Presentation of the OECD Economic Survey of Ireland February 2020

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

For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

http://www.oecd.org/economy/ireland-economic-snapshot/ 36