TAX increases heaped on workers during the recession, coupled with rising business costs, are weakening competitiveness and could threaten Ireland’s economic recovery, an independent watchdog has warned.
Rising wages and employee contributions, together with rising electricity bills for companies, may also have an impact and could hurt jobs and growth.
The independent National Competitiveness Council (NCC) said in a stark warning that Ireland’s cost competitiveness was deteriorating compared with other countries.
The recession has seen homeowners hit with tax hikes, including the unpopular Universal Social Charge, and changes to the tax bands to boost the State’s coffers. A rising tax burden meant workers may now push for wage hikes, the council said.
Separate figures showed yesterday that house prices in Dublin are now rising by €5,000 a month, and are up almost a quarter in the past 12 months.
Enterprise Minister Richard Bruton described the NCC data as a “major wake-up call”.
“Now is not the time for businesses to hike their prices, now is not the time for unions to make wage demands, and now is not the time for Government to take its foot off the pedal in making the structural reforms we need,” he said.
NCC chairman Don Thornhill said Ireland was at a pivotal point in terms of cost competitiveness and called for cuts to income tax in the Budget.
“If there is margin for offering tax relief in the Budget, it would be best in doing something to make the tax bands more favourable,” he told the Irish Independent.
But he warned resources were still tight. “This is an extremely contingent and constrained situation.
“The Government’s coffers are by no means full and overflowing and there is important budgetary work still to be done.”
The Coalition has been building up expectations of an income tax cut in October’s Budget 2015, with Taoiseach Enda Kenny saying it was a priority for the Government.
Finance Minister Micheal Noonan has said that the low threshold at which workers hit the higher rate of tax of 41pc was damaging to jobs.
The NCC’s latest report on the cost of doing business in Ireland finds that costs have improved in recent years, making Irish firms more competitive internationally. But it pointed out that gross earnings in Ireland were the eighth highest in the eurozone while net wages were sixth highest. Following a number of years of decline, labour costs are on the rise, up 2.4pc in 2012 and 0.5pc in 2013.
“The cumulative impact of increases in income taxes, changes to bands, the introduction of the Universal Social Charge etc have weakened competitiveness since the onset of the recession,” the report says.
“Reforms that reduce business costs and improve productivity need to become the new story of the Irish economy,” Dr Thornhill said.