Why is Ireland so expensive for consumer goods and services? Colman Cassidy looks for answers
The deterioration in consumer purchasing power for goods and services is attributed by the Forfás report to the Republic's exceptional economic performance in recent years.
The bottom line is: "The consequence of this was income growth, particularly in the services sectors, that was not fully warranted by productivity gains or general inflation - and high levels of consumer price inflation."
But inflation alone does not fully explain the price differentials between Ireland and other eurozone economies, the report notes. Other factors which come into play include:
indirect taxation
regulatory factors including competition
retail structures
national preferences
geography/market size
Significantly, the report points out, the eurozone's two most expensive countries, Ireland and Finland, are "characterised by the highest rates of indirect taxation" - value added tax (VAT) and vehicle registration tax (VRT). In the Republic, high levels of indirect taxation co-exist with relatively low levels of tax on personal income - a balance that is geared to the promotion of job-creation. This, however, is not the case in Finland.
Regarding deregulation and competition, benefits to consumers from the gradual deregulation of the communications sector in Ireland are evidenced in the "very considerable improvements" realised since 1995. By contrast, the relative expensiveness of pubs, restaurants and health categories are largely explained by the fact that "supply is controlled or regulated in some manner".
Levels of competition for the supply of services in Ireland are not, however, a function of regulation alone, the report notes. A rapid expansion in demand for certain consumer services in recent years has meant that supply has not been able to keep pace, in many cases. "This 'catch-up' requirement may explain Ireland's standing as one of the most expensive eurozone countries in which to procure a variety of consumer services."
Regulatory factors would also appear to play a significant role in shaping the competitiveness of the Irish retail sector. The Grocery Order bans "below-invoice" (as distinct from "below-cost") selling and the Planning Development Act prohibits the development of retail outlets above a certain size.
Lack of competitiveness in the retail sector is further suggested by the finding that Ireland is the most expensive country in the eurozone in which to buy a basket of groceries, comprising food and non-food items. It was also found that the Republic ranks among the most expensive countries in which to buy many unprocessed foodstuffs - for example, fruit and vegetables - in spite of the fact that Ireland is the only eurozone country where such items are exempt from VAT.
National preference among consumers also has a role in the determination of price differentials. For example, the Republic has a relatively high consumption of goods subject to excise duty, such as alcohol and tobacco.
Finally, Ireland is an "island nation", the report notes, and the "market for consumer goods/services is small in a wider eurozone context". This may be significant for certain types of goods and services, notably perishable, high-volume and low-value products.