Draft Briefing Material
Economic Challenges \ Policy Issues
Tab 1Macroeconomic policy
Tab 2Jobs \ Enterprise
Tab 3 Competitiveness
Tab 4Innovation
Tab 5Labour Market
Tab 6Europe 2020
Tab 7 Communications \ International Reputation
Tab 8Climate Change
Tab 9Housing
Tab 10 Central Statistics Office
1. Macroeconomic Policy
Summary
The macroeconomic challenges facing the economy as a result of the high fiscal deficit, rapidly increased level of debt, fall in output and entry into IMF\EU programme are well-known. Major challenges in the immediate period ahead include:
●EU-level negotiations in March in relation to reforms of EFSF\ESM and proposed Competitiveness Pact
●need to engage with IMF\EU in relation to changes proposed on foot of Programme for Government
●Text withheld undersection 31 - Economic and Financial Interests of the State
●meeting 2011 fiscal targets, which will pose major delivery challenges
●need to prepare for further adjustments over 2012-14 period, including possible comprehensive expenditure review
●introducing new budget advisory council (as per IMF\EU programme)
Priority Issues
The IMF\EUProgrammeand Budget 2010 are based on the following:
Growth projections are as follows:
2010* / 2011 / 2012 / 2013 / 2014GDP / 0.3 / 1.7 / 3.2 / 3.0 / 2.8
GNP / -2.0 / 1.0 / 2.6 / 2.4 / 2.4
* 2010 growth figures will be published by CSO on 24 March
Reduction in the General Government Deficit over the period to 2014 as follows:
2011 / 2012 / 2013 / 2014GGD (% of GDP) / -9.4 / -7.3 / -5.8 / -2.8
Adjustments are proposed as follows:
2012 / 2013 / 2014Total / €3.6bn / €3.1bn / €3.1bn
Tax / €1.5bn / €1.1bn / €1.1bn
Expenditure
- Current
- Capital / €2.1bn
- €1.7
- €0.4 / €2bn
- €1.6
- €0.4 / €2bn
- €1.6
- €0.4
There are however serious risks including:
●lower levels of growth (most independent forecasts, including Cion, have projected lower levels of growth)
●higher than projected costs from financial sector restructuring, including worsening mortgage arrears problems
●sustainability of public debt levels, of which it has not been possible to convince the markets
●further economic shocks, including Exchange rate movements
Immediate issues for attention include:
EU-level negotiations in March in relation to EFSF\ESM and proposed Competitiveness Pact: separate briefing will be provided on this fast-changing negotiations leading-up to the Summits on 11 and 24 March
Need to engage with IMF\EU in relation to changes proposed on foot of Programme for Government: will be necessary to agree on strategy for engagement with IMF\EU in relation to bilateral renegotiation; a review mission is due to visit Ireland in April;
Text withheld under section 31 - Economic and Financial Interests of the State
Meeting 2011 fiscal targets, which will pose major delivery challenges: delivery of 2011 expenditure targets will pose major challenges, particularly in terms of efficiency savings in the public service; tax returns will also be dependent on growth outcome; any slippage on expenditure side will require further discussions with IMF and possible corrective measures
Need to prepare for further adjustments over 2012-14 period, including expenditure review: a comprehensive expenditure review is an opportunity to reflect Programme for Government priorities in revised spending estimates for 2011-14, while providing certainty about expenditure for those years; however it is a major undertaking with many other concurrent pressures and will need to be structured carefully
Introducing new budget advisory council: this is a commitment in the IMF\EU programme (for delivery by end quarter 2) and will require legislation; related budget rule measures, including possible EU requirements, also require legislation
These issues are the responsibility of the Department of Finance, but the Economic policy Division provides briefing\speaking material as required, including on (i) significant statistical or economic releases\reports and (ii) weekly summary of economic news.
2.Jobs / Enterprise
Summary
Given the challenge of reducing unemployment from its current level of 13.5%, the priority is a coherent approach across Government Departments to creating and protecting jobs and supporting enterprise by ensuring that:
●commitments in the Programme for Government relating to enterprise and jobs are delivered
●existing enterprise and sectoral strategies (e.g. Trade Strategy, Food Harvest 2020, Innovation Taskforce, Green Enterprise Action Plan – see below), where consistent with the PfG, are implemented
●new and emerging challenges\opportunities are addressed by relevant Departments\Agencies
Priority Issues
A range of job creationand enterprise strategies which require implementation across Departments\Agencies:
●Trading and Investing in a Smart Economy: A Strategy and Action Plan for Irish Trade, Tourism and Investment to 2015: sets ambitious targets for trade, tourism and investment which have the potential to create 150,000 direct jobs to 2015, as well as assist the creation of a further 150,000 indirect jobs. A Foreign Trade Council has been established
●Food Harvest 2020:a strategy for agri-food, forestry and fisheries for the next decade. It contains recommendations to ensure the industry’s central contribution to export-led economic recovery. FH 2020 sets ambitious targets to be achieved by 2020, including increasing the value of primary output by 33% and raising the value of value-added and exports by around 40% from a 2007-2009 average baseline figure.
●Innovation Taskforce: which recommends actions to position Ireland as a Global Innovation Hub (see Tab 4 for more information)
●Green Enterprise Action Plan: identifying 55 recommendations to support ‘green jobs’ in areas such as enhancing the energy grid, water services investment, introducing electric cars, introducing regulations promoting biological waste recycling, supports for bioenergy and retrofitting of buildings.
●Ireland’s International Education Strategy 2010-15 “Investing in Global Relationships”has the objective of increasing international student numbers in higher education by 50% and in English language schools by 25% by 2015. It is estimated that by 2015 full implementation of the strategy will be worth €1.2bn per year to the economy (current estimated worth is €900m annually).
Other specific cross-departmental initiatives which require attention include:
●proposals emerging from the ‘Your Country, Your Call’ initiative for an International Content Services Centre and Ireland as a Cloud Computing Centre
●business plan to be submitted shortly for implementation of the ‘Green IFSC’ initiative
●an initiative with Google to help Irish SMEs develop an online presence
●extending the 15 day ‘prompt payment rule’ outside of central Government Departments
●developing Ireland as an International Construction Services Centre
Cabinet Committee on Economic Renewal and Jobs
The Division supports the Cabinet Committee on Economic Renewal and Jobs, chaired by the Taoiseach, which aims to ensure a co-ordinated cross-Government approach on these issues.
Most of the work at official level is carried out by a Senior Officials Group which brings together all relevant Departments and Forfás.
3. Competitiveness
Summary
While Ireland has regained competitiveness in the past two years, significant further improvements are required to support export-led growth.
A sustained, cross-departmental approach will therefore be required to ensure further improvements by:
●delivery of the competitiveness measures set out in the Programme for Government, National Recovery Plan and IMF\EU programme
●responding to recommendations and analysis from the National Competitiveness Council and other appropriate bodies
Priority Issues
The Irish economy experienced substantial losses in price and labour cost competitiveness during the past decade due to rising prices and production costs relative to our trading partners, an appreciation of the effective exchange rate and weaker productivity growth.
However since 2008, Ireland has regained some cost competitiveness.
The price level has fallen relative to our EU competitors: during 2009 and 2010 HICP inflation was -3.3% in Ireland, 5% below the euro zone average and over 6% below the average for the EU as a whole.
European Commission data show that, following a 0.6% decline in 2009, Irish unit labour costs areestimated to have contracted by a substantial 5.6% in 2010.Ireland is the only countryin the euro area in which unit labour costs are expected to fall over the period 2009 to 2012.
Specific measures to support further competitiveness improvements, included in the EU/IMF Programme of Support and the National Recovery Programme include:
●reduction in the National Minimum Wage by €1 an hour (effective from 1 February 2011) and an independent review of the REA and ERO arrangements which is due to report shortly
●a Legal Costs Bill to implement the recommendations of the Legal Costs Working Group, outstanding Competition Authority recommendations and establish an independent regulator fort eh profession; related measures to increase use of arbitration\mediation and increase use of tendering for legal services by the State
●a study is to be conducted on the economic impact of eliminating the cap on the size of retail premises
●Commission on Energy Regulation to impose rigorous efficiency targets on the ESB, Bord Gáis and Eirgrid
●competition in the professions to be overseen by an independent figure reporting regularly to Government; specific measures to be taken in medical and pharmacy profession under IMF\EU programme
●further ways to tackle increases in insurance costs to be identified, building on work of the PIAB
●target of achieving 25% reduction in regulatory burdens on business in 2011 (instead of 2012)
●proposals for legislation to be developed to overhaul and streamline the property valuation service
●the Working Group on Transparency in Commercial Rent Reviews prepared a voluntary rent review arbitration code. The Property Services Regulatory Authority is to develop a public database with details of letting arrangements and rent reviews in the commercial property market
●local authorities to improve efficiency and reduce, where possible, charges to business; full information on 2011 Annual Rates of Valuation (ARV) will be available in the near future – in 2010, 31 of 88 local authorities decreased their ARV, while the majority (55) kept the same rate as 2009.
The National Competitiveness Council (NCC) has expressed concern that price falls are a cyclical response to the Irish and international recession rather than a response to structural reform in the Irish economy.
The NCC produces annual reports (i) benchmarking Ireland’s international competitiveness performance (ii) recommending actions to reduce costs and improve productivity across all sectors. It is also currently working on reports on commercial property costs and the cost of professional and business services.
The Division is represented on the National Competitiveness Council and its recommendations, and other competitiveness issues are considered by the Senior Officials Group and Cabinet Committee on Economic Renewal and Jobs.
4. Innovation
Summary
Despite our ambitions in this area, and recent progess, Ireland remains an ‘innovation-follower’ ranked 9th out of 27 on the EU’s Innovation Socrecard.
The Innovation Taskforce set out recommendations to make Ireland a Global Innovation Hub including increased commercialisation of research, better access to IP, more focused R&D, funding and assistance for start-ups, better use of public procurement, and attracting overseas entrepreneurs and fast-growing companies to Ireland.
Significant momentum has been achieved– in particular through Innovation Fund Ireland, major MNC investments here and some high profile international coverage.
The key challenge is to ensure continued delivery of the recommendations and other initiatives, to sustain this momentum and perceptions.
Priority Issues
Investment under the Strategy for Science, Technology and Innovation (2006) has delivered significant results:
●Total Expenditure on Research and Development has risen from €972 million in 1998 to €2.68 billion in 2009
●Business Expenditure on R&D (BERD) rose to €1.7 billion in 2009 (from €900m in 2001)
●Higher Education R&D investment has almost quadrupled in current terms over 10 years and is now at the EU and OECD average levels
●In 2008 EI assisted 794 companies to perform R&D.
●EI commercialisation activity in 2009 facilitated:
- the creation of 35 spin out companies (up from 5 in 2005)
- 421 invention disclosures (up from 135 in 2005)
- 144 priority patent applications
- 95 licenses/options/assignments
●49% of IDA investments in 2009 were in RD&I with approx. €500m of investment. Currently there are about 170 IDA supported companies with a significant R&D mandate with a combined spend of approx €1.7 billion.
The Innovation Taskforce recommended how to increase the impact of this investment based on the concept of making Ireland a ‘Global Innovation Hub’. Recommendations which should be focus of efforts in short-term include:
●the IDA is developing a new Programme to attract fast-growing companies to locate their European Headquarters in Ireland;
●Enterprise Ireland is introducing enhanced seed and angel funding arrangements for innovative start-ups;
●an expert group will shortly finalise reforms of our Intellectual Property system, including development of a national protocol for ownership and access to State-supported IP;
●Enterprise Ireland is launching a campaign to attract overseas entrepreneurs to locate in Ireland;
●improved visa arrangements are to be considered by Department of Justice;
●an exercise is underway, chaired by Jim O'Hara (ex-Intel), to ensure that research funding is more targeted on strategic areas of national importance;
●industry experts on working on ideas for making Ireland an International Innovation Services Centre (IISC)
●a pilot Flagship procurement initiative in the Silvertech area is included in the National Recovery Plan.
In addition, Innovation Fund Ireland was established in July 2010 to incentivise top-tier international Venture Capital firms establish their European operations in Ireland.
The Fund has up to €250m available: €125m pool of Exchequer funds provided by the Exchequer and managed by EI, combined with the potential for the NPRF to make a similar level of commercial investments assuming its criteria are met.
So far NPRF have made 3 commercial investments under the Fund with leading international venture capital companies:
●DFJ Esprit has opened an international office in Dublin with a Dublin-based partner.
●DFJ (parent company) - which is based in Silicon Valley – has agreed to work with the IDA to help bring fast-growing venture backed companies to Ireland
●Polaris Venture Partners has chosen Dublin as the location for its first Dogpatch Labs business accelerator facility outside the United States. This is a coup for Ireland and should help bring people from across Europe to start their companies in Dublin.
In addition, Enterprise Ireland has received 32 responses to its call for expressions of interest which are currently being evaluated. Text withheld under section 20 - Deliberative Process, and section 21(1) Negotiation of Public Bodies
An Advisory Board (chaired by Damien Callaghan of Intel Capital) is in place to advise on the strategic direction, progress and performance of the Fund. It is assisting Enterprise Ireland with the branding and marketing of the Fund as part of wider Innovation agenda.
Secretariat to Innovation Fund Advisory Board (members participate pro bono) is provided by the Division.
5.Labour Market Issues
Context
The latest Live Register figures for February 2011 show a standardised unemployment rate of 13.5%,. The Department of Social Protection expect that if recent trends continue the Live Register could be lower on average in 2011 than it was in 2010.
The long-term unemployment rate was 6.5% compared with 3.2% in the third quarter of 2009 (140,400 people; QNHS figures). As of Q3 2010, long-term unemployment accounted for almost 47.0% of total unemployment compared with 25.5% a year earlier. Long-term unemployment constitutes a larger proportion of total unemployment among males than females (52.5% compared with 35.6%)
A key part of the challenge is to develop labour market activation policies to assist and to encourage jobseekers to return to the workforce. A wide range of measures are in place including guidance and placement services, education and training provision, supports for self-employment, employer incentives, additional employee tax credits and partial retention of secondary benefits, and work placement/internship programmes.
Key issues
1.Commitments under the EU/IMF Financial Support Package
The Memorandum of Understanding (MOU) agreed with the EU/IMF contains a number of commitments in relation to labour market activation.
The MOU outlines that progress on the Activation measures must be delivered on reported to the EU/IMF for the first quarter 2011. The MOU also states that any legislative measures must come into effect by May 2011. In addition, it should be noted that at each subsequent quarterly review the Government are to submit an assessment, including quantitative indicators, of the management of activation policies and the outcome of job seekers search activities and participation in labour market programmes.
2.Departmental Restructuring
Implementation of the Government decision in 2010 restructuring responsibility for labour market issues continues. Additional functions transferred to the Department of Social Protection are as follows:
●The Community Services programme and Rural Social Scheme previously managed by the Department of Community, Equality and Gaeltacht Affairs transferred on 1 September 2010
●The staff of the Community Welfare Service have now been seconded from 1 January 2011 to the Department from the HSE. It is intended to complete the transfer by end September 2011.
●From 1 January 2011 policy and funding responsibility for FÁS functions in relation to Employment and Community Services transferred to the Department. A Framework Agreement is in place to govern the provision of services by FÁS on behalf of the Department from 1st January 2011 until such time as operational responsibility is transferred to the Department.
●The next phase in the transfer of FÁS functions is to transfer the relevant staff and facilities from FÁS in order to allow the Department to take direct operational control of employment and community services. An inter-departmental Programme Board chaired by the Secretary General of the Department has been established for the purpose of implementing this transfer.
3.Revised National Employment Action Plan measures
At the core of policy is enhanced activation of social welfare recpients to keep people “close to the labour market” and therefore better positioned to take-up employment when it becomes available. This approach reflects best international practice and advice.
D/SP have progressed work in conjunction with Fás on specific measures to support the introduction of customer profiling, selection, referral and case management based on profile data for jobseeker customers.
From 19 October 2010, a group engagement process has been rolled out on a trial basis in 3 areas. Under this initiative, jobseekers are initially referred in groups to a single location, facilitated by a joint D/SP-Fás team. An evaluation of the group engagement process has been initiated and will inform the roll-out of the process.
A new case management system has been introduced by D/SP. This provides for the automatic scheduling and case management of appointments for D/SP Facilitators in dealing with jobseekers. A new IT system is now developed by the D/SP which will replace the existing National Employment Action Plan selection and referral system. This will include the facility to schedule individual or group appointments with Fás, Local Employment Services etc. This facility will be rolled out on an incremental basis to all Social Welfare Local Offices over 2011.