Economic surveys and country surveillance

Economic Survey of Ireland 2013

 

OECD Economic Surveys: Ireland 2013

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Overview of the Economic Survey of Ireland 2013

Ireland is getting back on its feet after a severe banking and fiscal crisis. Determined structural reforms and considerable fiscal consolidation have helped to rebalance the economy, which is recovering gradually, and underpinned a successful return to the sovereign bond market at declining costs. However, the crisis has left a legacy of unemployment and debts, amongst the highest in the OECD. Now is the time to implement policies that will promote sustainable growth and job creation, including by reforming public institutions and regulations. To protect hard-earned credibility and reap the benefits of improved market confidence it is important to remain on the fiscal path set out in the Government programme and to further reduce the public debt-to-GDP ratio. Fully implementing the strategy to reduce non-performing loans would improve bank health and foster the gradual recovery of domestic demand. After exit from the current EU-IMF programme an international backstop might be appropriate to safeguard against potential adverse movements in financial markets confidence that could endanger the sustainability of a return to the market.

Reinvigorating long-term growth will be essential to ease the burden left behind by the crisis. Ireland is endowed with a well-qualified workforce, flexible labour and product markets, a low and stable corporate tax rate and access to the EU single market, all of which attracts significant new foreign investment and will contribute to lifting growth. However, even in areas of relative strength there is still room for improvement and a need to prioritise further structural reforms. Competition in legal services should be increased and licensing costs and waiting times decreased. The emphasis on fiscal measures minimising harm to growth, such as the recently introduced residential property tax, should continue.  There is also a need to address long-term spending pressures in the pension system and to place environmental protection at the centre of tax, charges and subsidy policy choices.

Decisive labour market policy interventions are needed. Although the recovery is reducing unemployment, this is likely to be a gradual process, and people unemployed for a long time risk being marginalised and discouraged. Skills mismatches are also an issue that needs to be addressed by better aligning the content of education and training schemes. The Irish economy is shifting away from bricks and mortar towards knowledge-based services. Those previously working in the construction sector, many of them young, need retraining, if they are to participate in a more knowledge-intensive economy. Welfare support has helped to prevent worse poverty outcomes, and labour market policy is moving in the right direction, but these new policies still do not focus enough on long-term unemployment. The number of caseworkers supporting long-term jobseekers should be increased through internal redeployment. A systematic evaluation of labour market programmes should be undertaken and limited fiscal resources should be focused on policies empirically-proven to help regain employment.

Innovation in Irish firms needs to be boosted. Ireland offers a supportive environment for innovation, according to international scoreboards, but this largely reflects the presence of high-tech multinational firms, while “indigenous” (domestic) enterprises are characterised by low productivity. Raising SME capacity to innovate and to build greater linkages between enterprises and the higher education sector would provide a new engine of growth. Government support for innovation has grown too complicated for firms to access it easily or for efficient evaluation. A simplification, including a reduction in the number of agencies involved in its funding, would increase effectiveness and cost-efficiency and make it easier for business to access support. Introducing sunset clauses would promote a more effective evaluation, which would allow for strengthening programmes with higher returns. Insolvency costs are too high and SME access to non-bank sources of finance too low. Increasing non-bank finance for SME remains a priority.

Ireland is getting back on its feet. Determined structural reforms and fiscal consolidation have helped to rebalance the economy. Now is the time to implement policies that will promote sustainable growth and job creation.

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For further information please contact the Ireland Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat's report was prepared by David Haugh and Alberto Gonzalez-Pandiella under the supervision of Patrick Lenain. Research assistance was provided by Josette Rabesona.

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