Sustaining Progress - Department of Taoiseach

Chapter 3 Sustaining Progress
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■ The Government is fully committed to making the necessary resources available to vigorously
pursue actions to ensure that everyone is tax compliant; and
■ The Government will be pressing for the maintenance of the current VAT regime in relation to labour
intensive services and construction in whatever common EU VAT system may emerge in the future.
3.4 Competitiveness and Inflation
Renewing competitiveness both within the domestic economy and on the international stage is
central to the overall macroeconomic policy of sustaining non-inflationary, economic growth and
high levels of employment.
3.4.1 Context
The increase in inflation, one of the key pressures on competitiveness during 2001 and 2002, was
increasingly attributable to sharply rising domestic costs and profit margins associated with very
tight labour market and strong demand conditions. Such conditions, combined with inadequate
competition and continuing restrictive practices, supported a bidding up of the prices of fixed factors
such as property prices and rents and provided opportunity for exceptional increases in some profitmargins
especially in some service sectors. Bringing inflation down as quickly as possible towards
levels comparable with our trading partners’ performance must be a top priority if jobs are to be
secured.
Exposure to the recent appreciation of the Euro against the Dollar and Sterling is much greater
in Ireland than in other Eurozone countries, given the pattern of trade. The exposure is greater
in some parts of the traded sector than others. This current economic reality and the absence of
a (post EMU) monetary exchange rate option bring to the fore the vital necessity of renewing
competitiveness domestically and on the international stage. The recent deterioration in some key
competitiveness dimensions must be quickly reversed to enable the economy to consolidate and build
on the economic and social gains of the past decade and be in a strong position to fully maximise its
share of the benefits from the global economic upturn when it comes.
3.4.2 Looking forward
Renewing competitiveness both domestically and internationally will require action under a broad
range of policies outlined in this Agreement and under the following broad policy headings:
■ a fiscal policy that contributes to stable non-inflationary growth;
■ a wage determination and incomes policy that keeps Irish output costs internationally
competitive and ensures that a wage price spiral does not become embedded in the economy;
■ a competition policy that supports the strengthening of competitive forces across the economy
and the removal of constraints on competition and market entry;
■ an infrastructural capacity and planning policy outcome through the effective implementation
of the NDP that sharply diminishes infrastructure deficits, which add to economic and social costs;