This site uses cookies to improve your experience and to provide services and advertising. By continuing to browse, you agree to the use of cookies described in our Cookies Policy. You may change your settings at any time but this may impact on the functionality of the site. To learn more see our Cookies Policy.
OK
Dublin: 11 °C Thursday 18 April, 2019
Advertisement

Column: Don't believe the hype – the Irish economy remains a high cost one

As business costs begin to rise again, we need to remember that nobody owes us a living, writes Aaron McKenna.

Aaron McKenna

DEEP DOWN IN our subconscious brains, most of us probably realised that the Irish economy was headed for a brick wall the day we walked through Dublin Airport’s then-singular terminal and discovered a shop selling bottles of water for a thousand euro. Just as we’d turn and run if we saw something vaguely dinosaurey come up the road, our animal brains just know when something is bad.

From the late 1990s through to 2008 we doubled and doubled again and then, for the heck of it, doubled our cost base some more. Everything got more expensive but so, too, did we earn more money and became relatively better off in most strata of society. Enough of us earned the cash required to make a fancy water shop a viable business, and somebody somewhere had to pay for that.

The trouble is that when you take a big step back and consider Ireland’s place in the world, we’re a country that relies a lot on people coming here from abroad to use us as a base to sell to other countries. Other than that, there’s not much very special about us. We rely on foreigners buying our stuff to pay for the stuff we want to buy. And the more expensive we got versus the countries we are to export to, the more they have to pay for our goods and services, the less attractive we are to invest in or buy from.

Reducing costs

When the recession hit we reduced costs significantly in many areas. The cost of goods, services and people came down and that has provided a boost to our ‘export led’ recovery. With the domestic market on the floor, we need even more foreigners to buy stuff off us to bring money in to replace all that cheap credit our banks seem reluctant to hand out anymore for some reason.

Everyone in government hailed the reduction in costs and relative improvement in competitiveness, even though we have remained more expensive than many other European countries to which we export so much. This week, however, the National Competitiveness Council (NCC) released its annual cost of doing business in Ireland report, and the news is that we’ve started to go up again. Government says ‘nothing to see or worry about here.’

To give you a bit of context, Ireland is the 6th most expensive place in the eurozone to hire someone. We’re 3rd most expensive for consumer goods and services. We’re the 5th most expensive country for a small or medium businesses to get electricity in. We’rethe 5th most expensive for industrial water supplies. Everyone likes to hear about good, solid manufacturing jobs coming to Ireland. If input costs like electricity and water are so high alongside labour, we basically have tax and nothing else to go on as a sweetener to getting people to locate here.

The Irish economy remains geared to be a high cost one

For our own home-grown businesses to get a leg up, the advice might be to go set up somewhere else. Getting a loan to start or expand a business will cost you up to 31 per cent more than in the rest of the euro area.

These costs have now reversed position, and are going back up again. As the NCC points out, it seems that the cost reductions witnessed during the recession were purely related to the economic cycle. At a systemic level, the Irish economy remains geared to be a high cost one.

We have failed to deliver on reforms of the professions that the Troika demanded, with vested interests fighting tooth and nail to delay till they formally left town. Our method of modernising our water infrastructure is to throw €180 million at a new quango to do the job of the existing quangos. We have high energy costs, but a reluctance to go near any methods – like fracking – that have reduced costs dramatically in other parts of the world.

As a quango itself, the NCC had to be circumspect in pointing out that our amazingly high taxes are a key contributor to making Ireland one of the most expensive countries in the world in which to do business. It’s no wonder that we’re the third most expensive place to buy consumer goods when you need to pay the person who stacks the shelf enough to live on after obscene amounts of income tax are taken out, and the goods themselves have 23 per cent lumped on top of the price by way of VAT.

Reducing government spending

We might cry out that we need all this money to run our overstretched services and we cannot afford to live on less in our pockets, but this is an upwards-only cost cycle that Ireland needs to get its head out of. For one, we have clearly not worked to reduce government spending – which remains quite near where it was in 2008 – in any systematic fashion. So what we need to take out of the economy to pay to keep the public sector going remains inflated.

The second, even more pressing, point is that foreign buyers of our goods and services don’t really care what our problems are. They just care if the same goods and services they can buy from elsewhere are competitively priced.

As an export-driven economy, it’s fascinating that the cost of doing business in Ireland rising isn’t a bigger point on the national agenda. Every percentage point that this cost or that goes up, will slow down growth in the economy and lengthen the amount of time we leave people on the dole queues.

If anything we should make competitiveness the centre of much of our national debate on the economy. We need to push through reforms to the likes of our professions that have stalled, and think about things like taxation and government spending in the context of the fact that these exports we want to drive recovery are directly affected by both.

We absolutely cannot return to a situation where we allow costs to increase exponentially, unless we’re likely to invent some sort of everlasting lightbulb that can only be made in Ireland or similar. Nobody out there owes us a living, and they can invest in and buy from a number of hungrier, leaner nations than us.

Aaron McKenna is a businessman and a columnist for TheJournal.ie. He is also involved in activism in his local area. You can find out more about him at aaronmckenna.com or follow him on Twitter @aaronmckenna. To read more columns by Aaron click here.

Follow Opinion & Insight on Twitter: @TJ_Opinions

  • Share on Facebook
  • Email this article
  •  

About the author:

Read next:

COMMENTS (8)