The cost of doing business is high and slowly rising, according to the National Competitiveness Council
The National Competitiveness Council has said Ireland is still a high-cost place to do business and warns that further policy measures are required to reduce costs and keep the country competitive.
With wage pressures and property costs rising, the NCC warned that the Irish economy has reached a turning point in terms of cost competitiveness.
It said overall cost competitiveness is now dis-improving, and that a series of upward cost pressures are emerging.
In its report ‘The Cost of Doing Business 2014’, the NCC says it believes recent price falls in Ireland are largely a cyclical response to the international recession – namely a result of reduced demand and excess capacity – and not due to structural changes across the Irish economy.
On labour costs, the report says Irish gross earnings are the eight highest in the Euro area, while net wages are the sixth highest.
It says Irish unit labour costs increased by 1.4% in 2013 after several years of improvement.
Meanwhile, in a warning to Government over tax policy, it says the cumulative impact of increases in income tax, changes to bands and the Universal Social Charge have weakened labour cost competitiveness since the start of the recession.
In relation to property costs, it says there is a risk of shortages in prime office space that could result in future rent increases.
It also notes the significant differences between local authority rates in different areas.
The NCC says that diesel prices in Ireland are 7% more expensive than the Euro area average. Electricity costs in Ireland are the fifth highest in the Euro area for SMEs and the sixth highest for large firms.
Landfill gate fees in Ireland are the fifth highest out of ten countries surveyed, while non-hazardous incineration fees are the third highest of nine countries.
Industrial water costs in Ireland are the fifth highest of 16 countries, while the NCC is unclear what impact the establishment of Irish Water will have on industrial water costs.
On credit costs, new business rates of interest are significantly higher in Ireland than the Euro area average.
Rates on loans of up to €1m are 31% higher, while loans over €1m are 27% higher than the average. Meanwhile, interest rates on revolving loans and overdrafts are 11.5% above the average.
The report says business services costs have also been rising since 2012, after several years of declines, and are now 3.4% above 2010 levels.
In terms of the broad cost environment, the report describes Ireland’s cost profile as “high cost, but rising slowly”.
It says that, in 2012, Ireland was the third most expensive country in the Euro area for consumer goods and services, with prices 14.6% above the Euro area average.
It says Irish price levels remain above the average in ten of the 12 measured categories.
The NCC also warns that rising house prices and rental costs could have potentially significant consequences for affordability and wages.