finance, housing, transport, insurance, business services and energy, as well as the cost of childcare which I accept is outside the Minister's remit. The Government as a whole must take responsibility and act on these issues.

We are conscious of the issue of competitiveness. Enormous progress has been made in recent years. We have stabilised the public finances. We also have the fastest growing economy in Europe and are now almost at full employment. We should be proud of the progress we have made. However, the Government is determined to ensure there will be no complacency. We are acutely aware of the vulnerabilities in the domestic economy such as low productivity levels in indigenous firms, with growing uncertainty in the global economy and Brexit. We must ensure the economy is well positioned to adapt to a low carbon future, as well as the revolution in digitisation and automation. Otherwise, we could see negative economic and employment impacts in the future. The Government has recognised the need for a concrete and co-ordinated plan to address these challenges and opportunities. That is why in July it agreed to the development of the future jobs initiative which will be a whole-of-government approach, with concrete and ambitious actions to enhance productivity, create quality and sustainable jobs and build a resilient and innovative economy. It will ensure we will be well positioned to adapt to technological and other transformational changes that the economy will face in the years ahead.

One of the key issues we are not addressing is the cost of credit. Again, it requires a whole-of-government approach, as well as an approach by the Central Bank and the European Central Bank. I cannot comprehend how in the eurozone economy with the free movement of goods and services Ireland has the highest interest rates in Europe for small and medium-sized businesses. The pillar banks are gouging the economy. They are in our pockets every day of the week. This issue must be addressed. The average interest rate across the eurozone for small and medium-sized businesses is 1.77%. In Ireland it is 3.25%. The banks are pillaging us, but we do not seem to be doing anything about it. It is inherently wrong that we are at a complete disadvantage with our European colleagues and competitors because the pillar banks are gouging the economy. AIB and Bank of Ireland were on life support and saved by decisions of this Parliament. They are now pillaging us as a nation.

The supply and demand for credit have improved significantly since the height of the crisis. However, the cost of credit, while falling, continues to remain relatively high. It is vital that it be reduced to align Ireland with rates in competitor countries. The divergence between Irish and eurozone interest rates for enterprise is particularly noticeable in the case of loans up to €250,000. The interest rate for new business loans in Ireland was double the eurozone average rate throughout 2017. On 28 March 2018 I opened the Brexit loan scheme for applications to allow for the roll-out of a €300 million fund in working capital for eligible Irish businesses which will be impacted on by Brexit. The scheme will be delivered by the Strategic Banking Corporation of Ireland through the commercial lenders, the three pillar banks. It will make €300 million available to eligible businesses, with up to 499 employees, at an interest rate of 4% or less. That is an attractive rate for an overdraft facility. In addition, we have a €300 million long-term future growth loan scheme which will lend to businesses, with terms up to eight to ten years. Currently, the pillar banks will only lend for up to seven years. We have identified this gap in the market. We will be passing the legislation required and launching the scheme in early January next year.

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