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Boosting competitiveness and raising living standards.

Living standards in Ireland will remain high, despite the severe contraction, but stronger structural policies would encourage sustainable long-run growth. Hard times can be a good time to make overdue reforms and these would also help improve competitiveness. Policies are already favourable to competition in many respects, but market forces are weak in the network industries and parts of the services sector. Prices could be lowered by measures to increase competition. The infrastructure has been upgraded but more investment is needed, although plans in the short term need to adjust in light of budgetary constraints, and the efficiency of infrastructure use could be improved. Ireland has benefitted from past improvements in education. While performance is good, there is scope to improve educational outcomes. Pre-primary education and in-work training should ultimately be increased. Innovation spending has increased rapidly but from a low base. Achieving environmentally sustainable growth is a major challenge and it will be difficult for Ireland to meet its commitments to reducing carbon emissions. While environmental policy has improved, there are significant weaknesses in management of waste.

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Living standards in Ireland measured by national income per capita in PPP terms will remain among the highest in Europe, even though the economic contraction is more severe than in other euro area countries. However, GNP per capita will have fallen substantially during the downturn. Ireland retains many economic advantages, including a relatively young population; a skilled workforce; and a flexible, internationally open economy. As a result, the Irish economy has the potential to expand somewhat faster than the euro area average once the crisis has passed, although at a much slower pace during the period of economic catch up in the late 1990s. However, there will remain a gap with the best performing OECD economies in terms of living standards and Ireland will be starting from a weaker initial position than reached at the most recent peak.

It is therefore important to take structural policy measures now to ensure that Ireland achieves strong and sustainable growth in living standards for the long term, despite the immediate pressures of restoring macroeconomic and financial stability. These issues have been extensively discussed in previous Surveys (OECD, 2006 and 2008) and the OECD's Going for Growth studies (OECD, 2009). Some of these issues are addressed in the government's framework for sustainable economic renewal, Building Ireland's Smart Economy, which sets out plans to support the enterprise sector, increase high-quality employment, secure energy supplies and improve the infrastructure (Department of the Taoiseach, 2008). The need for such measures is even clearer with the reversal of the credit cycle, taking with it unsustainable gains in economic performance and exposing a weaker underlying position than previously thought. As discussed in Chapter 1, it is inevitable that a number of policy settings will become less favourable to growth, particularly the higher taxes necessary to rebuilding the public finances. Improving other structural policy settings could help to offset this. In the near term, undertaking such reforms would contribute positively to the economic adjustment. In particular, policy measures that help to reduce costs would boost non-price competitiveness. Less restrictive policy settings would also assist in the reallocation of resources as the economy adjusts, including by lowering structural unemployment.

There has been some progress in many areas of structural policy, as outlined in this chapter and the annex. But, progress has often been extremely slow and piecemeal; significant scope remains to make policies more favourable to long-run growth. While it can be difficult to make reforms when the economy appears to be prospering, political economy suggests that hard economic times can be a good time to undertake necessary and over-due reforms because the need is more apparent and the bargaining power of some sectional interests may be constrained. The weak fiscal position, however, means that costly measures may have to be delayed until consolidation has progressed further or public resources are reallocated from lower priority activities. This chapter provides an overview of significant weaknesses that need to be addressed, in addition to those to boost labour market participation discussed in Chapter 3.

Competition is weak in some sectors

Competition is important to achieving an efficient allocation of resources, high productivity and keeping prices low, making it a key part of ensuring that the Irish economy is competitive. The regulatory environment for the business sector is fairly light-handed and competition friendly. However, while this was a clear advantage for Ireland relative to other OECD countries a decade ago, a faster pace of reform in the most regulated economies implies that Ireland is now close to the OECD average, despite some further liberalisation of Irish markets (Figure 4.1). It is relatively easy to establish a new business, administrative burdens are fairly light and it is easy for foreign firms to enter the Irish market. However, the burden of different licences and permits is relatively heavy, the government remains heavily involved with providing infrastructure, and barriers to entry in the network industries remain higher than the OECD norm (Wolfl et al., 2009). State ownership is more extensive than in some other OECD countries with government-owned firms having monopoly or strong positions in postal services, energy, health insurance, television and forestry. Such firms are likely to enjoy some competitive advantages, which is a barrier to full competition, and the efficiency and innovation it can bring. The sale of these firms after financial markets have recovered could also contribute to rebuilding the public finances. However, the most significant weakness in the regulation of product markets is in a numbered of sheltered sectors, discussed below, where competition is limited and consumer interests take second place.

[FIGURE 4.1. OMITTED]

Electricity and gas

Electricity prices in Ireland are very high in pre-tax terms by European standards (Figure 4.2). Although there is legal separation between network and generation activities, these remain integrated on an ownership basis in the hands of the Electricity Supply Board (ESB). In addition, on the basis of Grid Development plans put forward by the transmission company (EirGrid), the ESB remains responsible for maintenance and capital investment in the transmission network. This proximity may discourage new entrants to the generation market through their need to connect to the grid, and there is no clear advantage in maintaining integration of the generation and network functions. In addition, the ESB continues to have a strong position in the all-Ireland electricity generation market, even if it has been required to divest a substantial part of its production and is on target to reduce its share to 40%, as envisaged in its agreement with the regulator. The on-going upgrading of connection with the electricity grid in Northern Ireland and the construction of interconnectors across the Irish Sea will help to raise competition. In the retail market, the ESB also holds the licence to the distribution grid. While high voltage users rely heavily on independent suppliers and these providers are also active in the market to supply small and medium enterprises, the domestic retail market is almost entirely supplied by the ESB (Commission for Energy Regulation, 2008). However, Bord Gais Eireann and Airtricity both entered the domestic retail market in 2009 and appear to be making some inroads. Further efforts should be made to increase competition in the electricity market, rather than relying on regulation, by separating the ownership of different activities. The gas market has many of the same features and Bord Gais Eireann also owns the network. This should be reformed along the same lines as the electricity market.

[FIGURE 4.2. OMITTED]

Prices of consumer goods and services are relatively high in Ireland (Figure 4.3). While this is partly related to high labour and land costs, weak competition explains part of the high level of prices: detailed analysis of cost differences in retail operations in Ireland compared with the United Kingdom suggests that Irish costs are modestly higher, but by less than the difference in retail prices (FORFAS, 2008). Higher operating costs in Dublin only add 5-6% to the total cost of retail goods compared with Belfast, and stores in other cities in Ireland should be cheaper. A striking feature of this analysis is that such a wide range of goods and services used as inputs in the retail sector are more expensive in Ireland, including professional services and energy, which points to a wider weakness in the competitive pressures. The planning system is a major obstacle to new entry and greater competition in the retail sector (ICA, 2008). Caps on the overall size of retail premises prevent the entry of very large format retailers. Incumbents have the right to object to new developments and the new entrants are required to make an economic case for entry. Although there has been some entry in recent years by foreign retailers, this may have served only to dilute rather than eliminate high mark-ups. The planning system should be reformed to remove unnecessary obstacles to new entrants. In the licensed trade, competition between pubs should be enhanced by reforming the licensing system. In particular, the requirement that a new licence can only be granted if another is extinguished, which keeps the total number of pubs fixed, restrains new entrants and hinders competition.

[FIGURE 4.3. OMITTED]

Professional services

Competition in professional services is generally low, due to a number of restrictions to entry and price competition. As a result, professional fees are high. The Irish Competition Authority (ICA) has conducted a number of studies in this area, mostly recently for veterinary practitioners. Common difficulties that emerge are restrictions on advertising, price competition, and commercial companies providing these services. Although some restrictions on who can undertake certain activities are necessary, the rules can be excessively limiting. In addition, intake into some professions has been too low to meet the need, thereby increasing the market power of qualified professionals. Self-regulation in the legal profession hinders competition for legal services (ICA, 2006). Although barriers between solicitors and barristers have been lowered, there is no independent regulator for the legal profession, as is the case in some other countries, to ensure that regulation is run in the interest of clients rather than the profession.

Pharmacies and health professionals

Limited competition in the pharmacy sector leads to high margins, but the Pharmacy Act 2007 has introduced important reforms, including the abolition of the "three-year" rule that formerly restricted the entry of foreign-trained pharmacists. The number of places to study pharmacy in domestic institutions has increased substantially, and the overall number of pharmacies has grown. Wholesale and retail mark-ups are determined on the basis of contracts between individual pharmacists and the Health Service Executive (HSE), and have historically been excessive. New legislation in 2009 gave the Minister for Health and Children the power to set new terms for payments to health professionals, and the payments to community pharmacists for wholesale delivery and dispensing have been reduced. Consideration should be given to whether additional structural changes could help to ensure that fees are at an appropriate level in light of international best practice. The number of medical school places is also low, which contributes to high medical fees. Restrictions on the number of places to study medicine should be removed.

Competition law and practice

Ireland's competition law is distinctive in its emphasis on criminal rather than civil law to enforce the rules (OECD, 2006). The Irish Competition Authority (ICA) has no binding powers to sanction anti-competitive behaviour and must instead bring cases through the criminal courts. Although the basic legal framework is in line with other countries, criminal law standards of proof make it difficult to enforce the rules compared with other countries. There have been some successes, including the imposition of a limited number of prison sentences, but the number of cases remains small. In addition, the courts have often imposed relatively low fines. A higher probability of being sanctioned together with more severe punishments is essential as a credible economic deterrent to anti-competitive practices. Some progress has been made in both regards and the ICA has made efforts to increase judges' awareness of international best practice, but it may be useful to include clearer guidance on fines to the judiciary in the forthcoming review of the 2002 Competition Act. Furthermore, consideration should be given to whether an approach based on civil law would be more effective. The scope of competition law should not be narrowed as has been done with the exemption from its provisions of voice-over actors, freelance journalists and session musicians. Although these particular groups are small, there is no reason why their services should not be subject to the same competitive pressures as other products and services. Furthermore, allowing any exceptions risks creating a precedent and encouraging other professions to seek similar exemptions with more widespread consequences for the economy. Competition law is currently being reviewed. The proposal that government departments should be required formally to consider and respond to reports of the ICA is useful and would bring Irish practice into line with other countries. This should help to increase the impact of ICA research.

While there has been some progress in strengthening competition in recent years, overall progress has been slow (Table 4.1). The most significant changes are arguably the result of initiatives taken at the EU level rather than domestically. During the recent years of strong credit-driven growth, firms may have been able to charge high prices relatively easily and the negative impact on Ireland's competitiveness was masked by strong domestic and international demand. It is now very important to raise the level of competition through more effective policy actions.

The infrastructure has improved but further investment is required

Ireland began its period of economic catch up with poor infrastructure in many areas. Public investment accelerated as the economy expanded and has averaged around 4.7% of GNP since the start of the decade, among the highest rates in the OECD. While it is difficult to identify the exact impact of infrastructure spending on economic growth, econometric evidence from a wide range of different specifications points fairly robustly towards the conclusion that infrastructure investment can boost growth but that more is not always necessarily better because diminishing returns often set in (Egert et al., 2009). The returns to investment also depend on policy: how robust the decision making process is in choosing investment projects, the existence of competitive pressures and effective regulation in network industries (Sutherland et al., 2009).

Substantial progress has been in upgrading the physical infrastructure. The interurban motorway network linking Dublin with Waterford, Cork, Limerick and Galway and the Border/Belfast, is due to be completed by 2010. This network closes a substantial gap in Irish infrastructure. In the area of broadband, regulatory issues around access to local telecommunications network have been resolved and take-up of broadband services has recently increased at a fast pace. Excluding mobile broadband, penetration rates still lag behind the best performers, although there is substantial take up of mobile broadband services in Ireland. Environmental infrastructure, where substantial investment and progress has taken place, still has some ground to make up. While the physical infrastructure in general has improved at a fast pace, consideration should also be given to measures that would help ensure that this capital is used in an efficient way through pricing mechanisms (Table 4.2), including for roads through tolls and congestion charging.

High levels of capital investment emphasise the importance of a vigorous framework for appraising capital investment. A reinforced capital appraisal and value for money framework has been put in place, which should help to ensure that the impact of investment is optimal. The weaker economic circumstances will require both a reevaluation of projects in the light of changing needs and require even more robust selection of projects. In particular, priority should be given to those projects which promise the best contribution to economic recovery and which provide a high economic return and enhance national productivity and competitiveness

The budgetary situation places a constraint on the rate of public investment in coming years. As discussed in Chapter 2, government capital expenditure should be reduced in line with current plans. This will allow Ireland to keep making substantial improvements to its infrastructure without contributing to an excessive strain on the public finances. In the short run, infrastructure spending is likely to help to support construction demand. Lower construction tenders due to weak demand elsewhere in the economy imply better value for money can be obtained. Given the severe adjustment Ireland is undergoing, projects should be re-evaluated in light of possible changes in needs due to the new economic situation and evaluation should be extremely careful given the tight overall constraints on government resources (Figure 4.4). Finally, the Government should prioritise those projects which promise the best contribution to economic recovery and which provide a high economic return, enhance national productivity and boost competitiveness.

Education and skills are the key to long-run growth

Investment in a highly educated workforce is a key part of raising Ireland's living standards in the long run, with the rising level of educational attainment in the adult population an important factor in the increase in productivity since the mid-1990s. Given that real wages are high by international comparison and an ambitious strategy for long-term growth based on research and other skill-intensive activity, it is essential that the education system performs well. Overall, the education outcomes at secondary level are good relative to the OECD average but not as good as in the best performing countries. The proportion of the population aged 25 to 34 having reached at least upper secondary education is high but lower than in several countries (OECD, 2008b). OECD PISA scores suggest that Irish students at age 15 perform relatively well at reading, but the performance in mathematics and science is less impressive than in many other high-income countries (Figure 4.5). Measures discussed in Chapter 2 to increase public sector efficiency could also help to raise standards, including greater school autonomy.

Other features of the education system are also important for growth. Pre-school attendance in formal education remains low in Ireland by international standards, despite a considerable increase in the number of childcare places in recent years (Table 4.3). There has been a major effort to increase the number of qualified staff and only 12% of staff do not now have formal qualifications. The introduction of the pre-school Early Childhood and Education Scheme (ECCE) from 3 years and 3 months will help to address the need for more generalised early years' education, although the hours will remain relatively short. Much later in the educational cycle, the introduction of third-level tuition fees, discussed in Chapter 2, would give students more power to demand better performance from universities and increasing their own incentives to make the most of their studies. In-work participation in training appears to be relatively limited: enrolment rates for those aged over 30 are either at or below the OECD average with particularly low participation by older workers (OECD, 2008b). This is surprising given that Irish workers enter the labour market fairly young and that older workers may need additional training given their low initial levels of education. Raising the skills level of labour force is an important part of sustaining productivity growth. This should be taken into account in the re-evaluation of labour market programmes suggest in Chapter 3, both for using the current downturn to train workers and further ahead.

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Research and development (R&D) activity has increased

As Ireland has sought to move to higher value-added activities, a healthy base of R&D activities has become more important. There has been some success in attracting and building up more R&D activity, particularly in pharmaceuticals, life sciences, and software. The rate of increase of R&D spending has been among the highest in developed countries (FORFAS, 2009). However, the overall level relative to national income remains relatively low. Most R&D activity is undertaken by foreign firms, although there is some activity in indigenous firms, such as in the food sector.

Recent policy actions have sought to encourage higher volumes of R&D by increasing tax credits (Table 4.4). Improving financial incentives in this way can encourage additional innovation activity but these measures are not well targeted: although the credits apply to incremental R&D, the base year is 2003 so that the system is moving ever closer to giving credits for the volume of research. Since 2009, the tax treatment of carried interest has switched from being treated as income to being taxed as capital gain, lowering the tax rate. This is likely to be attractive to venture capital activities and may encourage additional innovation activity. The effectiveness of the system of tax credits for R&D and related issues should be reviewed. There are plans to invest up to 500 million [euro] through a new channel, Innovation Fund Ireland, linked to Enterprise Ireland for projects in R&D-intensive SMEs. This would support companies in the early stages of research and development. As argued in previous Surveys (OECD, 2008), improving the effectiveness of publicly-funded research by ensuring an efficient allocation of funding remains important.

Sustainable development and climate change

Achieving economic growth that is environmentally sustainable is a major challenge. Some aspects of this, such as climate change, are global issues where Ireland should play its part. Others, such as air and water quality, have a local impact on living standards. Since the mid-1990s, environmental performance has improved on a wide range of measures as the result of stricter standards and improved incentives, voluntary action, and changes in the structure of the economy. However, the sharp increase in economic activity over that period has added to underlying pressures on the environment.

Ireland has managed to achieve a substantial decoupling between the pace of GNP growth and increases in emissions of carbon dioxide (C[O.sub.2]), the main greenhouse gas. This has largely been achieved by improved performance from electricity generation, only partly offset by higher emissions from transport. Nevertheless, Ireland now needs to achieve very significant reductions in C[O.sub.2] outputs to achieve its Kyoto target under EU burden sharing arrangements. It is required to reduce emissions to 13% above the 1990 baseline over the period 2008-12, even though these emissions had risen by 2007 to stand 25% above the original baseline. The Carbon Fund, used to purchase additional credits under the Kyoto Protocols flexible mechanisms, will make some contribution to meeting the target, alongside the impact of existing measures and the growing importance of renewable energy. The government has a target of producing 40% of electricity using renewable energy sources by 2020, above European norms. The main challenge, however, is to address the rising C[O.sub.2] output from both freight and passenger transport. A number of measures have been introduced to curb the growth in road transport and increase its efficiency, including an overhaul of motor taxation which linked the rate of taxation to the level of emissions and provisions exist that could be used to extend this principle to the taxation of company cars. On-going improvements in public transport will also help but more is required to increase the alternatives to car travel and to counter the effect of urban sprawl. As discussed in Chapter 2, carbon emissions are largely controlled through the EU Trading Emissions System (ETS); transport and agriculture are the main sectors outside the scope of the ETS but road vehicles and fuel are already highly taxed, although taxes may need to be adjusted to be consistent with ETS prices. The ETS will be extended to aviation. The most important policy measure, rather than additional taxes in this area, would be to remove subsidies to domestic aviation and electricity generation from peat, and tax concessions on fuel oil.

The framework of environmental policy has been strengthened in other areas in recent years with better water and air quality, waste management and protection of the environment (OECD, forthcoming). Compliance with EU rules on waste water has improved substantially as the result of considerable investment, but further progress is needed to meet targets set for 2015. Despite improvements, around 30% of drink-quality water is lost in the Dublin area with much higher rates of leakage elsewhere. This is much worse than the norm in other developed countries (OECD, forthcoming). Water charges for domestic households are now essential to create an efficient water services sector. This would increase incentives to avoid leaks and improve sewage treatment. In addition, providing water services is the responsibility of 34 local authorities acting through 32 different bodies. This fragmented responsibility leads to inefficiency. Stricter rules, better enforcement and improved incentives through levies and schemes like volume-based collection charges have helped to improve waste management. But, the overall amount of waste has increased in line with the economy and per capita waste generation is among the highest in the OECD. The organisation and infrastructure for waste management and recycling should be improved in the context of the on-going comprehensive review of waste management policy.
Box 4.1. Summary of recommendations to promote sustainable
long-run growth

This summarises policy recommendations to promote sustainable
long-run growth, other than the labour market issues in Chapter 3.
The implementation of any recommendations that require additional
public expenditure must be carefully considered in the short run
given constraints on public finances. This chapter's main
recommendations are:

Competition

* Competition law should continue to be strengthened by increasing
sanctions. Consideration should be given to giving the judiciary
clearer guidance on appropriate fines and improving the court
process and to whether a framework based on civil law would be more
effective. The scope of competition law should not be narrowed
through the exclusion of certain sectors.

* In the electricity market, transfer the ownership of the
transmission network assets from the ESB to EirGrid. Continue to
integrate the electricity market with the United Kingdom.

* In the retail sector, remove planning restrictions that
discourage competition by lifting caps on the overall size of
retail premises, dropping the requirement for new stores to make an
economic case for their implantation and removing the right to
object of incumbent stores. The restriction on the number of pubs
should be removed.

* For pharmacies, consideration should be given to what additional
changes can be made to raise competition and lower margins in the
pharmacy sector. Restrictions on the number of medical school
places should be removed.

* In the legal profession, remove unnecessary restrictions. Speed
up the registration process for foreign professionals. Establish an
independent regulator for the legal profession.

* Reform the bus market by removing the restrictions on the bus
routes that can be operated by private firms more quickly, overhaul
the route licensing regime and appoint independent regulators to
cover the entire network.

Infrastructure

* Continue to upgrade the infrastructure for transport, energy, waste
and broadband internet by sustaining investment as fiscal conditions
allow. Cost-benefit analysis should be strengthened to ensure that
funds are well-used and projects reviewed rigorously in the light of
changing economic conditions.

* Extend user charges to improve the use of infrastructure services.
Charge households for the provision of water, and sewage collection
and treatment.

* Introduce a congestion charge in central Dublin.

Education

* Generalise pre-primary education from the age of three and expand
the duration of daily classes when resources permit.

* Introduce fees for third-level education to increase university
funding and to improve incentives. This should be accompanied with
the introduction of income-contingent loans.

Innovation

* Evaluate the cost effectiveness of the system of tax credits for
R&D.

* Continue to concentrate direct support for research and development
in fewer world-class centres of excellence. Improve co-ordination
between researchers and with industry.


Bibliography

Commission for Energy Regulation (2008), Electricity Retail Market Information Report, CER/08/090, June.

Department of Taoiseach (2008a), "Building Ireland's Smart Economy: A Framework for Sustainable Economic Renewal", December.

Department of Taoiseach (2008b), "Ireland--National Reform Programme 2008-2010", October.

Economic and Social Research Institute (2008), "Medium-Term Review 2008-2015", May 2008, Number 11.

Egert, B., T. Kozluk and D. Sutherland (2009), "Infrastructure and Growth: Empirical Evidence", OECD Economics Department Working Papers, No. 685.

FORFAS (2008), The Cost of Running Retail Operations in Ireland, December.

FORFAS (2009), 2008 Annual Report, December.

ICA (2006), Solicitors and Barristers--Final Report, Dublin.

ICA (2008), Grocery Monitor Report No. 3: The Retail Planning System as Applied to the Grocery Sector: 2001 to 2007, Dublin.

National Economic and Social Council (2008), "The Irish Economy in the Early 21st Century", June.

OECD (2006), OECD Economic Surveys: Ireland, OECD, Paris.

OECD (2008a), OECD Economic Surveys: Ireland, OECD, Paris.

OECD (2008b), Education at a Glance, OECD, Paris.

OECD (2009), Going for Growth, OECD, Paris.

OEGD (forthcoming), Environmental Performance Review: Ireland, OECD, Paris.

Sutherland, D. et al. (2009), "Infrastructure investment: links to growth and the role of public policies", OECDEconomics Department Working Papers, No. 686.

Wolfl, A et al. (2009), "Ten Years of Product Market Reform in OECD Countries--Insights from a Revised PMR Indicator", OECDEconomics Department Working Paper, No. 695.
Table 4.1. Progress in structural reform: Competition policy

Recommendations from previous        Action taken since the March 2006
Surveys                              Survey

Consider giving the Competition      No progress, but the Competition
Authority power to impose            Act 2002 is under review.
sanctions. Review the Authority's
staffing. Reduce the costs and
delays of court proceedings.

Revise the retail planning guide     No change but retail planning
to allow bigger stores.              guidelines are being reviewed.

For pharmacies, replace the 50%      50% retail mark-up reduced to
retail mark-up with a flat           20%, partly offset by an
dispensing fee, auction the right    increased dispensing fee.
to run a pharmacy and abolish the
"three year" rule for pharmacists    No auctioning of pharmacy
who were not trained in Ireland.     licences.

                                     The three-year rule was abolished
                                     at the end of 2008.

Remove the ceiling on the number     A Bill to reform the licensing
of pub licenses.                     regime will be published in 2009.

Remove unnecessary restrictions      There have been some minor
in the legal profession including    reforms regarding barristers but
abolishing the monopoly on legal     other competition restrictions
training. Speed up the               remain in place. The government
registration process for foreign     has not responded to the
professionals.                       Competition Authority's
                                     recommendation for an independent
                                     regulator.

Integrate the electricity market     The All-Ireland electricity
with Northern Ireland and the        market is now in place and work
rest of the United Kingdom. Split    is on-going to build a second
up ESB by separating the             North-South and an East-West
transmission grid from the           electricity interconnector.
generation capacity. Consider
splitting generation into            The transfer of transmission
competing firms.                     assets to EirGrid from the ESB is
                                     ongoing.

                                     ESB has sold some of its
                                     generation assets to Endesa and
                                     its All-Ireland market share is
                                     now 35% with some addition
                                     through its independent trading
                                     arm.

Liberalise the bus market.           Legislation is in place to
Appoint an independent regulator     facilitate the appointment of an
and remove restrictions on the       independent regulator for the
number of bus routes that can be     Greater Dublin Area, but this
operated by private firms.           also gives the incumbent a 5-year
                                     guarantee that its routes will
                                     not be subject to open tender.

                                     Further legislation is promised
                                     to overhaul the outdated route
                                     licensing regime.

                                     The European Commission is
                                     investigating whether state aid
                                     to bus companies is legal.

Reduce state ownership.              No progress.

Table 4.2. Progress in structural reform: Upgrading infrastructure

Recommendations from previous        Action taken since the April 2008
Surveys                              Survey

Upgrade the infrastructure for       Public investment has been
transport, energy, waste and         reduced substantially but remains
broadband Internet. This requires    at a reasonable rate.
substantial investment, as well
as measures to ensure that
investment gives the highest
returns. Improve infrastructure
planning:

* Introduce a "silence is consent"   No progress.
  rule to increase the incentive for
  planning board to comply with its
  statutory deadlines.

Strengthen cost-benefit analysis     A substantial capital appraisal
for major investment projects.       framework is in place. CBA is a
                                     requirement for all major
                                     investment projects over 30
                                     million [euro].

Allow for better use of
infrastructure services through
appropriate user charges:

* Charge the full cost of providing  Households continue to receive
  drinking water and collecting      free water and sewerage
  and treating sewage.               collection, although meters for
                                     most non-domestic users have been
                                     in place since 2007.

* Introduce a congestion charge in   No progress.
  central Dublin when public
  transport alternatives improve.

Table 4.3. Progress in structural reform: Education

Recommendations from previous        Action taken since the April 2008
Surveys                              Survey

Invest in pre-primary schooling      The Early Childcare Supplement is
by generalising pre-primary          being abolished and will be
education from the age of three,     replaced by a pre-school Early
avoiding infant classes of more      Childhood and Education Scheme
than 30 children, and expanding      (ECCE) for those aged 3-4.
the duration of daily classes.
                                     With effect from September 2009,
                                     one teacher will be allocated for
                                     every 28 pupils at primary level.

Ensure that resources for special    The system remains that, in high
needs learning is well targeted      incidence areas, resources are
at students who need help.           allocated based on enrolment.

Increase resources for               No progress.
universities and improve
incentives by levying fees that
students repay from their
subsequent earnings. Public
funding should be not be reduced
as fees are introduced.

Table 4.4. Progress in structural reform: Research and innovation

Recommendations from previous        Action taken since the April 2008
Surveys                              Survey

Improve economy-wide framework       No progress.
conditions as they are the most
important determinant of R&D.

Consider rebalancing the science     The tax credit for incremental
budget by making more use of         research and development (R&D)
market-led measures and scaling      expenditure has been raised from
back direct grants. Evaluate the     20% to 25% with new options to
new tax incentive and channel        offset credits against past
more assistance through it if        corporation taxes or received
successful.                          cash where credits are exhausted.
                                     2003 has been made a permanent
                                     base year for calculating
                                     incremental expenditure so that
                                     the scheme will become
                                     essentially volume-based over
                                     time. Conditions for including
                                     spending on buildings have been
                                     relaxed.

Consider where public funding is     A new Strategy on Higher
too thinly spread and whether        Education in Ireland will be
resources should be focussed on      finalised by the end of 2009.
world-class centres of
excellence.

ANNEX 4.A1
Progress in structural reform

This annex reviews actions taken on recommendations from previous
Surveys, other than those covered in the main text of this chapter.

Recommendations from previous       Action taken since the April 2008
Surveys                             Survey

HOUSING POLICY

Phase out the bias in the tax       Mortgage interest tax relief has
system towards home ownership       been eliminated after the first
either by reducing mortgage         seven years of a mortgage but
interest tax relief or              increased for the first 5 years.
introducing a property or capital   Interest relief will be kept
gains tax on owner-occupied         under review with a view to
housing. Reduce the tax incentive   eventual abolition over
for speculative investment on       successive budgets.
properties.

Introduce a property tax to fund    A 200 [euro] local authority
local infrastructure and            charge on non-principal private
services, broadening the tax base   residences was introduced in
and redistributing some of the      Budget 2009. The future financing
windfall gains to those living      of local government is being
close to public infrastructure      considered by the Commission on
projects.                           Taxation.

Social housing policy should        The Social Housing Investment
become more tenure-neutral by       Programme is being restructured,
less reliant on direct provision    including using long-term lease
of publicly-owned housing and       arrangements to provide social
providing more assistance through   housing at least 2 000 additional
alternative methods such as the     homes. Combined with additional
Rental Accommodation Scheme         provision through the Rental
(RAS).                              Accommodation Scheme, leasing
                                    will account for approximately
                                    50% of all social housing
                                    completions this year.

FINANCIAL STABILITY

Enhance transparency further by     A further survey was carried out
regularly surveying off-balance     in mid-2008.
sheet exposures of banks.

Improve stress testing further.     A complete review of the
                                    methodologies of such exercises
                                    will be undertaken in the light
                                    of recent financial developments.

Consider the efficacy of            The ceiling on the deposit
Ireland's deposit guarantee         guarantee scheme has been raised
arrangements.                       to 100 000 [euro] and all retail
                                    deposits are guaranteed until
                                    September 2009. Coinsurance has
                                    been eliminated. Pay outs should
                                    now be made within 20 working
                                    days.

PENSIONS

Use the opportunity provided by     After consultation process, a
the Green Paper on Pensions to      report on the Green Paper issues
undertake a major reform package.   has been published.
This would include setting
long-term objectives for the
state pension, linking the
standard retirement age to
longevity, and replacing in-kind
allowances with an equivalent
cash increase to pensions.

Encourage workers to stay longer    A long-term tramework for
in the labour force by offering     pensions is under consideration
an actuarial-equivalent to the      by the government shortly.
state pension for deferred
retirement, considering a tighter
link between the pension and
years of contributions, and
further limit means-testing for
the non-contributory pension.

Modernise public-sector pensions    A public service pension-related
by reconsidering the basis for      deduction was introduced in March
up-rating pensions in payment,      2009, although the system remains
phasing in the minimum retirement   largely pay-as-you-go.
age of 65 more rapidly and
ensuring that arrangements evolve
in line with changing needs and
practices in other sectors.

Make Personal Retirement Savings    No progress.
Account (PRSA) membership "opt
out" for those without
occupational cover and income
above a threshold where the state
pension offers a high replacement
rate.

Replace tax breaks for pension      The earnings limit far tax-
contributions with a system of      relievable contributions has been
(capped) matching contributions.    reduced to 150 000 [euro] from
Tax breaks for households aged      275 239 [euro] and indexed.
over 65 should be reduced as part
of a wider package.

Consider changing the funding       The Pensions Board will allow
standard for defined-benefit (DB)   longer periods for recovery plans
pensions schemes to a continuing    (greater than ten years) in
basis.                              appropriate circumstances to deal
                                    with current investment losses.
                                    This will be reviewed by early
                                    2011. Greater flexibility has
                                    been introduced to restructuring
                                    scheme benefits.

Reconsider the requirement to       In December 2008, a temporary
purchase annuities with             option was introduced for members
retirement savings by allowing      of Defined Contribution
access under all schemes to         occupational pension schemes to
Approved Retirement Funds (ARFs)    defer the purchase of a
or similar instruments.             retirement annuity until end-
                                    2010.

Increase the flexibility to work    No progress.
past 65 in occupational pensions
and change tax rules to allow
people to continue to work for
the same employer.

MIGRATION

Provide increased support for       For adults, there is now a range
adult migrant language training     of provision. Over 49 000
and consider the level of           participants undertook adult
provision for children of all       literacy tuition in 2008 through
ages, including pre-school          Vocational Educational
children.                           Committees, for which 12 500
                                    studies English for Speakers of
                                    Other Language (ESOL).

                                    For children, there are aver 1
                                    500 English as an Additional
                                    Language (EAL) teachers in
                                    primary and post-primary.

Accelerate work on the              The availability of services in
recognition of foreign              this area has been publicised to
qualifications and introduce an     migrant groups. Country Education
on-the-job skill assessment         Profiles have continued to be
programme.                          developed to give "rapid
                                    response" turnaround of
                                    applications.

Introduce a permanent migration     Enhancements in the visa system
channel and create flexible         have been to make the system more
visas. Ensure that policy is        user-friendly.
administered flexibly and is not
excessively burdensome.

Collect better statistics on        The Irish Naturalisation and
immigrants and fund research into   Immigration Service has increased
migrant experiences.                resources in this area.

FISCAL POLICY

Public spending growth should       With a sharp and unanticipated
slow to reflect lower revenue       fall in revenue, the necessary
growth with upgrading               budgetary measures have been
infrastructure given priority       taken to raise revenue and
over current expenditure.           constrain expenditure (this
                                    appears to say that enough has
                                    been done). It is appropriate to
                                    have reduced capital spending,
                                    although maintaining it at a
                                    substantial level.

Further steps should be taken to    The Commission on Taxation has
reconsider the large number of      examined these issues. Some tax
tax expenditures and those that     expenditures have been reduced or
are shown to be inefficient         eliminated.
should be eliminated.

Expensive commitments on            Public-sector pay growth was
public-sector pay should be         constrained by the October 2008
avoided. The link between higher    national pay deal. This has since
pay and improved performance        been superseded by a wage freeze.
should be more explicit and         The Pension Levy reduces
transparent.                        public-sector take-home pay
                                    further. A moratorium on
                                    recruitment and promotions was
                                    introduced and an examination of
                                    the remuneration of higher level
                                    posts in the public service is
                                    currently being undertaken.

A transparent, top-down budgeting   Multi-annual plans are included
process should be adopted,          in the budgetary projections
building on the potential of the    giving the paths for taxation,
United Budget, with multi-annual    current expenditure and capital
budgeting for current as well as    investment to 2011.
capital expenditure. A balance
sheet should be produced for the
government.

Public sector management should     The OECD Review of the Irish
be improved by improving the        Public Service, Towards an
flexibility of human resources      Integrated Public Service, was
management; moving further from     published in April 2008. A Task
input control to output             Force on the Public Service was
management, including               set up and published a report on
strengthening the output            Transforming Public Services,
statement framework and the         along with a major Government
Management Information Framework    statement. A Special Group on
(MIF); and using analysis more      Public Service Numbers and
systematically for                  Expenditure Programmes has
decision-making, by for example     reported, a new National Public
using the Value for Money           Procurement Operations Unit has
Initiative more thoroughly in       been created and a new round of
setting budgets.                    value-for money and policy
                                    reviews is underway.

FEMALE PARTICIPATION

Encourage more out-of-school-       Schools are encouraged to
hours care where school             participate in after-school
facilities are suitable.            provision and significant
                                    progress has been made. The
                                    target of creating an additional
                                    5 000 places will be met.

Implement plans to increase the     Progress is on-going.
supply of training places for
childminders.

Gradually introduce a link          The Early Childcare Supplement is
between childcare support, such     being abolished and will be
as the Early Childcare              replaced by a pre-school Early
Supplement, and employment status   Childhood and Education Scheme
or the use of formal childcare.     (ECCE) for those aged 3-4.

Phase out the Home Carer's Tax      No progress.
Credit.

Prioritise access to community      Community childcare services are
childcare to working parents,       supported through the Community
especially lone parents.            Childcare Subvention Scheme
                                    (CCSS) to enable them to charge
                                    reduced childcare fees to
                                    disadvantaged and low income
                                    working parents, in particular
                                    lone parents. In 2009, up to 58
                                    million is expected to be spent
                                    on these supports.

Continue reducing average and       The Commission on Taxation is
marginal effective tax rates on     examining the overall design of
second earners. Consider moving     the tax system. Taxes on income
to individual taxation.             in general have increased,
                                    although this has been required
                                    by the deterioration in the
                                    fiscal position.

Introduce fines for employers       No progress.
found in breach of Equal Pay
laws.
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Title Annotation:Chapter 4
Publication:OECD Economic Surveys - Ireland
Date:Nov 1, 2009
Words:7181
Previous Article:The labour market: getting people into work.

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