OECD Economic Surveys : Ireland - Volume 2003 Issue 9.

130 Pages·2003·0.87 MB·English

by  OECD

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ECONOMICS
Ireland V OECD
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Special Feature: Public Expenditure Reform e

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Economic Surveys Non-Member Economies 3
Australia, March 2003 Baltic States, February 2000 /9 Ireland

Austria, December 2001 Brazil, June 2001
Belgium, February 2003 Bulgaria, April 1999
Canada, September 2001 Romania, October 2002
Czech Republic, April 2003 Russian Federation, February 2002
Denmark, July 2003 Slovenia, May 1997
Euro area, September 2002 Federal Republic of Yougoslavia,
Finland, March 2003 January 2003
France, July 2003
Germany, January 2003
Greece, July 2002
Hungary, June 2002
Iceland, April 2003
Ireland, July 2003
Italy, February 2002 O
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Korea, March 2003 D

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ISSN 0376-6438 ISBN 92-64-10297-3 u
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Volume 2003/9 – July Volume 2003/9 – July
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OECD
ECONOMIC
SURVEYS
2002-2003
Ireland
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960,
and which came into force on 30th September 1961, the Organisation for Economic
Co-operation and Development (OECD) shall promote policies designed:
– to achieve the highest sustainable economic growth and employment and a
rising standard of living in member countries, while maintaining financial
stability, and thus to contribute to the development of the world economy;
– to contribute to sound economic expansion in member as well as non-member
countries in the process of economic development; and
– to contribute to the expansion of world trade on a multilateral, non-
discriminatory basis in accordance with international obligations.
The original member countries of the OECD are Austria, Belgium, Canada,
Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the
United Kingdom and the United States. The following countries became members
subsequently through accession at the dates indicated hereafter: Japan
(28th April 1964), Finland (28th January 1969), Australia (7th June 1971),
New Zealand (29th May 1973), Mexico (18th May 1994), theCzech Republic
(21stDecember 1995), Hungary (7th May 1996), Poland (22nd November 1996),
Korea (12th December 1996) and the Slovak Republic (14thDecember2000). The
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Table of contents
Assessment and recommendations 9
I. Adjusting to slower growth and ensuring prosperity 21
The nature of the growth slowdown 21
Future prospects 27
Policy challenges 32
II. Consolidating the public finances 37
Gradual adjustment of public finances to slower growth 37
Medium-term fiscal position 42
The impact of ageing on the public finances 44
Control of the public finances and priorities 46
III. Enhancing the effectiveness of public expenditure management 47
Trends in public expenditure and forces shaping them 49
Strengthening the budgetary process and control 53
Improving the cost effectiveness of public spending 59
Challenges of improving spending outcomes in healthcare and infrastructure 70
Agenda for future reform 77
IV. Sustaining growth: the structural policy dimensions 83
Introduction 83
Improving regulation and promoting competition and market solutions 83
Changing focus of industrial policy 91
Priorities in human capital development 91
Labour market policy 94
Some aspects of sustainable development 98
Notes 114
Bibliography 122
Annexes
I. Anti-inflation proposals 125
II. Social partnership in Ireland 126
III. The problems associated with measuring Irish productivity 128
(cid:127)(cid:127)(cid:127)(cid:127)(cid:127)
© OECD 2003
4 OECD Economic Surveys: Ireland
Boxes
1. The new partnership agreement 26
2. Special savings incentive scheme 39
3. Summary of measures contained in Budget2003 40
4. Benchmarking public sector pay 41
5. The budget process in Ireland 56
6. The new partnership agreement related to human resource management
in the civil service 61
7. Mechanisms to introduce competitive pressures on providers
of publicly funded services 63
8. Local authority funding 65
9. Private practice in public hospitals 73
10. Summary of recommendations 78
11. Policy integration across sustainable development areas 99
Tables
1. Short-term outlook 29
2. Comparison of deficits and debt ratios in the EU 43
3. General government balance and prospective debt ratio 43
4. Long-term demographic projections for Ireland 44
5. Long-term sustainability of public finances 45
6. General government spending by economic category 50
7. Major current government outlays 51
8. Public sector employment and pay 53
9. Selected health care outcomes, resources and utilisation 72
10. Plan for investment in economic and social infrastructure
under National Development Plan (NDP) 75
11. Share of public procurement being openly advertised internationally
in European Union countries 76
12. Implementing structural reform –an overview of progress 84
13. Participants in ALMP programmes 96
14. Main indicators: climate change 100
15. GHG emissions and sectoral indicators 101
16. Influence of a carbon tax on the costs of power generation 104
17. Sectoral abatement costs under the Climate Strategy versus imports
of permits 105
18. Performance indicators: water pollution 108
19. Performance indicators: waste 111
Annex
A1. Productivity growth 128
A2. Volume indices of production: manufacturing 129
A3. Productivity and entrepôt type activities 130
© OECD 2003
Table of Contents 5
Figures
1. Growth in GDP and GNP: the widening gap 22
2. Irish labour force growth 22
3. Immigration 24
4. Indicators of inflation 25
5. Exchange rate and unit labour costs 28
6. Decomposition of growth in labour supply 31
7. Evolution of Irish public finance 37
8. General government spending 48
9. Trends in general government spending 52
10. Overshooting in current revenue and expenditure 54
11. Composition of subnational government financial resources 66
12. Local authorities’ current revenue by source 68
13. Trends in health care expenditure 71
14. Educational attainment of the working-age population 92
15. Quality of surface water in Ireland 107
16. Financial costs of water pollution. 109
Annex
A1. Social partnership agreements 127
© OECD 2003
BASIC STATISTICS OF IRELAND
THE LAND
Area (thousand sq.km) 70 Population of major cities, 19961census (thousands):
Agricultural area, 1995, as per cent of total area 57 Dublin (Country and Co.Borough) 1057
Cork (Co.Borough) 127
Limerick (Co.Borough) 52
THE PEOPLE
Population in thousands (April2002)1 3897 Net emigration: average1993-95 2333
Number of inhabitants per sq.km 56 Net immigration: average1996-99 16075
Net immigration: average2000-2002 25033
Increase in population: annual average Total labour force, Sept.-Nov. 2002 (thousands) 1855
1996-2002 291249 Civilian employment, Sept.-Nov. 2002 (thousands):
Natural increase in population: annual Agriculture, forestry and fishing 120
average2001-2002 27550 Industry and construction 493
Other sectors 1158
THE GOVERNMENT
Public current expenditure on goods and Composition of Parliament (June2002): Seats:
services, 1999 (as per cent of GNP) 18 Fianna Fail 81
Current government receipts, 1998 Fine Gael 31
(as per cent of GNP) 40 Labour 21
General government debt, 2001 Progressive Democrats 8
(as per cent of GNP) 44 Green 6
Socialist 1
Sinn Fein 5
Others 13
Last general election: May2002
FOREIGN TRADE
Exports: Imports:
Exports of goods and services, Imports of goods and services,
as per cent of GNP (2001) 117 as per cent of GNP (2001) 100
Main exports, 2001 (per cent of total): Main imports, 2001 (per cent of total):
Meat and meat preparation 2 Petroleum products 3
Dairy products 1 Chemicals and related products 12
Beverages 1 Textile manufacturing, clothing and footwear 3
Organic chemicals 14 Machinery and transport equipment 51
Medical and pharmaceutical products of which:
7 Office machines 18
Machinery and transport equipment 45 Electrical machinery 14
of which: Main suppliers, 2001 (per cent of total):
Office machines 27 United Kingdom 35
Electrical machinery 11 Other European Union 23
Main customers, 2001 (per cent of total): United States 15
United Kingdom 23
Other European Union 38
United States 17
THE CURRENCY
Monetary unit: Euro Currency unit per USdollar, average of daily figures:
Year 2002 0.94
March2003 1.08
1. Preliminary.
This Survey is published on the responsibility of the Economic and
Development Review Committee of the OECD, which is charged with the
examination of the economic situation of Member countries.
The economic situation and policies of Ireland were reviewed by the
Committee on 14April2003. The draft report was then revised in the
light of the discussions and given final approval as the agreed report of
the whole Committee on 23May2003.
The Secretariat’s draft report was prepared for the Committee by
HideyukiIbaragi, Young-SookNam and BorisCournède under the
supervision of YutakaImai.
The previous Survey of Ireland was issued in June2001.
Assessment and recommendations
The Celtic Tiger The extraordinary growth in the second half of the
era is over 1990s, the era of the “Celtic Tiger”, has given way to a more
normal, albeit still rapid pace of expansion since 2001,
though the extent of the slowdown has been more marked
outside the multinationals sector. Some slackening in
growth was in any case inevitable and even desirable given
increased tensions in the economy, manifest in high infla-
tion, worsening traffic congestion, rapidly rising house prices
and recruitment difficulties. While the slowdown is closely
linked to the burst of the ICT bubble, it also reflects a dete-
rioration in Irish cost competitiveness. This has been due to
strong inflation in the sheltered sector of the economy,
reflecting the combined influence of large wage gains ema-
nating from the tradables sector, low productivity growth in
the sheltered sector and the generally expansionary effects
of very low real interest rates since Ireland joined the Euro-
pean Monetary Union. The future trend growth over the
medium term is now widely believed to be between 4 and
5per cent for real GDP and a shade lower for GNP, a view
shared by the OECD. The policy challenge facing the Irish
economy in the immediate future is to ensure that both
income expectations and public finances adjust to a slower
growth environment. The former is necessary to guard
against deterioration in international competitiveness, while
the latter is required to ensure fiscal sustainability and the
maintenance of a growth-supportive tax environment. Over
a longer term, the broad aim of the authorities should be to
ensure that the economy will continue to grow at a reason-
ably high rate and that policies will be more clearly oriented
towards protecting interests of consumers rather than pro-
ducers, notably through enhanced competition in service
sectors.
© OECD 2003