The following is the Executive Summary of the OECD assessment and recommendations, taken from the Economic Survey of Ireland 2006 published on 2 March 2006.
Ireland has continued its exemplary economic performance, attaining some of the highest growth rates in the OECD. After a remarkable decade, per-capita income has caught up with and overtaken the EU average. Further progress will require strong productivity growth and continued increases in labour supply. These challenges are familiar to most OECD economies. But it also faces some issues that are less common: it is going through a transition phase in upgrading its social services; infrastructure levels need to catch up with the boom in activity and population that has occurred over this period; and it has to manage some sizeable macroeconomic risks.
Maintaining high rates of productivity growth. As Irish activity comes to rely less on foreign firms and more on home-grown services, productivity gains will become harder to achieve. The main areas where policy could make a difference in sustaining productivity growth are:
Boost competition. There are too many sectors where producers are shielded from competition, raising prices and stifling growth. Reforms are needed in the electricity and telecom sectors, and unnecessary restraints in services such as law, pharmacies and the pub trade should be removed. In the retail sector, the government’s decision to abolish the Groceries Order is welcome.
Improve education. Funding is still an issue in universities. One option is to re-introduce tuition fees, but backed by an income-contingent loan scheme. In secondary schools, the key challenge is to target resources on students who are struggling.
Upgrade infrastructure. Rigorous cost-benefit analysis of infrastructure projects, including those in the ten-year transport plan, should play a greater role in decision-making than has been the case in the past. Moreover, an increasing number of projects should be financed by users.
Boosting labour supply. An important option for boosting labour supply is to raise female participation. Expanding day-care for infants and out-of-school care for children will help. From the point of view of labour market participation, childcare supports such as the new Early Childcare Supplement should be linked to employment status or made conditional on actually using formal childcare. A mutual-obligations approach for sole parents would help reduce child poverty by assisting parents to get a foothold in the labour market. As regards older people, work incentives in the public-pension and welfare systems could be improved. Migrants will also continue to play an important role in alleviating labour supply bottlenecks. The attractiveness of Ireland for immigrants will be influenced by the overall price level (including house prices) and the quality of public services.
Macroeconomic risks are high. As one of the OECD’s more open economies, Ireland is particularly exposed to external risks. But it also faces domestic risks. House prices may have overshot fundamentals to some extent, although this does not imply that they will fall significantly; and house-building will eventually ease. A soft landing is the most likely scenario but a sharper fall cannot be ruled out. Hence, the government needs to leave plenty of breathing space by balancing the budget or running a surplus, curtailing tax breaks and pushing ahead with public management reforms to get better value for money from public expenditure.
Return to the Economic Survey of Ireland 2006
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For further information please contact the Ireland Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Dave Rae and Boris Cournède under the supervision of Peter Hoeller.