I despair for the future of our society which we know is going to financially suffer in the next four years as the government tries to eliminate the budget deficit – simplistically, the difference between what the government takes in tax and what it pays out for the public sector and welfare. We know that gross wages will remain under pressure with low inflation, high unemployment and anaemic economic growth, at least for the next two years. We also know that there are cuts and additional taxes, €3.6bn in 2012 alone which will need be detailed in Budget 2011 in December this year. What is despairing is that there doesn’t appear to be any centralised effort in bringing down the existing cost of living so we face the prospect of having lower take-home pay in the years to come but the same or higher living costs.
This is confirmed in the Eurostat report issued today which examines price levels across the EU and in selected other countries. It shows price levels by reference to the EU average which it sets at 100. The table below shows the results,Ireland’s average prices –highlighted in red – are shown as 118 which means that on average, our prices are 18% above the EU norm. And if you look at what I suggest are comparative countries which exclude high-tax/large-public sector Nordic countries, very high income countries and recent Central Eastern European joiners, we are still at the top of the league. Our prices are 13% (118/104) aboveGermany and 18% higher than in theUK for example.
Of course price levels by themselves don’t illustrate standard of living. You need to compare price levels with income which in Irelandhas been at elevated levels in the 2000s in particular. Last week Eurostat released GDP figures for the EU and we are still in the top three countries for per capita GDP in Europe. Subsequent to that release, the veteran journalist Vincent Browne wrote to Eurostat and asked for the GNP figures, which are arguably more relevant to Ireland as so much of our GDP relates to the activity of foreign companies, which when you extract out profits that these companies repatriate, gives a more representative view of the amount of money in the economy. The figures provided to Vincent as reported in the Sunday Business Post showed Ireland’s GNP to be 102.7 being just 2.7% above the EU average, but the Netherlands was 134, Germany at 120, the UK at 115.5 and France at 108.7. Our GNP income has declined dramatically in recent years – as recently as 2007, our GNP was apparently at 127.
So what appears to be happening in Irelandis our income has contracted substantially but prices have remained high. And yet in Irelandwe have a plethora of competition agencies which to my mind are there to ensure products and services are delivered at competitive prices. There is, what I have found to be, the practically-useless National Consumer Agency (who have another two days to start rolling out a mortgage comparison product on the itsyourmoney.ie website; at least that what the EU Competition Commission mandated in February this year). Then we have the National Competitive Council who produced a report last week which included a focus on property cost but ignored the huge price differences between here and Northern Ireland. And then we have the Competition Authority, which was in the headlines recently for its dawn-raid on the Irish Farmers Association’s premises in an investigation into the milk industry. We even have a private-sector Consumers Association. And yet for all of that, prices inIreland are some 18% above the EU average while income is just 2.7% above the EU average.
Now might be a good time for a top-down review of competition. After all, if wages are going to be further hit in the next few years, we might actually have an opportunity to soften or eliminate the effects, if we can get our prices down. Many costs in the State will be a function of wages, so unless wages come down, prices can’t come down. That is why we need a strong competition czar because the circle has to be broken so that prices and wages can come down together. There is also an issue with legacy debt, but that’s an issue for another day.