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1. For 2002, a decline in profits of Irish companies operating abroad was an additional factor.

2. Congestion, as measured by the weighted average of the time taken to travel fourteen radial routes and two major orbital routes around the Dublin city centre at peak times, has increased by nearly 25 per cent between 1999 and 2002. It is very likely that the congestion problem worsened a lot more than this if compared with the situation say in 1995, but no study was carried out prior to 1999. Alternatively, one can look at the comparison of actual speed with "free-flow speed". According to the Dublin transport office the average "free-flow speed" (where traffic is flowing freely) is 22 to 24 kilometres per hour. The data indicates that the majority of routes were well below this level even in 1999. The (simple) average in 1999 was 18 km/h and further deteriorated to 16 km/h in 2002. The congestion problem is likely to impact adversely on staff costs, the willingness of some of the labour force to travel into the city centre, and firms' motivation to set up business within the capital.

3. The volume of manufacturing output is being driven by a small number of sectors. Evidence from the Census of Industrial Production suggests that it is these modern sectors of the economy that dominate the manufacturing sector. Chemicals accounts for 35 per cent of net output, food products for 14.4 per cent, and optical and electrical equipment for 25 per cent of which 18 per cent is for ICT. Given the extent to which the chemical sector dominates output it is interesting to note that the sector accounts for just 9 per cent of employment. Annual growth in the chemicals sector consistently outperformed total manufacturing in the late 1990s. Provisional figures for 2002 show that the volume of output in the chemicals, chemical products and man-made fibres sector rose by 24 per cent compared with 8 per cent growth for total manufacturing. The narrow base of current buoyancy in industrial activity is mirrored in the export figures. The detailed breakdown of the value of exports by sector indicates that the main sector to show value growth was chemicals and related products.

4. The indigenous, more employment-intensive, industries with the greater exposure to non-euro area trade would be particularly vulnerable to sustained euro appreciation.

5. The budget assumptions behind the OECD forecasts are in line with the government's Stability Programme Update of December 2002.

6. One example of this is a company like Pfizer who moved to Ireland as a manufacturing plant but who have announced a move to put in a treasury arm into the Dublin IFSC given the demonstration effect of the success of other firms in the financial sector. Another example of existing clients moving up the value chain is Apple in Cork. It used to be a large scale manufacturing plant but is now the European Headquarters for Apple. It has the European (multi-lingual) customer relations centre and technical support, on-line electronic sales, and a range of important functions including Treasury, Order Management, Logistics, and Data Centre. The result is that today 70 per cent of Apple's Irish workforce are in high value services. All these functions have been integrated into one highly cost effective model adding value to Apple Inc. and increasing its embeddedness in Ireland.

7. Much of the recent literature on the effects of infrastructure on growth has focused on the estimation of the rate of return to infrastructure, which is inferred from the output elasticity of infrastructure. For Ireland only two published studies exist, with one finding an output elasticity with respect to infrastructure that is not statistically significantly different from zero, implying that infrastructure adds nothing to output, while the other finds unrealistically high output elasticities. Given the infrastructure gap that exists in Ireland the output elasticity with respect to infrastructure are likely to be higher than those found in other industrialised countries, probably lying in the range between 0.4 to 0.6.

8. The First-time buyers grant, 1r[pound sterling]3 000 ([euro] 3 809), was abolished. This loss was partially offset by an increase in mortgage interest tax relief for first-time buyers and the extension of the period for which the relief is available from 5 to 7 years.

9. The original act in 2000 limited the life of planning permissions for development purposes to 2 years. This has now been removed and restored to a five year period which will ensure that some planning permissions due to expire have been extended, reducing the imbalance between supply and demand. Furthermore, changes to Part V of the Planning and Development Act will introduce more flexibility into the provision of social and affordable housing, which should encourage the commencement of schemes by developers.

10. See Duffy et al. (2001).

11. This would correspond roughly to net immigration of 15 000-20 000 per annum over the coming seven years.

12. However, the nature and scale of the economy means that it would be prudent to maintain a significant safety margin to ensure that an unexpected sharp downturn in economic activity would not push the public finances beyond the deficit limits.

13. For an overview of public expenditure management issues in OECD countries, see Atkinson and Van den Noord (2001).

14. As noted in Chapter II, GNP might better reflects the tax base in Ireland because the presence of highly profitable foreign-owned multinational corporations tends to result in large profit repatriation out of the country (which is counted as GDP but not as GNP). In 2001, the level of GNP amounted to 84 per cent of GDP.

15. International comparisons using gross public social expenditure should be made with care. In most OECD countries including Ireland, public social expenditure is lower on a net (after tax) basis than on a gross (before tax) basis since governments tend to claw back more money through taxation of public transfer income than the value of the tax advantages awarded for social purposes. But the opposite is true for countries such as the United States and Korea. In 1997, net public social expenditure in Ireland was 17.1 per cent of GDP, whereas gross public social expenditure was 19.6 per cent of GDP (Adema, 2001).

16. Of the planned spending, EU transfers will provide about 11 per cent of resources but with a strongly diminishing contribution over the period of programme.

17. Under the terms of the National Pensions Reserve Fund Act, 2001, 1 per cent of GNP is paid annually into the National Pensions Reserve Fund for the pre-funding of the future cost of social welfare and public service pensions. The Fund's accumulating assets cannot be drawn upon before 2025.

18. The public expenditure guidelines set out in the last Government's Action Programme for the Millennium, published in 1997, were: net current spending growth would be limited to 4 per cent, calculated on an annual average basis; capital spending growth would be limited to 5 per cent on average up to 1999; and overall government spending would be reduced as a share of national output. The present Government elected in June 2002 has not committed to any explicit targets in the Agreed Programme for Government, but has stated that it will respect the commitment under the EU Stability and Growth Pact.

19. According to Honohan (1999) and Power (2002), the reasons for the revenue and expenditure overshooting included conservative budgeting and a propensity to spend any windfall tax receipts in the year in which they arise.

20. National Economic Social Council (2002).

21. It is incremental in the sense that budget was essentially the previous year plus a percentage increase, plus some additional funding for new initiatives.

22. These are projections of the costs of providing the existing levels of services and benefits and projections of revenue assuming no changes in the tax system.

23. Line departments/offices were no longer asked to prepare formal projections for 2003-2005. Instead, the Public Expenditure Division of the Department of Finance carried out an "in-house" exercise into the costs to departments of providing their existing levels of services for those years (2004-2005) according to stated technical guidelines in addition to the costs of contractual and legal commitments entered into by the departments. Consultations took place with Departments on these projections.

24. One exception is the funding in the public transport sector. The Minister for Finance made a five-year funding allocation for public transport in May 2001. It provides for real increases in the current subvention (5 per cent per annum) as well as annual increases of 10 per cent for public transport investment. No other sectors have received such long-term funding commitments.

25. For example, during the early stage of reform in the 1990s, Sweden found that expenditure reviews by the agencies produced universally positive assessments about every aspect of agency activities (OECD, 1997b). In Canada, the process of Programme Review introduced in 1994 helped in prioritising spending only when departments were given targets proposed by the Department of Finance and the Treasury Board Secretariat and approved by ministers. Each department and agency was given a target for expenditure reductions, ranging from 5-60 per cent to be implemented over the coming three years starting with the fiscal year 1995-96. Ministers were then asked to develop programme changes to meet the assigned targets. The process of Programme Review, together with major reforms introduced to the system of transfers to the provinces, is considered to have contributed to fiscal consolidation in Canada during the 1990s (Blondal, 2001).

26. This was aimed at identifying programmes or projects which no longer justify their cost because of changed circumstances, programmes which could be deferred or delivered over a longer time period, and new delivery or user-charging mechanisms which could improve the management and delivery of programmes.

27. PA Consulting Group (2002).

28. In relation to parliamentary committees, Ministers and Ministers of State would address issues relating to the determination of policy, while Secretaries would address issues relating to the production of outputs.

29. Under the Administrative Budget System, which was introduced in 1991, the Minister for Finance commits to providing an agreed level of administrative spending for a three-year period, while the Minister of the line Department agrees to keep expenditure within the specified limits but has flexibility in managing the expenditure.

30. As of 2002, one department had produced accrual accounts to auditable standard. The remaining departments and offices were at various stages of acquiring and implementing new financial management systems.

31. See Murray (2001) and Humphreys and Worth-Butler (1999).

32. According to one survey, 65 per cent of civil servants believe that under-performance is still left unchallenged with only 10 per cent believing that it has been challenged. Many senior managers argued that they did not have the tools to reward excellence, to improve performance where it is deficient, and to tackle non-performance. In relation to the latter, managers cited organisation culture and potential troubles with unions as being the main constraints which limit their scope for action (PA Consulting Group, 2002).

33. The company holds a 10 year commercial contract with the Department of Transport and is remunerated by way of test and re-test fees.

34. A private company, contracted to manage the new parking restrictions in the Dublin area, is paid an annual fee which is calculated on the basis of the number of hours worked and the number of vehicles on the roads. The proceeds from fines/fees imposed by the company in relation to illegal parking are retained by the Council.

35. These are levied for those patients who do not have a means-tested medical card that provides for free medical care.

36. There are water charges for business/commercial use but not for domestic use. Water charges for domestic use were abolished nationally in 1996.

37. A recent report found that 71 per cent of those in fee-paying secondary schools got into college, compared to 50 per cent in community schools and 38 per cent in vocational schools (Clancy, 2001). It was also found that school-leavers in some middleclass areas were 10 times more likely to go to college than poorer areas.

38. Furthermore, approximately 40 per cent of full-time university students receive maintenance grants. Under the existing system, a student qualifies for a grant if the family income is less than [euro] 21 629. Criticisms have been raised that the means test is defective in that it fails to take full account of ability to pay, particularly since it ignores the accumulated wealth of individuals.

39. 37 per cent of university students were exempt from the charge in 2002. Under current arrangements, few undergraduate students pay tuition fees, so the registration charge is the main third-level cost.

40. A number of Nordic countries operate government-backed student loans, and have one of the highest participation rates in third-level in Europe. The Australian Higher Education Contribution Scheme (HECS), which was first introduced in 1989, has also been considered a very successful case, accompanied by a substantial widening of access. Between 1987 and 1997 total enrolment in Australian universities increased by almost 50 per cent from 441 076 to 658 827; and the percentage of people in the 20-24 age cohort enrolled in a higher education programme increased from 30 per cent in 1987 to 50 per cent in 1997 (Vossensteyn and Canton, 2001). The primary objective of HECS was to allow the higher education sector to expand without a substantial growth in government funding. In particular, the HECS system was aimed at reintroducing private contributions without jeopardising accessibility to higher education for people from disadvantaged backgrounds. Under the system, students have to contribute approximately a quarter of the average costs of the training programme, either by paying up-front or by taking out a loan and defer repayment through the tax mechanism until after graduation. The experience of these countries suggests that successful implementation is conditional on robust, enforceable repayment arrangements.

41. In Ireland, these local authorities approximate to the general definition of "sub-national government" as used in other OECD countries. However, in Ireland the term "local government" often refers to a broader sub-national administration including such bodies as regional health boards and vocational education committees, which operate outside local authorities. For more details, see OECD (1997a).

42. Department of Environment (1996).

43. Other responsibilities include: management of grants to third-level students, recreation and amenities, and other miscellaneous services.

44. These local or regionally-based bodies operate separately from the local government system and usually have sector-specific executive roles. The main regional bodies include: Health Boards; Vocational Education Committees; County/City Enterprise Boards, and County/City Development Boards.

45. Furthermore, the absence of a local property tax on households has been seen as contributing to inefficient land use by reducing opportunity costs for landowners (OECD, 1999a).

46. In the past, local authorities had to adopt their Estimates without knowing what their funding for general purposes or for non-national roads would be for the following year. Local Government Fund provides guarantees on a legislative basis and Exchequer contributions to local government revenues that are to be increased at least in line with inflation and to take account of any changes in the powers, functions and duties of local authorities.

47. A series of functional, rather than structural, local government reforms have been launched since the early 1990s, which have aimed at creating a modern and efficient local government system. In particular, a document "Better Local Government--A Programme for Change", published in December 1996, put forward a programme for further action on local government reform, which is currently underway.

48. The Local Government Act 1997 established on a statutory basis the Value for Money (VFM) Unit in the Department of the Environment and Local Government, which has carried out VFM studies on local authority operations with a view to boosting efficiency and cost effectiveness. The Value for Money Unit has published twenty-one national studies to date and has circulated them to local authorities who have been asked to implement the recommendations contained therein.

49. These public bodies generally have specific executive or service functions within a particular sector. For example, a significant number of regional bodies operate in the health, tourism promotion and fisheries areas, and more than 100 other local government bodies function at the local level, many supported by EU programmes, and are concerned with rural development, micro enterprises and community development.

50. For example, in the area of employment support policy, the number of actors involved--i.e. FAS (national training and employment office), Department of Social and Family Affairs, local partnerships programmes, social welfare offices, etc.--has often been a problem as the communication channels between the institutions involved and the boundaries between them are not always well defined.

51. For example, Ireland has been developing a catchment based approach in a number of areas for the purpose of investment in wastewater treatment.

52. The present-day system of local government differs little structurally from the one established by the Local Government (Ireland) Act, 1898.

53. Other examples of service improvement include: substantial increases in the number of respite, day and long-stay places available for the physically and intellectually disabled and for the elderly; enhancement of home-based and out-reach mental health units; and development of regional cancer and cardiac services.

54. See Deloitte and Touche (2001).

55. As part of the broadening, the Department of Health and Children would increase the case-mix adjustment rate from 15 per cent to 20 per cent for in-patient cases and from 5 per cent to 7 per cent for day cases. From 2002 these rates would be increased progressively each year.

56. In addition to ten health boards, there is Eastern Regional Health Authority (ERHA). Under the Health (Eastern Regional Health Authority) Act 1999, the Eastern Health Board ceased to exist and the ERHA was established as the statutory body with responsibility to plan, arrange and oversee health and personal social services for the 1.5 million people who leave in three counties--Dublin, Wicklow and Kildare. The services of the ERHA are delivered by three Area Health Boards, the Northern, East Coast and South Western Area Health Boards and by 36 voluntary providers.

57. The establishment of the National Development Plan/Community Support Framework (NDP/CSF) Evaluation Unit, and previously individual Evaluation Units of Government Departments have provided an important structure for systematic, comprehensive evaluations in Ireland.

58. The Government hopes to finance about 5 per cent of the NDP by PPP. In NDP, provision is included for [euro] 2.2 billion of PPP funding including 1.2 billion [euro] for roads and [euro] 660 million for environmental projects.

59. PPP programmes are underway in a number of OECD countries including Finland, Germany, Italy, Korea, Mexico, the Netherlands, Portugal, and the United Kingdom.

60. See OECD (2001b).

61. See Figure 3 and Table 1.3 in Chapter I of OECD, Review of Regulatory Reform in Ireland, 2001.

62. Co-mingling allows cables of different service providers to be mingled in a same building, rather than requiring clear separation of cables by each supplier. Co-mingling thereby reduces costs for competitors to enter local markets.

63. Ireland is also cabled but a main provider lacks the money to enter into competition in the provision of fixed line telephone service.

64. There is of course the north of Ireland and there is an interconnector. But the poor privatisation in the north has resulted in very high generation costs. The cost-benefit analysis on an underwater connection with the UK market is still under way.

65. A VIPP is a company to resell electricity and does not involve any change in ownership or operational control of any generating assets. The instrument allows competitive bidding to the extent that it does not go beyond passing on a certain discount and there are no incentives to improve generating efficiency. VIPP contract holders can not spill any excess power to the real market, which could form the basis for an admittedly thin market for electricity.

66. To avoid the possibility of ESB frustrating nascent competition from VIPPs through its own VIPP, the ESB is forbidden from any cross subsidisation, exchange of information etc with its subsidiary.

67. As noted in 2001 Survey, the Government published in September 2000 a consultation paper which set out a number of reform proposals including the restructuring of CIE into a number of separate operating companies. The Government launched a further consultative document in April 2001 which proposed the establishment of a new strategic body for the Greater Dublin Area which would act as public transport regulator. In August 2002, a report by PricewaterhouseCoopers (PwC) provided a review of the financial and other implications of restructuring CIE.

68. The White Paper on Adult Education in 1995 set target to raise the figure of 2 per cent of new entrants to higher education over 26 years of age to 15 per cent by the year 2005.

69. This objective is a key indicator in the Community Support Framework 2000-2006 and one of the headline targets of the National Anti-poverty Strategy, the revised document published in February 2002 entitled "Ireland's National Action Plan on Poverty and Social Exclusion" (2002-2007).

70. As of 2000, only 35 per cent of the 55-64 population had completed at least an upper secondary education. This is significantly lower than the OECD average, which is 49 per cent (OECD, Education at Glance 2002).

71. The Skillnets is funded under the National Training Fund, which is financed by a levy on employers of 0.7 per cent of reckonable earning of employees, while the participating companies contribute an average of 32 per cent of the cost of training.

72. According to Callen and Keeney (2002), the replacement rates for a half of employees are 40 per cent or bellow and those for 80 per cent of employees are under 60 per cent. The introduction of minimum wage in 2000 contributed to further reduction in the replacement ratio especially for lower income group by increasing their existing wage levels. A national minimum wage equivalent to Ir pounds 4.4 was introduced in 2000 and was set to rise by the partnership agreement to 4.7 in July 2001 and to 5 in October 2002.

73. Callen and Keeney (2002) show a comparison of the 1998 and 2002 situations in terms of total marginal tax rate. By 2002, about 12 per cent of employees faced a zero marginal tax rate, and about two thirds below 30 per cent. They also estimate the impact of policy changes between 1998 and 2002 on the distribution of total marginal tax rates, measured against some alternative benchmarks. Compared with the scenario under which tax credits and tax bands are assumed to change in line with wage growth so as to keep the average tax rate constant, the actual policy changes enabled over 20 per cent of employees to see their marginal tax rates fall by more than 10 percentage points. Thanks to the widening of the standard rate band and the increased tax-free allowances, more than 160 000 individuals, who would have otherwise faced higher marginal tax rates, have stayed at the same tax bracket and 110 000 individuals have seen their marginal tax rate fall to zero.

74. Since it is only imposed on income above the exemption limit, the marginal relief generates a lower tax bill for low-income workers than the case where standard 20 per cent rate is imposed on all income above the personal allowance. The marginal relief is phased out at the level of income where the tax bill under the two regimes results in the same amount.

75. Community Employment scheme is targeted at those who remain unemployed for more than 12 months. Vulnerable groups such as people with disabilities, widows and lone parents are also eligible to participate on this scheme subject to the certain criteria with regard to age and unemployment duration.

76. During the period between 1998 and 2002, the number of long-term unemployed (unemployed for 12 months or more) fell from 63.5 thousand to 21.6 thousand, while that of the CE participants declined from 39.5 thousand to 25 thousand.

77. The pilot projects in Kilkenny and Ballyfermot involved referral by the DSCFA of all persons unemployed for more than 6 months to FAS, while the national referral was then limited to only those aged 25 to 34 years who were unemployed for 12 months or more. Between October 1999 and October 2000, Kilkenny experienced 37 per cent drop in unemployment, while that for national level fell only by 20 per cent. See FAS (2002), The Irish Labour Market Review 2002.

78. Breakdown of work permit data by nationalities shows that 57 per cent are from non-EEA Europe, 22 per cent from Asia, 8 per cent from Africa and 8 per cent from the North and South America (Ministry of Justice).

79. As of mid 2002, average weekly earnings are [euro] 510 in industry, [euro] 560 in distribution and services, and [euro] 700 in public employment.

80. The average accepted price for electricity from large wind farms was 4.75 eurocents per kilowatt hour. The average price for energy sold by independent producers to the electricity network (the so-called spill price) was 3.47 eurocents in the year to mid 2002.

81. Such a market-determined premium is similar in value to the Danish environmental tax rebate for wind power. The Danish system, however, makes allowance for the costs of maintaining backup power for wind facilities.

82. The pollution caused by these discharges depends on a number of factors such as the timing of the nutrient load, the extent to which the rivers flush the pollution to the sea and growing conditions.
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Publication:OECD Economic Surveys - Ireland
Geographic Code:4EUIR
Date:Jul 1, 2003
Previous Article:IV. Sustaining growth: the structural policy dimensions.
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