P.F. CA - Master Document (ALT)

Public Finance
CA – March (David Coggans)
Prepared by: JakePlunkett, Magdalena Zenderowska, Dara Mitchell, Karen
McEvoy, Qing Cao
QUESTION
Discuss thekey elements necessary if Ireland is to regain its competitiveness in
the future.

2
Table of Contents
EU membership.........................................................................................................................3
Background ................................................................................................................................3
Comparison of UK and Germany ..............................................................................................3
Current Benefits of EU membership..........................................................................................4
Infrastructure.............................................................................................................................5
‘Soft’ Infrastructure: Education .................................................................................................5
Improving Competitiveness through Education ........................................................................6
The Background of Irelands ‘Hard’ Infrastructure ....................................................................7
Future Investment in Infrastructure............................................................................................8
Fiscal Policy and Taxation.........................................................................................................9
Background ................................................................................................................................9
Comparison to Germany and UK ............................................................................................10
Current Prospects .....................................................................................................................11
Economic growth and Unemployment .................................................................................12
Productivity .............................................................................................................................13
Background ..............................................................................................................................13
Comparison to Germany and UK ............................................................................................14
Planning for the future .............................................................................................................15
Cost of Doing Business in Ireland............................................................................................16
2002 - 2008..............................................................................................................................16
Cost of business: Ireland compared with other countries. .......................................................18
Cost of doing Business in Ireland: 2008 – 2014 ......................................................................19
Conclusion................................................................................................................................21
Bibliography.............................................................................................................................22

3
EU membership
Background
Before people of Ireland voted ‘Yes’ to join European Economic Community (EEC) in 1973
now known as a European Union (EU). Ireland was regarded by most countries as a small
and insignificant island with agriculture based economy heavily depending on UK’s market.
Lack of connection with other countries resulted in huge unemployment, poverty and
emigration. But after joining the EU, immediately trade barriers were reduced and Ireland
was able to do business with all of the EU members. That also meant bigger competition but
despite that, Irish export represented 34% of GDP in 1963 the proportion went up to 92% in
2002, one of the best in the world. Ireland also adapted Common Agricultural Policy and
received EU transfers of 44 billion (1973-2008) (European Commission, 2015)1. Ireland also
received 17 billion in ‘structural funds’ such as Social, Cohesion Funds and Regional
Development despite the fact that most of EU transfers went to farm-related issues. Overall
EU membership brought significant change to Irish economy and improved the quality of life
for Irish citizens. A reported 700,000 jobs have been created since 1973. Foreign investment
increased from 16 million in 1972 to 30 billion supported by Freedom of movement which
allows Irish people to work and live within any EU member states (O'Hagan & Newman,
2014)2.
Comparison of UK and Germany
Germany was one of six countries to form the coalition now known as EU. Launching the
single market initiative in the mid-80s was central to the rehabilitation of Germany's
international credentials. Since 1990 Germany has become a ‘net contributor’ to the EU
budget. This helps to support the poorer members of the EU (Bulmer & Lequesne, 2005)3.
Germany’s conservative approach, size and economy place it at the top of large member
states among France and United Kingdom. So we are going to look closer at the UK.
Even though the UK has been a member of EU since 1973, it is still considered an uncertain
member state. Uncertain about benefits of the membership, relationship with the other
leading members. All uncertainties come from government failures to build a support with
visible benefits among the UK public. Benefits like: being part of the world’s largest single
market, an estimated 3.5 million jobs are linked to trading with other member states and other
business, personal, Health & Social Benefits (Euromove, 2015)4.
1 European Commission. (2015, February 15). Retrieved from European Commission: http://ec.europa.eu/
2 O'Hagan, J., & Newman, C. (2014). The Economy of Ireland: National and Sectorial Policy Issues (Vol. 12).
Dublin: Gill and MacMillan.
3 Bulmer , S., & Lequesne, C. (2005). The Members States of European Union. New York: Oxford.
4 Euromove. (2015, March 01). Retrieved from Euromove: http://euromove.org.uk/

4
Current Benefits of EU membership
Ireland has gained numerous benefits by joining European community in 1973 which help
contribute to Ireland’s competiveness. Ireland is a part of the world’s largest single market
which means continual flows of services, goods, capital, people and data on the global scale
(European Commission, 2015)5. New studies show that Ireland is the 14th most connected
country in the world. However despite this fact very few Irish businesses decide to compete
globally. The same study warns against an over reliance on low corporate tax to bring long
term investments as this tactic can be easily adapt by other countries (McKinsey & Company,
2015) 6 . 2014 European Commission reports states that around 75% of foreign direct
investment comes from UK and US and it has been for the past 20 years, which suggest that
government should rethink and adapt a new strategy to attract emerging new markets which
most likely will constitute nearly 50% of the 500 global companies in the next 10 years
(European Commission, 2015)7.
Another very important aspect in gaining competitiveness is reputation. Recent study
conducted by Reputation Institute places Ireland in the 13th position out of 55 countries,
higher than some of the biggest economies in EU such as UK, France, Italy and the global
giant US. Reports suggest that the most important quality in driving reputation is a friendly
and welcoming population. A safe environment and Ireland’s green complexion earned
Ireland 8th place in a category ‘Is a beautiful country’. Countries best reputed are
Switzerland, Canada, Sweden, and Finland (European Union, 2015)8.
EU contribution has been very important in Ireland’s economic growth and helped place
Ireland on the competitive map. All EU member states contribute to the EU budget and
receive funding. Some of them contribute more then they receive, making them net
contributors such as Germany. Ireland has been a net receiver since 1973, receiving 67 billion
and only contributing 25 billion suggesting substantial benefits of 42 billion from EU
membership (European Commission, 2015)9.
6 McKinsey & Company. (2015, Febuary 28). Retrieved from McKinsey & Company:
http://www.mckinsey.com
8 European Union. (2015, March 01). Retrieved from eu2013: http//eu2013.ie/

5
Infrastructure
‘Soft’ Infrastructure: Education
The Irish Government has continuously measured education and established it as a major
support in the development of the Irish economy. A review of Irish secondary level education
in 1962 found that half of all children were leaving school by the age of 13, which would
result in a shortage in qualified labour. This report led to the development of new policy
measures which supported the ‘free education’ initiative of 1967. The initiative saw an
increase in the number of students progressing to second-level education and a greater
demand for places at third level institutions.
This graph shows the rise in numbers progressing to secondary level education
(Daly, 2011)10
Funding from the European Union over the past three decades has helped improve education
standards in Ireland. Irish students have more opportunities than ever to broaden their
horizons and get the qualifications needed for top Jobs (Europe, 2015)11.
As service and production systems develop, a more skilled workforce will increase output
and attract greater FDI. The individual returns of education leads to participation in the
labour market, employment and higher earnings. The Organisation for Economic Cooperation
10 Daly, S. (2011, May 13). Retrieved March 2015, from The Journal: http://www.thejournal.ie/more-students-
finishing-secondary-education-than-e May 13 10:07 AMver-before-135865-May2011/
11 Europe. (2015). Ireland. Retrieved March 2015, from Europa:
http://ec.europa.eu/ireland/ireland_in_the_eu/impact_of_membership_on_ireland/index_en.htm

6
and Development (OECD) promoted investment in human capital to aid economic growth.
The higher education sector has altered significantly since the 1960s.
It is now ranked ninth for education achievement compared to the rest of the world. Public
spending on education was 13.1% in 2011 compared to 9.8% in 2010 (OECD, 2012)12.
In comparison, GDP in the UK fell by 2%, between 2008 and 2010, the same as the average
across OECD countries. But public expenditure on education in the UK rose by 8% over the
same period while the OECD managed a slightly more modest 5% increase (OECD, 2012)13.
Germany spends 5.3% of its GDP on combined levels of education –an increase from 2005
levels which were 5.0% but below the OECD average (6.2%). Germany devotes 10.5% of its
total public spending on education up from 2005 level of 9.8% but below the OCED average
of 13.0% (OECD, 2012)14.
Improving Competitiveness through Education
Education is fundamental for the recovery of the Irish economy, as it improves labour
productivity, supports inclusions and equity. Reviews and reforms must be implemented in
our education system and strong relationships should be established with employers and
possible foreign investors to determine labour skill needs. Although the Irish government has
created various learning and development programmes and schemes especially those in the IT
sector. The onerous approach does not reflect the urgent needs of most jobseekers. Employers
should provide ‘real work experiences’ which lead to real jobs. This will provide incentives
for jobseekers to participate.
Funding of ICT in education policy initiatives (Table)
Initiative Year Began Funding
Schools IT 2000: A Policy Framework for the New Millennium 1988 52 Million
Blueprint for the Future of ICT in Irish Schools 2001 78 Million
Networking Schools 2004 23 Million
Schools Broadband Programme 2005 30 Million
12 OECD. (2012). Education at a Glance. Retrieved March 2015, from OECD:
http://dx.doi.org/10.1787/eag_highlights-2012-15-en
13 Same as Footnote 12
14 Same as Footnote 12

7
The Background of Irelands ‘Hard’ Infrastructure
In 2005, the Government published the Transport 21 plan which included a budget of €18bn
to improve roads networks and €16bn to improved rail networks. Over the past twenty years
the Irish Government has invested heavily in the development of infrastructure to support
economic progress (Department of Public Expenditure and Reform, 2012)15.
Competitiveness is hugely dependant on quality and efficiency of infrastructures. Societies
have become more dependent on infrastructure for a more sustainable environment, clean
water, better waste management, access to road and port to support trading. Although there
has been improved investment in infrastructure over the last ten years, Ireland is still behind
other EU countries. Despite the tight budget, a staggering €70 billion has been invested in
infrastructure and the productive sector in Ireland over the past decade, whereas Germany, at
the top of the European economic table spends just 1.5% of its GDP on infrastructure
development which is substantially less than most European nations.
Between 2005-06 and 2011-12, the UK has spent in the region of £210 billion on
infrastructure according to HM Treasury figures. Over the past 30 years, there has been a
marked shift in the financing of infrastructure. In the 1980s it was financed primarily by the
public sector but since 1997, the bulk of it has been financed by private sources. Overall,
government investment has been lower than in other industrial countries (Department of
Public Expenditure and Reform, 2014)16.
15 Department of Public Expenditure and Reform. (2012). Infrasture and Capital Investment. Retrieved March
2015, from Per.Gov.Ie: www.per.gov.ie/.../Infrastructure-and-Capital-Investment-2012-2016.pdf
16 Department of Public Expenditure and Reform. (2014). Retrieved March 2015, from Per.Gov.Ie:
www.per.gov.ie/comprehensive-review-of-expenditure/

8
Future Investment inInfrastructure
Ireland needs a reliable and efficient infrastructure to support future growth and remain
competitive. Not doing so limits Ireland’s possibilities to trade. Investment in water and
waste treatment to maintain a modern society as well as broadband facilities to improve
connectivity should also be supported.
In the 2014 Budget the Government acknowledged the need for capital investment of €17.1
billion to improve Ireland’s infrastructure but the Government cannot achieve this level of
funding (Competitiveness Review, 2014)17. However, they can overcome this obstacle by
forming partnerships with the private sector to provide finance to fuel the necessary activity
and support our infrastructure deficit. Public Private Partnerships (PPPs) are common
throughout Europe and have proved to be successful on major projects and should be
considered for projects on a smaller scale. By securing finance in partnership with the private
sector, the Government can expand offerings and create much needed employment in the
construction sector.
Ireland can achieve greater competitiveness by having better roads and rails for transport and
improve efficiency by utilising renewable resources such as wave and wind power. "EirGrid
is currently developing a large number of major transmission projects that will boost
Ireland’s already impressive network. In 2012 almost 18% of the electricity we consumed
was from renewable energy sources, mainly wind and because of this action, Irelands
dependency on imported gas was reduced by 20%. Our increasing consumption of renewable
energy increases our security of supply, provides a hedge against high fossil fuel prices and
contributes to our climate change strategy". (EirGrid, 2012)18. Future developments in our
energy sector will also support the export of smart energy technologies and services. "Energy
markets have changed with the unbundling of the retail market and increased competition
through interconnection and the Single Electricity Market. These have led to price benefits
for consumers and firms." (Department ofCommunications, 2014) 19
17 Competitiveness Review. (2014). Retrieved March 2015, from Competitiveness:
www.competitiveness.ie/media/03122014-Competitiveness_Challenge_2014-publication.
18 EirGrid (2012) EirGrid Group Annual Renewable Report 2012.Retrieved 26 March 2015,from EirGrid.com:
http://www.eirgrid.com/media/Annual%20Renewable%20Report%202012.pdf
19 Department ofCommunications. (2014, May). Green Paper on Energy Policy in Ireland. Retrieved March
2015, from http://www.dcenr.gov.ie/NR/rdonlyres/ED7DCC31-9F0A-4350-8E2D-
979DBEAE4034/0/DCENRSummaryofGreenPaperonEnergyIreland.pdf
Available at:
www.competitiveness.ie/media/03
122014-
Competitiveness_Challenge_2014
-publication.[Accessed on 24
March 2015]

9
Fiscal Policyand Taxation
Background
Government spending and taxation are the two main components of Irish fiscal policy
(O'Hagan & Newman, 2014)20. During the mid-80’s recession’, the Government expenditure
was significantly restrained and tax rates were increased in order to raise revenue and pay
back the huge Government debts (Whelan K. , 2014)21. During the ‘Celtic Tiger’ years, the
Irish Government offered various tax incentives, such as a tax relief for owner-occupying
properties and investment properties, which became a catalyst for the boom in the
construction sector. Taxation has proven to be an effective tool for the government; not only
to raise revenue for public expenditure, but also to intervene with the market in order to alter
or correct market behaviour (O'Hagan & Newman, 2014) 22 . Ireland has a competitive
corporation tax rate of 12.5%, which has attracted a huge amount of Foreign Direct
Investments (FDI) from multinational companies (such as Apple, Microsoft and Google) and
has encouraged them to establish European Headquarters in Ireland (Department of Finance,
2015)23. This has huge impact on the promotion of competitiveness among the indigenous
Irish firms (McKeon & Henry, 2004)24.
21 Whelan, K. (2014, June). Research. Retrieved February 14, 2014, from Karl Whelan:
http://www.karlwhelan.com/Papers/Whelan-IrelandPaper-June2013.pdf
23 Department of Finance. (2015). Budgets. Retrieved February 14, 2015, from budget.gov.ie:
http://www.budget.gov.ie/Budgets/2015/Documents/EIA_Summary_Conclusions.pdf
24 McKeon, J. H., & Henry, C. (2004). Retrieved February 14, 2015, from emeraldinsight.com.dkitlibs.dkit.ie:
http://0-www.emeraldinsight.com.dkitlibs.dkit.ie/doi/pdfplus/10.1108/00400910410569551 [accessed 23 March
2015]

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Comparison to Germany and UK
UK (20%) and Germany's (15%) 25 corporation tax rate remained higher than Ireland's
(12.5%) during the boom. Evidences have shown that the location of FDI is influenced by an
attractive corporation tax rate and the growth of GDP (Lawless, 2014)26. Another advantage
Ireland had gained in competing with Germany and UK was that its Tax wedge remained one
of the lowest within EU member states (OECD, 2015)27. Germany has the highest tax burden
for a single person and is 26% higher than Ireland and 18% higher than UK in 2005 (OECD,
2015)28 . This advantage had brought more work forces and FDI to Ireland and helped
contributed to the higher economic growth. In 2006, Germany spent 21.9 per cent more and
the UK government spent 17.2 per cent more per person on social welfare expenditure than
Ireland did (EAPN, 2009) 29 . However, lower taxation in Ireland offered incentives for
employment and enterprises, but provides less money for Government spending on social
welfare, education and infrastructure30.
25 Bundeszentralamt für Steuern (2014) German taxes at glance : key data 2014 [online], web link :
http://www.steuerliches-info-
center.de/EN/SteuerrechtFuerInvestoren/Allgemeine_Informationen/DieWichtigstenSteuernAufEinenBlick/die
WichtigstenSteuern_node.html[accessed 19 Feb 2015]
26 Lawless, M., McCoy, D., Morgenroth,E., O'Toole, C., Economic and Social Research Institute & Ireland.
Department of Finance 2014, the importance of corporation tax policy in the location choices of multinational
firms: Part of the economic impact assessment of Ireland s corporation tax policy, Department of Finance,
Dublin.
27 OECD (2015)Tax wedges on earnings vary sharply in OECD countries [online], web link:
http://www.oecd.org/general/taxwedgesonearningsvarysharplyinoecdcountries.htm[accessed on 23 March
2015]
28 OECD (2015) Earnings Income tax plus employee and employer contributions less cash benefits as a % of
labor costs [online], web link : http://www.oecd.org/newsroom/36371703.pdf [accessed on 23 March 2015]
29 EAPN (2009) Social welfare: how Ireland compares in Europe [online], web link:
http://eapn.ie/documents/1_Social%20Welfare%20How%20Ireland%20Compares%20in%20Europe.pdf
[accessed 19 Feb 2015]
30 Reading list-GOV.UK (2015) Rates and allowances: Corporation Tax [online], web link:
https://www.gov.uk/government/publications/rates-and-allowances-corporation-tax/rates-and-allowances-
corporation-tax--2 [accessed on 19 Feb 2015]

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Current Prospects
The need to reform the Irish taxation system to enhance its ‘simplicity, efficiency and
equality’ has been one of the major goals of policy makers in recent years (O'Hagan J. &.,
2014)31. Despite all the effort made by Government to restore public finance by introducing
Universal Social Charges on personal income and property tax on owner-occupier properties,
public expenditure for welfare payment, health and education and public debts is still exceeds
intakes through taxation(Council, 2014)32. At the same time, there is a huge pressure from
other EU member states on the Irish Government to change its low corporation taxation rate.
It is crucial for Ireland to remain competitive by attracting new FDI in the technology and
pharmaceutical sectors and to encourage existing MNCs to remain. As the previous research
has suggested MNCs not only create employment but also help to ‘spill-over’ knowledge and
skills for small and medium enterprises (SMEs) in Ireland even after departure. (McKeon J.
&., 2004)33. The link between employment and taxation has been clearly established thereby
providing a competitive taxation system which directly promotes a more competitive labour
market.
31 O'Hagan, J. &. N. C., 2014. The Economy of Ireland: National and Sectoral Policy Issues. 12th ed. Dublin:
Gill & Macmillan.
32 Council, N. C., 2014. Ireland'sCompetitiveness Challenge 2014. [Online]
Available at: http://www.competitiveness.ie/media/03122014-Competitiveness_Challenge_2014-publication.pdf
[Accessed 28 February 2015].
33 McKeon, J. &. H. C., 2004. Emerald Insight. [Online]
Available at: http://0-www.emeraldinsight.com.dkitlibs.dkit.ie/doi/pdfplus/10.1108/00400910410569551

12
Economic growth and Unemployment
Ireland has been recovering slowly but sustainably since the recession. As the National
Competitiveness Council suggested, Ireland must encourage more exports and make credit
more available to indigenous SMEs to help with economic growth (Council, 2014)34. The
unemployment rate in Ireland is still high at 11.3% (CSO, 2015)35 and this is mainly due to
the collapse of the construction sector. The introduction of a ‘centralized bargaining system
for Irish Trade Unions has eased the problem of the growing number of employers’ hostility
towards unionisation (Oireachtas, 2011)36. It has made it easier for employers to ‘hire’ and
‘fire’ fairly in Ireland hence improve the competitiveness in Irish labour market.
34 Council, N. C., 2014. Ireland'sCompetitiveness Challenge 2014. [Online]
Available at: http://www.competitiveness.ie/media/03122014-Competitiveness_Challenge_2014-publication.pdf
35 CSO, 2015. Seasonally Adjusted Standardised Unemployment Rates (SUR). [Online]
Available at: http://www.cso.ie/multiquicktables/quickTables.aspx?id=lrm03_lra03
36 Oireachtas, 2011. Spotlight-Trade unions,collective bargaining and the economic crisis: where now?.
[Online] Available at:
http://www.oireachtas.ie/parliament/media/housesoftheoireachtas/libraryresearch/spotlights/spotTradeunion040
611_143334.pdf [Accessed 23 March 2015].

13
Productivity
Background
Productivity compares the amount of outputs with the amount of inputs produced. It
demonstrates how efficient an economy is in using its labour and capital. Although Ireland’s
priority is to increase its level of productivity, there is also a strong focus on increasing
employment levels which will provide further advantage to achieving economic growth.
Ireland was recognised for having a low rate of unemployment, a high life expectancy and a
good quality of life before the recession. (Forfas, 2006)37
Ireland’s productivity performance between 1990 and 2003 was roughly 3.3% a year. This
was due to multinational companies investing in business operations in Ireland and most
importantly the growth of the construction industry. They have achieved strong financial and
technology sectors but since joining the EU, the tourism and utility industries remain poor.
Some of Ireland’s demanding and highly productive products which are exported are
chemicals, pharmaceuticals and electronics. (Forfas, 2006) The global aim is to achieve a
higher GDP per capita, Ireland had a remarkable high GDP between 2000 and 2012.
37 Ireland. National Competitiveness Council & Forfas Ireland 2006, Annual competitiveness report 2006:
Volume 2, National Competitiveness Council, Dublin.

14
.
Comparison to Germany and UK
OECD.(2015). Gross domestic product (GDP) (indicator). doi: 10.1787/dc2f7aec-en [Accessed on 23 March
2015]
Ireland is different from Germany and UK in terms of GDP per capita given the history of the
emigration rate in Ireland. The GDP refers to the value of goods and services produced in an
economy and deducting the value of the imports. As a small regional economy, Ireland stands
out for exporting more products to the EU and non EU countries compared to Germany and
UK. This is clear during the period from 2002 and 2008 where Irelands GDP is exceptionally
higher than Germany and UK showing they are more productive by exporting more goods
which reduces the unemployment rate and gives Ireland a competitive advantage. Irelands’
unemployment rate at this time was roughly 4% and Germany with the highest with nearly
9%. (OECD, 2015)38
38 OECD (2015), Labour productivity forecast (indicator). doi: 10.1787/cb12b189-en (Accessed on 22 February
2015)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
1980 1985 1990 1995 2000 2002 2008 2012 2013 2014
GDP, Total, US dollars/capita
Germany Ireland United Kingdom

15
Planning for the future
Since the recession Ireland is being promoted as an attractive location for foreign direct
investment which ranks third for performance on return of investment and encourages more
exports into foreign markets. Irelands GDP currently grew by 3.2% which resulted in the
unemployment rate falling. Ireland’s goal is to develop and grow new sectors, expand into
new markets and produce new products and services. To achieve this Ireland will have to
increase the amount of exports and continue to support foreign investments. To encourage
productivity they must invest in research and development. Ireland provides high quality
industrial property which promotes growth and makes Ireland an attractive place to work. To
promote growth, Ireland must spend more on capital expenditure to support enterprise
development. Ireland is recognised for having excellent trained staff which encourages
productivity and long-term competitiveness. There was an increase in employment of 1.7% in
2014. There is high migration into the country adding to the existing skilled workforce. FDI
is a major generator of export earnings. Ireland’s trade performance is positive since the
recession. A third of the exports go to two countries- US 20% and UK 17%. A disadvantage
is that Ireland is vulnerable to currency changes. Ireland’s exports mostly focus on a small
number of sectors such as chemicals and pharmaceutical products account for 60% in 2012
from 51% in 2008. The EU is now able to negotiate agreements and Ireland must show their
interest. The benefits to Ireland will be the non-tariff barriers in relation to food, chemicals
and pharmaceuticals. Ireland intends to improve the tourism industry by reopening new air
and sea access routes. Ireland intends to grow employment by 50,000 over the next decade in
this industry. Irish productivity levels improved considerably between 2008 and 2013.
(Forfas, 2014)39 The GDP per hour worked shows how efficient labour input as well as other
factors involved in the production process are being used. This varies depending on capital,
technology and efficiency changes. Ireland is now above the average at 111.74 in 2013. The
information and communication technology (ICT) value added shows the technology
processes, output and productivity growth. According to OECD Ireland is the highest with
11.9 in 2011 and they are the third highest with the number of people working in this sector.
(OECD, 2015)40
39 National Competitiveness Council (Ireland) & Forfas, I. 2014, Ireland's competitiveness challenge, National
Competitiveness Council, Dublin.
40 OECD (2015), ICT value added (indicator). doi: 10.1787/4bc7753c-en [Accessed on 12 March 2015]

16
Costof Doing Business in Ireland
2002 - 2008
Business costs are one of the most important aspects of having a competitive economy. It is
one of the most significant factors considered when businesses are establishing a presence.
Business costs can be divided under several headings: labour costs, property costs, transport
costs, utility costs, credit costs, business services costs (e.g. postal costs) and the broader cost
environment (e.g. inflation). A view of these costs as a percentage of firms overall expense is
listed below.
(Forfas, 2014)
We can see here that labour is the most significant by far, excluding manufacturing. To
further understand the changing cost of labour, we need to look at the trend.

17
(CSO, 2013)
The above illustration shows us how wages have dramatically increased in the ten years from
1998 – 2008. From this we can conclude that Ireland’s labour costs were increasingly
uncompetitive during this decade. If Ireland were to improve its competitiveness during these
years, it would need to help business enterprises reduce labour costs by regulating the
industrial wage level and providing incentives for tax breaks.

18
Cost of business: Ireland compared withother countries.
The highest cost of doing business in Ireland, as we already know, is the labour costs (Cost of
Doing Business in Ireland, 2014)41. To understand how competitive Ireland is on a European
scale, we need to look at the labour costs of two other countries: Germany and the United
Kingdom. According to the Trading Economics Labour Cost Index, Germany has an indexed
labour cost of 108.13, while the UK has an indexed labour cost of 104.2. In comparison, the
indexed labour cost of Ireland is 101.26, well below the EU average of 106.04 (Trading
Economics, 2014)42.
(Forfas, 2014)
The second major cost for businesses in Ireland is the cost of property. Before the recession
began in 2008, Ireland and the UK were clearly uncompetitive economies for property costs,
while Germany enjoyed lower property costs for businesses. However, in the wake of the
recession Ireland has massively gained in property competitiveness, with a drop in price of
nearly a third. Ireland is now more competitive than Germany and the UK for business
property costs.
41 Forfas. (2014). Publications. Retrieved March 2, 2015, from Forfas: http://www.forfas.ie/media/01042014-
Costs_of_Doing_Business_in_Ireland_2014-Publication.pdf
42 Trading Economics. (2014, November). Germany Labour Costs. Retrieved March 2, 2015, from Trading
Economics: http://www.tradingeconomics.com/germany/labour-costs

19
Cost of doing Business inIreland: 2008 – 2014
To increase the level of business activity in Ireland, the Government had to decrease the costs
of business in Ireland. The major cost for businesses is the labour costs and despite a sharp
fall in labour costs after the recession, labour costs are increasing again. This is the result of
an increase in the value of the Euro and due to the introduction of the Universal Social
Charge (USC) (Forfas, 2014)43. The illustration below represents the growth rate pf labour
costs in Ireland:
(Forfas, 2014)
For Ireland to reverse or reduce this increase, policies will need to be implemented which can
reduce the unit labour cost. One way of doing this would be to reduce the Pay Related Social
Insurance (PRSI) rates that employers must pay. Currently, the rate is 8.5% on all earnings up
to €356 and 10.75% for all earnings over €356. (Public Servive Information, 2014)44. By
reducing the amount of social insurance payable by employers, labour costs can be decreased
and become more competitive as a result. Other possible areas for Ireland to reduce business
costs are the energy costs and credit costs.
44 Public Servive Information. (2014, July 17). Social Insurance (PRSI). Retrieved March 2, 2015, from Citizens
Information:
http://www.citizensinformation.ie/en/social_welfare/irish_social_welfare_system/social_insurance_prsi/employ
er_s_duty_to_pay_social_insurance_prsi.html#l62fd2

20
Currently, Ireland has among the highest energy rates in Europe (Forfas, 2014)45. This could
be reduced by increasing Government spending on energy production facilities, which would
increase supply in the market and, hence, bring down prices. Credit costs in Ireland are also
among the highest in Europe. For a loan up to €1 million, the rate is 31.5% higher than the
EU average. And for loans over €1 million, the rate is 27% higher than the EU average.
(Forfas, 2014). Both these rates can be reduced by reducing rates at the Irish Central Bank.

21
Conclusion
Fiscal Policy and Taxation - Ireland must maintain its competitive advantages of low
corporation tax and low tax wedge by promoting a simpler, more efficient and equal taxation
system. The 'seesaw' of Government spending and taxation needs to be more balanced in
order to regain its competitiveness as a region amongst EU.
EU Membership - EU membership and the contribution helped put Ireland on the competitive
map. Ireland has a very high reputation compared to other EU members such as UK and
France.
Productivity - The widely available and highly advanced technology has equipped Ireland to
compete in the global market. As Ireland exports a huge supply of products, its GDP
remarkably high resembles the power in the global stage that the economy has in which
similar countries hope to achieve.
Education and Infrastructure -Ireland needs further investment in both hard and soft
infrastructures to improve our competitiveness. Capital investment now will assist in the
economic recovery of the country in the longer term. Investment in capital projects needs to
be increased. Our Government is no longer in a position to fund Ireland’s infrastructure and
must seek opportunities from the private sector to deliver a more efficient infrastructure in
Ireland.
Cost of Doing Business – As the Irish economy develops, business costs typically increase.
The main cost rise is labour costs. One way to reduce labour costs is to reduce living costs by
regulating the housing market. Another way is to reduce the tax burden of employers such as
the PRSI tax. An appropriate mix of these methods should be used to curve costs.
Ireland’s fast recovery from recession has gained itself a high reputation within EU
member states. More investments in technology, education and infrastructure must be
sought from the private sector; a simpler, more efficient and equal taxation system must
be adopted; every effort must be made to balance the 'seesaw' of Government spending
and taxation; increasing exports of Irish goods and services in order to create more jobs
and achieve a higher economic growth in GDP, and a more flexible labour force will
attract Foreign Direct Investment from all over the world, making Ireland one of the
most competitive places to do business.

22
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