The global cost-of-living crisis has added to the urgency for the Government to address Ireland’s competitiveness and productivity position.
This is according to the National Competitiveness and Productivity Council, as it launches its 2022 Competitiveness Challenge report.
The publication of this year’s study coincides with an economic environment in which businesses and consumers are grappling with cost-of-living increases that have not been experienced in decades.
While the council acknowledges that the Government cannot control prices on international markets, it says it is critical that any policy responses do not “embed inflationary expectations” in the domestic economy, which it says could undermine our competitiveness in the long run.
Among the recommendations it makes is a call for future business supports to be “designed and targeted” to avoid any risk that they encourage unviable businesses to remain open or delay restructuring.
“Such delays can negatively impact productivity by stifling the process whereby capital and labour flow from unviable entities towards new business opportunities,” the report noted.
The Government is currently devising a package of supports to help businesses and households with rising energy costs to be included in Budget 2023 which will be unveiled in the coming weeks.
The report also notes that inflationary pressures and a rising interest rate environment globally present an added challenge to fiscal planning.
Although the Council agrees broadly with the budgetary parameters set out in the Summer Economic Statement, it warns that there is a need for “continued stringent management” of any additional Government spending.
This, it says, should be focused on areas that raise the productive capacity of the economy.
Medium and long-term challenges
The report addresses a number of longer-term challenges for the economy, some of which it says have been longstanding issues, such as low productivity among small and medium-sized companies, skills and infrastructure gaps and cost pressures.
“Their lack of immediate urgency must not be allowed to crowd out the need for attention now, if future economic burdens, in terms of reduced employment, living standards and productivity, are to be avoided,” the report states.
Among the recommendations the Council makes to deal with longer term issues are measures to enhance labour market performance, supporting infrastructure investment and managing the cost of doing business in Ireland.
“The cost of credit, the cost of insurance and the cost of legal services are longstanding issues for Ireland and particularly impact on the costs of SMEs operating in the domestic market,” the report notes.
“The Council welcomes recent reforms in these areas; however, challenges remain in the domestic market and more reforms are needed to reduce costs in order for Irish firms to continue to compete internationally,” it adds.