OECD ECONOMIC SURVEY OF IRELAND 2020 Preparing for ageing and further technological diffusion
13 February 2020
http://www.oecd.org/economy/ireland-economic-snapshot/ @OECDeconomy @OECD
Living standards are good Dimensions of wellbeing, Index (50=OECD median performer) Best performer 100
75
Median performer 50
25
Worst performer 0
Life Satisfaction
Education Gender wage inclusiveness gap
Pollution
Personal security
Community Long-term Labour market engagement unemployment insecurity
Source: OECD Better Life Index database; OECD Gender Data Portal; OECD PISA 2018 database. 2
Growth remains strong Year-on-year % change 8
%
6 4 2 0 -2 -4
Gross value added (excluding MNE dominated sectors, left scale)
-6 -8 -10
2006
2008
2010
Source: OECD, OECD Economic Outlook database; CSO.
2012
2014
2016
2018
0
3
Income gains are being redistributed Change in Gini coefficient due to tax and transfer system 0.30 0.25 0.20 0.15 0.10
0.00
FIN IRL BEL FRA AUT DEU SVN HUN GRC PRT CZE ITA DNK LUX POL ESP NOR NLD SVK JPN GBR SWE ISL EST AUS LTU NZL LVA CAN USA ISR CHE TUR KOR CHL MEX
0.05
Source: OECD Income Distribution database.
4
The unemployment rate has declined markedly Year-on-year % change 18 16 14 12 10 8 6 4 2 0
2006
Source: CSO.
2008
2010
2012
2014
2016
2018 5
Wage growth has picked up 4
%
% 1.2 Average hourly earnings growth (left scale)
Job vacancy rate (right scale)
3
1.0
2
0.8
1
0.6
0
0.4
-1
0.2
-2 2010
Source: CSO.
2011
2012
2013
2014
2015
2016
2017
2018
2019
0.0
6
The fiscal stance has been fairly neutral in recent years Contractionary fiscal policy Cyclical upswing 6
6 Fiscal stance
Output gap
4
4
2
2
0
0
-2
-2
-4
-4
-6 Expansionary fiscal policy Cyclical downswing
2005-09
Source: OECD Economic Outlook database; OECD calculations.
2010-14
2015-18
-6
7
Irish exports have become more competitive Current account balance, % of GNI* 20
20 Modified current account balance
15
Current account balance
15
10
10
5
5
0
0
-5
-5
-10
-10
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Note: The modified current account balance adjusts for three main distortions affecting the interpretation of the headline current account: intellectual property imports, imports of aircraft related to leasing and profits of companies that establish a legal presence in Ireland while investing little in the country. Modified Gross National Income (GNI*) abstracts from distortions related to the factor income of redomiciled companies, depreciation on R&D service imports and trade in IP and depreciation on aircraft leasing. Source: CSO.
8
Global uncertainty has weakened business investment Annual percentage change
25 20 15 10 5 0 -5 Mar/13
Mar/14
Mar/15
Mar/16
Mar/17
Mar/18
Mar/19
Note: The series is modified gross domestic fixed capital formation, an underlying measures of investment that excludes the impact of volatile items that have little connection with the real economy such as trade in aircraft by aircraft leasing companies and trade in R&D and intellectual property. Source: CSO; OECD calculations.
9
Financial stability has improved but non-performing loans remain high Q3 2019
% 50 45 40
Ireland
35
EU
30 25 20 15 10 5 0
Capital ratio
Net interest margin
Source: European Banking Authority.
NPL ratio
NPL coverage ratio
Forbearance ratio
10
New forms of financing are evolving € per capita 120
Online alternative finance
100 80 60 40 20 0
NOR CZE ESP AUT POL ITA SVN DEU DNK BEL CHE FRA NLD SWE LTU IRL FIN LVA EST GBR
Source: Cambridge Centre for Alternative Finance.
11
Key policy recommendations • Tighten fiscal policy in the event of an orderly Brexit process. • Speed up repossession proceedings, by considering granting lenders a collateral possession order for a future date. • Ensure regulators have the power to obtain relevant information from unregulated financial service providers.
12
FISCAL POLICY FOR A RAPIDLY AGEING POPULATION
13
Public debt is still elevated Gross general government debt per capita, 2018 Current USD PPPs 60000 50000 40000 30000 20000
ITA
GRC
IRL
BEL
FRA
AUT
PRT
GBR
ESP
DEU
NLD
FIN
SVN
LUX
HUN
SWE
NOR
DNK
SVK
POL
CZE
LTU
LVA
0
EST
10000
Source: OECD. 14
Windfall corporate taxes have been accompanied by expenditure overruns Annual current expenditure overruns by department EUR billion 1.2
Department of Health Department of Employment Affairs and Social Protection Department of Education and Skills Department of Justice
1.0 0.8 0.6 0.4 0.2 0.0 -0.2
2013
2014
2015
2016
2017
2018
Source: Irish Fiscal Advisory Council, OECD calculations. 15
An ageing population will substantially increase fiscal costs Change in expenditure from 2019 to 2060
% pts of potential GDP 8
Pension expenditure
Health expenditure
6
4
2
Source: Simulations based on the OECD Economics Department Long-term Model.
SVN
CZE
SVK
LUX
AUT
IRL
BEL
KOR
DEU
NOR
DNK
ESP
GBR
ITA
ISL
CAN
USA
NZL
GRC
HUN
JPN
CHE
POL
NLD
AUS
FIN
SWE
FRA
ISR
LTU
EST
PRT
-2
LVA
0
16
Public debt will rise substantially without new spending or revenue measures General government debt ratio (% pts of GDP) 175 150 Debt to GNI*
125
Debt to GDP (baseline scenario)
100 75 50 25 0
1998
2003
2008
2013
2018
2023
2028
2033
Source: Simulations based on the OECD Economics Department Long-term Model.
2038
2043
2048
2053
2058 17
Recurrent property taxes are underutilised 12
%
Recurrent taxes on immovable property (% total taxation)
% 12
9
6
6
3
3
0
0
LUX AUT CZE CHE EST TUR DEU NOR MEX LTU SVK SVN HUN SWE FIN NLD PRT IRL LVA DNK BEL ITA KOR OECD ESP CHL POL ICL GRC NZL AUS FRA JPN ISR GBR CAN USA
9
Source: OECD Revenue Statistics Database. 18
Key policy recommendations for raising fiscal sustainability •
Streamline the VAT system, moving from five rates to three.
•
Reassess property values more regularly for the purposes of calculating local property tax. At the same time, protect those low-income households adversely impacted.
•
Implement the main proposals of the Sláintecare report, establishing a single-tiered health service that provides universal access to primary care.
•
Ensure all legislative requirements for the National Service Plan are fulfilled by the Health Service Executive.
•
Use windfall corporate tax revenues to pay down public debt or to build up the Rainy Day Fund.
•
Create domestic fiscal rules based on GNI* and an estimate of potential output growth tailored to the Irish context.
•
Continue to set, and report progress against, medium-term government debt targets as a share of GNI*. 19
FURTHER PURSUING GREEN GROWTH
20
Environmental taxes are low Environmental taxation, % of GDP
% 3
2
1
0
Ireland
OECD - Total
OECD - Europe
Source: OECD. 21
The renewable energy share has risen Renewable energy share, % of primary energy supply 12% 10%
Ireland
OECD
8% 6% 4% 2% 0%
2000
2002
2004
2006
2008
2010
2012
2014
2016
Source: OECD Green Growth Indicators database. 22
Key policy recommendations for better protecting the environment • Gradually raise the carbon tax rate according to a schedule that is well communicated to households and businesses. • Use some of the revenues from an increase in the carbon tax rate to fund new green investment and measures that offset any adverse distributional effects. • Pursue full and early implementation of cost effective measures for the abatement of carbon emissions from agriculture, particularly those related to afforestation.
23
PROMOTING INCLUSIVE TECHNOLOGICAL DIFFUSION
24
The intangible capital stock has increased... Intangible fixed assets, % share of capital stock 18 15 12 9 6 3 0
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Source: CSO. 25
...but there is scope for further technological adoption ICT usage by businesses, % of enterprises Cloud Computing 100 80 60
Enterprise Resource Planning
40
Social media use
20 0
Customer Relationship Management
Big data analysis IRL
OECD
Maximum
Source: OECD ICT Access and Usage by Businesses database. 26
New skills are needed to complement emerging technologies Per cent
Underqualification rate
35 30 25 20 15 10
0
SVK CZE SVN MEX POL HUN LTU TUR LUX ISL CHL AUT LVA USA AUS PRT OECD DEU DNK ITA GRC FIN ESP CAN SWE NOR FRA NZL BEL EST CHE NLD GBR IRL
5
Note: Underqualification is measured as the percentage of workers in total employment who have an educational attainment that is lower than required as at 2016. Source: OECD.
27
Skill shortages are apparent Skill shortages index (1=maximum OECD country)
0.5 0.4
Ireland
OECD
0.3 0.2 0.1 0.0
Basic content skills
Basic process skills
Complex problem solving skills
Technical skills
Systems skills
Source: OECD Skills for Jobs Database. 28
Participation in adult learning is limited for the young Per cent 40 35 30
Participation rate in adult learning by 20-34 year olds by educational attainment
IRL
OECD
25 20 15 10 5 0
Lower secondary education and lower Upper secondary and post-secondary non-tertiary education
Tertiary education
Source: OECD, Labour Force Statistics database. 29
Poor housing affordability has impeded workers moving to thriving regions Premium of dwelling prices in Dublin relative to other Irish areas (%) 90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
1995
2004
2013
2019
0
Source: Department of Environment/Housing; daft.ie; authors’ calculations. 30
Technological deepening has not translated into productivity gains Percentage point
Cumulative contribution to labour productivity growth
120 Multifactor productivity 100 80 60 40 20 0
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Source: OECD Productivity Statistics Database; OECD calculations..
31
Productivity growth has been weakest in sectors with low firm entry and exit 3.0
Average annual labour productivity growth (%), 2000-2017
2.5 2.0 1.5 1.0 0.5 0.0 -0.5
Low business dynamism sectors
Other
Note: Sectors in the bottom third of the distribution for business churn (sum of firm entry and exit) are classified as low dynamism. Source: CSO; OECD calculations.
32
Winner-takes-all dynamics may have weakened competition in digital sectors Index (2008=100) 160 140 120 100 80 60
Firm entry rate (digital intensive)
Firm entry rate (excluding digital intensive)
40 20 0
2008
2009
2010
2011
2012
2013
2014
2015
2016
Note:“Digital intensive� sectors are defined using the taxonomy outlined in Calvino and Criscuolo (2019). Firm entry rates are calculated based on the unweighted number of entrants in each period. Source: CSO; OECD calculations.
2017
33
The licensing system and regulatory procedures hold back business activity OECD PMR 2018 Indicators (higher = more burdensome) 3.5
IRL
3.0
OECD average
3.5 3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
Assessment of impact on competition
Interaction with stakeholders
Complexity of Administrative burden Licenses and permits regulatory procedures for limited liability companies and personally-owned enterprises
Simplification and evaluation of regulations Source: OECD Product Market Regulations Statistics database
0.0
Administrative burden on start-ups 34
Key recommendations to promote inclusive technological diffusion •
Enhance financial assistance for training programmes for young workers. More actively establish and promote distance learning programmes.
•
Couple adequate public financial support for childcare with measures to expand childcare capacity.
•
Require those freelance platform workers who are effectively dependent employees to pay a Pay-Related Social Insurance premium equivalent to that paid by dependent employees and introduce an employer contribution.
•
Monitor business licensing requirements and the systems that facilitate them, including by linking more licensing procedures with the Integrated License Application Service.
•
Give the Irish Competition and Consumer Protection Commission adequate enforcement powers to fight anti-competitive behaviour, including the capacity to impose sufficient penalties on competition law infringements to ensure a deterrent effect.
35
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http://www.oecd.org/economy/ireland-economic-snapshot/ 36