NCC report on costs of doing business in Ireland Post author By Aidan Kane Post date June 23, 2011 The National Competitiveness Council has just published the Costs of Doing Business in Ireland Report 2011. You can download it from here. Categories In Prices, Regulation Tags competitiveness, costs 13 Comments on NCC report on costs of doing business in Ireland ← New Public Expenditure Databank → Costs of Doing Business in Ireland 2011 13 replies on “NCC report on costs of doing business in Ireland” “A broadly based and equitable valuation based residential property tax should be introduced as quickly as possible.” Not being an economist….. can someone please explain to me how introducing a residential property tax, paid by private individuals, contributes to lowering the cost of doing business in Ireland. M’learned friends come in for a bit of sniping. Despite this being such an important topic, it is rare that commentators on the competitiveness of Ireland go further than looking at the CPI/HICP (a measure of consumer prices, rashers etc!) and exchange rates, and actually delve into real measures of business cost. The NCC have consistently done this over a number of years, and have gone forward and called for policy changes to correct the deficiencies they identify. In particular, the NCC have taken the time to measure input weights as well as prices, to give us the nearest we have to a ‘BPI’ a ‘Business Price Index’. While the NCC are better known for their Annual Competitiveness Report and related publications, I think this publication is their most important and most valuable. It contains a lot of comforting information (particularly that the notion that wage costs in Ireland are hugely out of line is a nonsense) but also some valuable advice, e.g. around the regulation of many local services. It’s cheaper than the cost of doing business in Bulgaria in 2007 ! http://www.irishtimes.com/newspaper/frontpage/2011/0623/1224299456972.html Joseph, maybe it works by transfer. Ordinary people pay more tax thus the governement/local authorities can reduce what is paid by business. Or maybe it’s all just pixie dust blowing in the wind of Great and Wonderful excuses:-) Agreed that the reports are excellent, but what are the chances that much of what the NCC has suggested will be implemented? Also, one of the series of recommendations is in the area of reforming the legal sector. It specifically mentions this as a requirement of the bailout package. Are the Government compelled to honour this? Finally, what is the cross-over between the report and agreements such as the Croke Park agreement. Are they mutually supporting or poles apart? An interesting report with some useful sounding recommendations – though I’m not sure what a private residence property tax does for competitiveness. I thought the property tax was coming in to lower the deficit, not to be handed to business to help lower their costs. I recall another useful report with interesting recommendations not so long ago (An Bord Snip). I hope they don’t end up gathering dust together…. or suffering from extremely selective implementation of their recommendations. …and don’t even get me started about lawyers and their fees. How much for photocopying??!! @ Joseph We already have a commercial property tax which has a direct affect on the cost of doing business in EI. A residential property tax would allow the Gov’t to lower the business tax rate from 12.5 to 12% or reduce the income tax rate from 30 to 28.5%. Residential property taxes are commonly in the range of 7% to 10% of family earned income. You can see how it could be sold as a means to reduce earned income tax and business tax. In reality the Gov’t is facing a very significant increase in the annual interest on Gov’t debt. There is no free lunch which means residential taxes are necessary to slow our descent into insolvency. I am hearing that up to 80% of youngsters looking for summer jobs or full time jobs are migrating offshore. If this is true then a declining population will be carrying the interest cost burden in the near term. @Aidan My sincere apologies for going off topic but under the circumstances I am sure you will forgive me.(Although it may help people to appreciate that the stability and democracy in Ireland also carries a premium cost which IMHO has to be factored in when investors decide where to invest) I have just read an excellent article by Gary O`Callaghan in todayś Independent Newspaper dealing with the reality behind the bluff and bluster, emanating from certain Euro Zone states, in response to the Greek crisis. After reading Gary O`Callaghans article in addition to comments by Greek politicians I reckon it will be a reasonable to speculate that Greece will not adopt the austerity measures on July 3rd. I also think Ireland would do well to realise that we should not get too worked up by Euro Zone incoherence and indeciciveness but keep in mind that we need to have a “fall back plan” in case MV Euro keels over. If we have a “fall back plan” we should not be too shy about letting this be known. IMHO Ireland will probably be one of the safest and profitable destinations for FDI over the next few years especally if we can get our “artificial” costs (i.e public sector pay and counter-productive business levies) under control and introduce a 10% corporation tax. Most of us do not speak French too well any way so a few Gallic roars prior to Mr Sarkozys departure next May will not resonate too deeply. Charles Hugh Smith a novelist and economic commentator comments on spending as a means of getting out of debt. He seems to be unfettered by a business or economics education but he does have a following of over 200,000 on his AOL Finance Blog. http://www.oftwominds.com/blogjune11/growth-fantasy6-11.html Most of this stuff is a Joke when you realise that the makeup of the authors (council) and advisers is practically overwhelmingly from the Civil/Public Service Sector. The biggest cost to business in this country is the State Bureaucracy with their Regulatory this that and other. When these people are subjected to real outside scrutiny and not other Civil Servants from the OECD,Finland etc etc we might begin to realise how big the monkey is on the backs of those in business. The real comparative cost for these people is the comparative cost of bureaucracy in similar size countries in Europe. We have three Teachers “running” the country who could not have a bulls notion what it is like to be in business at the present time. For the record anecdotally in most businesses here operating costs/revenues are down 20 – 50% since 2007. I have a word for these Reports but it is not printable here !!!! @Mickey Hickey You said: “A residential property tax would allow the Gov’t to lower the business tax rate from 12.5 to 12% or reduce the income tax rate from 30 to 28.5%. ” The earlier point I was trying to make was that I thought the additional revenue from the property tax was earmarked to reduce the deficit not to reduce CT for business or to lower income tax for individuals? I (and I’m pretty sure a large number of other people) would be pretty hacked off if you took money from me for property tax and promptly dished it out to a number of banks, MNC’s, etc. to reduce their CT bill ! I was filtering the idea through the minds of our honourable representatives in Dail Eireann. I am a firm subscriber to the candy shop on Kildare Street scenario where the boys and girls have to hand out the goodies. From now on, out of necessity they are reduced to giving out the odd token. A 0.5% point cut in CT and a couple of points cut in earned income tax will help the much larger medicine go down painlessly. I also had in mind Jimmy Deenihan handing out grants to refurbish farm buildings built before 1960 which was announced a few weeks ago. Remember this is Ireland where thought processes can be quite convoluted. Care has to be taken that the public do not look on residential property taxes as an extension of the bank bailout, NAMA and so on. I posted this in the other duplicate thread, so I may as well post it here too. This indicator illustrates the growth in capital values between 1990 and 2009. Commercial property prices increased rapidly between 1993 and 1999. There was then a lull before prices exploded again from 2002, going up by more than 60 percent to 2006. The fall in prices has been as dramatic, with all the gains from 1999 having been wiped out over the last three years. Source: Society of Chartered Surveyors / IPD Irish Property Index, Central Bank of Ireland Wow. I’m not used to such a candid admission of property price collapse from an Irish Institution, info sourced by the Society of Charted Surveyors no less. It appears that the country is finally beginning to admit to itself that the boom is gone and it’s not coming back. The NCC recommends, therefore, that the feasibility of introducing legislation to facilitate downward rent adjustments for existing leaseholders be explored further. Was there ever any doubt. Role of NAMA … NAMA is likely to be the primary source of working capital for developers for a number of years given the condition of the banks. “You hear the rumble of distant thunder.” Ireland has the 2nd slowest download speed (30 Mb/s) and slowest upload speed (3 Mb/s) amongst the countries benchmarked. The fastest package in Ireland costs €706 (excluding VAT) per annum. Significantly faster speeds are available for less than this in many of the countries benchmarked. Another roaring success of the Eircom privatisation? Accountancy costs fell from Q1 2008 and by Q4 2009, they were 6.8 percent below 2006 price levels; conversely, the cost of legal services has not responded significantly to the recession, and in Q2 2009, legal costs were 19.9 percent above the average 2006 price level. Figures. All the legal eagles a) enjoy a healthy monopoly, and b) are all flat broke from failed property deals. To be fair, they’re in a bit more demand what with all the paperwork from NAMA and foreclosure litigation. Still, a 20% increases seems a little excessive. This is the industry by the way, which is supposed to be thrown open to competition under the IMF/EU agreement. Staying on that topic As a major consumer the Government has a certain amount of market power which it should utilise to ensure that the cost of legal services to the state is minimised … The impact of the State on the cost of legal services can be assumed to impact upon legal costs throughout the entire economy. …. Further, the Committee has found that the State has been reluctant to challenge the legal profession in relation to cost “From the exorbitant figures charged and paid to members of the legal professions by the State Claims Agency, HSE, local authorities and public bodies, at the Tribunals and Commissions of Inquiry, during the bank stabilisation process and the provisions being made in NAMA for legal costs, it seems the legal profession is treated very much with a kid-glove approach on the part of the State”. (This report certainly does have a few choice quotes!) The fact that many Dail deputies are lawyers probably does not help this situation, particularly as they will return to their legal practicies upon losing their seats. (Micheal McDowell anyone?). Once again. I personally doubt that the government will tackle the legal profession in any serious way, despite the clear need to do so. Some other observations: Limerick City has the largest commercial rates in the country, despite being the weakest performer economically. Figures. Residential property construction volume is now only 10% of what it was in 2005. All construction is down to about 30% of 2005 levels. The Dublin office space Vacancy graph is quite the most curious graph I have yet seen in relation to the Irish boom. Also, the current vacancy rate is 25%. Comments are closed.