Ireland’s successful bail-out exit is a testament to sensible government policy and the strength and resilience of the country’s business sector. The resolute effort of citizens and businesses over recent years is paying off.
Despite weak economic data from elsewhere in Europe, Ireland is making progress. Efforts to restore the competitive edge of Irish companies means that business is now well-placed to drive growth and job creation in the years ahead.
After years of tough austerity, the economy is now set to enter a new phase of strong economic growth. Following two years of exclusively export-led GDP growth, 2013 saw a better balance in activity. The recovery is already firmly under way.
In fact, the current GDP growth estimate for 2013 of under 1 per cent is not a true reflection of real economic activity. The 2.5 per cent employment growth this year is a much more accurate indicator of the current health of the economy.
Net exports, consumer spending and investment will all make significant contributions to growth as we move into next year. Ibec has just revised upwards our 2014 GDP growth prediction, from 2.3 per cent to 2.8 per cent, on the back of recent positive economic news.
Next year, we also expect investment in the economy to increase by 15.5 per cent, with consumer spending expected to increase by 1.3 per cent. Importantly, next year we expect about 50,000 new jobs to be created. We have come a long way but we must always be looking ahead.
Irish income tax is too high. In the next Budget, the Government should reduce income tax rates and change the bands. At 52 per cent, we now have one of the highest marginal tax rates in the OECD, well above the average of 36 per cent.
It also kicks in at a low income level. This acts as a disincentive to work and job creation.
Much more reform is also needed to safeguard the public finances. The current public sector pensions liability of about €120 billion is unsustainable. The recent changes introduced for new entrants, such as the move to career average earnings rather than a final salary basis, should be extended to all. We must ensure that the public finances into the medium term are on a sound footing.
We must also ensure that we put in place the necessary infrastructure to support future growth. We’re not currently investing enough in our future. To meet the economic and demographic needs of the country, we should aim to spend 4 per cent of GDP per annum on capital expenditure by 2020.
Unemployment also remains an acute social and economic problem that demands action. We need more urgent delivery of the Pathways to Work plan to help get people back to work and we need a sustainable funding model for third-level education. It’s crucial that we don’t repeat the mistakes of the 1980s and the enormous problem of long-term unemployment. Decisive action is needed to provide those out of work with new training and new employment opportunities.
Ireland emerges into a very different economic and investment environment than the one that helped us grow before. We cannot rely on past successes to secure our future prosperity. The economic situation in the euro zone, the US and the UK has improved in the last few quarters. Additionally, emerging Asia – which includes amongst others China, India and Indonesia – remains one of the fastest growing regions in the world.
We must continue to ensure that we are an attractive place to do business if we are to compete and drive sustainable growth. We need to improve our tax offerings and we need to make it more attractive to start-up a new business.
Irish firms are winning new business, driving growth and putting people back to work. If we make the right decisions and put in place the right conditions for businesses to succeed, the economy will have a bright future.