asked the Minister for Industry and Commerce in relation to Irish industrial costs, the comparisons in relation to the other EC countries, under each appropriate heading, at the present time; and the action he is taking under each such heading to deal with the relative disadvantage under which Irish industry labours.
Written Answers. - Industrial Costs.
17.
The most recent review of industrial costs by the Industrial Costs Monitoring Group indicates a significant improvement in our cost competitiveness compared with other EC member states. The review shows the following:
Inflation Rates
With our average inflation rate of 3.2 per cent in 1987 the differential between Irish rates and most of the other EC member states, has been eliminated. Our forecast rate of 2.5 per cent for 1988 is less than the rate forecast for many EC countries and less than 1 per cent in excess of that forecast for West Germany.
Interest Rates
At the end of 1986 Irish interest rates were much higher than those of our competitors, with the Irish rate for prime borrowers at 14 per cent compared with 11 per cent in the UK, 9.5 per cent in France and 6.8 per cent in West Germany. By December 1987 the Irish rate had dropped to 8.75 per cent compared with 8.5 per cent in the UK, 9.45 per cent in France and 6.25 per cent in West Germany.
Electricity Costs
The latest available comparisons with all EC member states relate to July 1987. They show an improvement in our competitive position, compared to January 1986 as follows:—
Heavy industrial users— from first position (the highest) in January 1986 to fifth position in July 1987.
Medium industrial user— from second position in January 1986 to sixth position at July, 1987.
Small industrial user— from third position at January 1986 to fourth position at July 1987.
The ICMG review states that despite decreases in electricity tariffs in the period 1986 to 1987, ranging between 7 per cent and 20 per cent, prices for Irish industrial users continue to be more expensive than those for many of our trading partners. However, prices for all volume levels are more expensive in West Germany and for certain volumes in Portugal, Spain, Italy, Greece and Luxembourg.
The drop in Irish electricity prices of approximately 4.8 per cent associated with the imposition of VAT at 5 per cent from 1 March will mean a real reduction of 4.8 per cent for industrial consumers who are eligible to reclaim the VAT element.
The impact of the 4.8 per cent decrease together with the freeze on prices indicated for the next three years is expected to contribute towards increasing our competitiveness. The UK is due to implement an increase of 15 per cent over two years from 1 April 1988. This increase together with the decrease in Irish charges will improve our competitiveness vis-a-vis the UK.
Postal Charges
In July 1986 Irish charges for internal post were the highest in the EC while charges for external letter post were joint second highest. The position has improved since then by virtue of the fact that our postal charges have remained the same while those of most of our EC competitors have risen. By June 1987 Ireland had fallen to third highest for both internal and external post. For internal post our charges at July 1987 were 8 per cent higher than the EC average compared with 22 per cent higher in July 1986 while our external post charges had dropped to 5 per cent above the EC average compared with 18 per cent higher in July 1986. This improvement should continue in 1988 as no increase in Irish postal rates is expected during that year.
Telephone Charges
For local calls Irish charges are now third highest compared with second highest in 1985. For trunk calls Irish charges are shown as fourth highest. For calls to the USA we are also fourth highest but there are proposals by Telecom to reduce the US, as well as other international call rates by 25 per cent.
Insurance Costs
The group was unable to obtain comparative data on employer insurance costs in other EC member states. Nevertheless, there is every indication that Irish insurance costs are substantially higher than those in the UK.
Transport Costs
The review of the Industrial Costs Monitoring Group indicates that Irish road transport costs compare unfavourably with those in the other EC member states and that costs increased at a comparatively faster rate over the period 1982 to 1986. In 1986 the group concluded that road transport costs were almost certainly amongst the highest in the EC and feel that there is little doubt that this position remained unaltered during 1987. Since 1986 passenger fares to the UK and Europe have reduced substantially thereby reducing the costs involved in developing and servicing export markets.
Labour Costs
In the period 1980-1985 Ireland had a substantial hourly labour cost advantage against its major trading partners within the EC. In 1986, due to exchange rate movements, the UK dropped 5 per cent below the Irish level but it is estimated that during 1987 this comparative advantage had reduced to 2 per cent. The provisional index of unit wage costs in manufacturing industry since 1980 which takes into account productivity gains, shows Ireland as being substantially more competitive than its main trading partners in the EC with a further substantial improvement recorded in our position during 1987.
Petroleum Product Costs
The ICMG Review indicates that following the reduction in petrol prices imposed by me in July 1987 the differential between Irish prices and average EC prices for petrol and heating gas oil has narrowed.
As regards the action being taken to tackle excessive costs I would refer the Deputy to my detailed reply on this aspect to a similar parliamentary question on the 27 January 1988. However, I can once again assure the House that no effort will be spared in our determination to further improve the cost environment for industry.