COMMISSION STAFF WORKING DOCUMENT Country Report Ireland 2019 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2019-02-27
Institutions: European Commission, Secretariat-General
Subjects: Ireland, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 27.2.2019  SWD(2019) 1006 final  COMMISSION STAFF WORKING DOCUMENT Country Report Ireland 2019     Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2019) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Summary of the main findings from the MIP in-depth review 

4.  Reform priorities 

4.1.  Public finances and taxation 

4.2.  Financial sector 

4.3.  Labour market, education and social policies 

4.4.   Competitiveness reforms and investment 

Annex A: Overview table 

Annex B: Commission Debt Sustainability Analysis and fiscal risks 

Annex C: Standard tables 

3 

7 

14 

17 

23 

23 

28 

33 

43 

59 

65 

66 

Annex D: Investment guidance on cohesion policy funding 2021-2027 for Ireland 

72 

References 

LIST OF TABLES 

Table 1.1: 

Key economic and financial indicators - Ireland 

Table 2.1: 

Annual assessment of  the 2018 CSRs 

Table 3.1: 

MIP assessment matrix (*) — Ireland 2018 

Table 4.2.1: 

Financial soundness indicators for domestic and foreign banks 

Table C.1: 

Financial market indicators 

Table C.2: 

Headline Social Scoreboard indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

75 

13 

15 

21 

29 

66 

67 

68 

69 

70 

71 

1 

 
 
 
 
LIST OF GRAPHS 

Graph 1.1: 

Domestic demand and contributions 

Graph 1.2:  Gross value added and contributions 

Graph 1.3: 

Regional Convergence in Ireland 

Graph 1.4: 

Unemployment rate and labour market participation rate 

Graph 1.5: 

Cumulated gap between actual and predicted wage growth, EU28, 2010-2017, 

percentage points 

Graph 1.6: 

Core investment and contributions 

Graph 2.1: 

Ireland - Level of implementation today of 2014-2018 CSRs 

Graph 3.1:  Overvaluation gap with respect to price/income, price/rent and fundamental model 

valuation gaps 

Graph 4.1.1:  Government debt projections, % of gross national income 

Graph 4.2.1:  Access to finance by SMEs — Have you applied for credit? 

Graph 4.2.2:  Access to finance by SMEs — If applied, what was outcome 

Graph 4.2.3:  Non-performing loans reduction by portfolio 

Graph 4.2.4:  Private indebtedness 

Graph 4.2.5:  Household debt and estimated benchmark 

Graph 4.3.1:  Change in employment by sector 

Graph 4.3.2:  Relative dispersion of employment rates by education level, 2010, 2014 and 2017 

Graph 4.3.3:  Activity rate by gender and age, 2017 

Graph 4.3.4:  Main social indicators 

Graph 4.3.5:  Homelessness statistics per region, July 2018 

Graph 4.4.1:  Current account balance by sectors 

Graph 4.4.2:  Headline trade balance vs. underlying trade balance 

Graph 4.4.3:  Cumulative Labour Productivity Growth 2010-2017 

Graph 4.4.4: 

Trend productivity growth has slowed Index 2000= 100 

Graph 4.4.5: 

Training expenditure domestic firms and multinationals in Ireland. Manufacturing and 

Services 2000-2016 

Graph 4.4.6:  Net Capital Stock held at the end of the year by asset type 

Graph 4.4.7:  non-ETS emissions and estimated annual allocations under the ESD and ESR. 

LIST OF BOXES 

Box 1.1: Labour force participation rate 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to fostering 

growth and competitiveness in Ireland. 

Box 3.1: Net international investment position - additional instruments 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 4.4.1: Investment challenges and reforms in Ireland 

7 

7 

8 

8 

9 

12 

14 

18 

24 

28 

28 

29 

31 

31 

33 

34 

36 

38 

39 

43 

44 

45 

46 

47 

49 

53 

10 

16 

20 

35 

50 

2 

 
 
 
 
EXECUTIVE SUMMARY 

while 

addressing 

The  sustained  strong  economic  growth 
in 
Ireland  allows  for  a  further  increase  in  the 
resilience  of  the  public  and  domestic  private 
investment 
sectors 
challenges (1).  Further 
reducing  government 
deficit  and  debt  could  increase  the  economy’s 
capacity  to  adjust  to  external  shocks.  Moreover, 
not basing spending on potentially volatile revenue 
and  addressing  over-spending  in  health  could 
ensure 
long-term  sustainability  of  public 
finances.  Improvements  in  the  balance  sheets  of 
households and banks reflect progress in resolving 
investment 
non-performing 
challenges and ensuring that growth is broad-based 
and  socially  and  environmentally  sustainable 
remain key policy challenges. 

loans.  Addressing 

the 

Economic  growth  remains  robust  and 
is 
expected  to  moderate.  Real  GDP  grew  by  7.5 % 
year-on-year  in  the  first  three  quarters  of  2018, 
well  above  the  euro  area  average,  but  inflated  by 
multinational companies. Real GDP is estimated to 
have  grown  by  6.8 %  in  2018  and  forecast  to 
moderate to 4.1 % in 2019 and 3.7 % in 2020. The 
economic  outlook  continues  to  be  clouded  by 
heightened uncertainty, relating to the terms of the 
UK’s  withdrawal  from  the  EU  and  to  changes  to 
the international taxation and trade environment as 
well  as  to  possible  domestic  overheating.  Given 
the  uncertainty  over  the  terms  of  the  UK’s  future 
relations  with  the  EU,  this  report  does  not 
speculate on the possible economic implications of 
different  scenarios.  Given  the  ongoing  ratification 
process  of  the  Withdrawal  Agreement  in  the  EU 
and  the  UK,  projections  for  2019  and  2020  are 
based  on  a  purely  technical  assumption  of  status 
quo in terms of trading relations between the EU27 
and the UK. This is  for  forecasting purposes only 

(1)  This  report  assesses  Ireland’s  economy  in  the  light  of  the 
European Commission’s Annual Growth Survey published 
on 21 November 2018. In the survey, the Commission calls 
on  EU  Member  States  to  implement  structural  reforms  to 
make the European economy more productive, resilient and 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic  policy  —  delivering  high-quality  investment, 
efforts  on  productivity  growth, 
reforms 
focusing 
inclusiveness  and 
institutional  quality  and  ensuring 
macroeconomic  stability  and  sound public  finance.  At  the 
same 
the  Alert 
the  Commission  published 
Mechanism  Report  (AMR)  that  initiated  the  eighth  round 
of  the  macroeconomic  imbalance  procedure.  The  AMR 
found that  Ireland  warranted  an in-depth  review,  which  is 
presented in this report. 

time, 

3 

and  has  no  bearing  on  the  talks  underway  in  the 
context of the Article 50 process. 

in 

Although the economy continues to strengthen, 
improvements 
the  budget  balance  are 
stalling. The deficit is expected to remain broadly 
stable  in  the  near  future.  Risks  to  the  budgetary 
economic 
projections 
uncertainties,  the  volatility  of  some  sources  of 
government  revenue  (notably  corporate  income 
taxes)  and  over-spending  (notably  within  the 
health  sector).  The  public  debt  situation 
is 
improving.  

are  mainly 

overall 

and 

communication 

Employment continues to perform strongly. The 
unemployment rate is approaching pre-crisis levels 
and wage growth is accelerating. Skills and labour 
shortages  are  increasingly  apparent.  Shortages  of 
information 
technology 
professionals  remain  challenges.  The  relatively 
low  rate  of  activity,  notably  for  women,  shows 
under-used  human  capital  and  the  importance  of 
developing adequate policies on work-life balance 
and  childcare.  Major  reforms  were  passed  to 
facilitate  work-life  balance  and  childcare  access, 
but  these  will  take  time  to  translate  into  more 
women  working  or 
job.  The 
employment  rate  of  people  with  disabilities 
continues to be one of the lowest in the EU.  

looking  for  a 

in 

skilled 

in  Dublin 

that  employ 

Regional  differences 
labour, 
competitiveness  and  productivity  are  sizeable. 
This  is  mostly  due  to  the  concentration  of 
multinationals 
large 
numbers  of  highly-skilled  employees  by  offering 
higher  salaries.  The  resulting  lack  of  qualified 
employees  and  skilled  managers  in  small  and 
medium-sized enterprises reduces their innovation 
capacity  and  competitiveness.  The  lack  of  access 
to  ultrafast  broadband  in  more  than  95 %  of  rural 
areas further aggravates this problem. 

inclusion 

Prioritising  both public and private  investment 
infrastructure,  decarbonisation,  housing, 
in 
innovation,  skills  and  social 
is 
essential for sustainable and long-term inclusive 
growth.  Investment  in  research  and  development, 
skills  and  digitalisation  is  needed  to  address  the 
lagging productivity of domestic firms and reduce 
on  multinationals. 
the 
Sustainable growth will also require an investment 
push  in  clean  energy,  transport,  water,  broadband 
and housing as well as to decarbonise sectors with 

increasing 

reliance 

 
 
                                                           
high  emissions.  The  resilience  of  the  economy  to 
international  economic  shocks  could  also  be 
increased  by  diversifying  maritime  transport  and 
energy connections with Europe. Other key issues 
are  improving  access  to  employment  for  all 
jobseekers, 
including  by  providing  affordable 
childcare, as well as investing in social housing to 
address  rising  homelessness.  Annex  D  identifies 
key  priorities  for  support  by 
the  European 
Regional  Development  Fund  and  the  European 
Social  Fund  over  2021-2027,  building  on  the 
analysis  of 
investment  needs  and  challenges 
outlined in this report.  

and 

address 

Ireland  has  set  out  policies  to  address  these 
investment  challenges,  but  their  implementing 
them  depends  on  several  factors.  The  National 
the  National 
Planning 
Framework 
Development  Plan  2018-2027 
the 
challenges  outlined  above,  but  their  successful 
implementation  depends  on  factors  such  as  the 
administrative  capacity  and  coordination  of  the 
departments  involved,  the  removal  of  capacity 
constraints,  especially  in  the  construction  sector, 
and  market  barriers,  particularly  for  legal  and 
judiciary  services.  The  announced  Future  Jobs 
Programme  could  help  small  and  medium-sized 
enterprises 
and 
development  and  encourage  them  to  take  up  new 
technologies.  It  could  also  support  small  and 
medium-sized  enterprises  in  diversifying  exports, 
integrating  themselves  in  global  value  added 
chains and increasing workers’ skills.  

invest  more 

research 

in 

Overall,  Ireland  has  made  some  progress  (2)  in 
addressing 
country-specific 
2018 
the 
recommendations.  

There  has  been  substantial  progress 
following areas: 

in 

the 

  Reducing 

long-term 

arrears,  helped  by 

restructuring activities and portfolio sales. 

There  has  been  some  progress  in  the  following 
areas:   

(2)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
the 
country-specific  recommendation 
overview table in Annex A. 

is  presented 

in 

Executive summary 

  Decreasing tax expenditure and broadening the 
tax  base,  with  the  measure  with  the  biggest 
positive  impact  being  an  increase  in  the  lower 
tourism  activities. 
value-added-tax  rate  on 
However, some 2019 budget measures actually 
go in the other direction. 

 

Implementing  the  National  Development  Plan, 
where  a  robust  monitoring  system,  adequately 
resourced  departments  and  a  sound  system  for 
selecting projects remain essential for its timely 
and effective delivery. 

  Upskilling  the  adult  working-age  population, 

with a focus on digital skills. 

There  has  been  limited  progress  in  the  following 
areas: 

  Addressing the expected increase in age-related 
expenditure  where  despite  some  measures  to 
increase  the  cost-effectiveness  of  healthcare, 
expenditure has continued to increase rapidly.  

  Enhancing  the  productivity  of  domestic  firms 
by  stimulating  research  and  innovation  and 
promoting 
foreign 
companies,  local  firms  and  public  research 
centres.  

cooperation 

between 

the  Europe  2020  strategy,  Ireland 

Regarding  progress  towards  its  national  targets 
under 
is 
performing  well  on  employment,  early  school 
leaving  and  tertiary  education  targets  and  the 
effectiveness  of  social  assistance  in  reducing 
poverty.  It  needs  to  do  more  to  invest  in  research 
and 
gas 
reduce 
emissions,  increase  the  proportion  of  renewable 
energy,  improve  energy  efficiency  and  reach  its 
national target on reducing poverty.  

development, 

greenhouse 

Ireland  fares  relatively  well  on  most  indicators 
of 
the 
the  Social  Scoreboard  supporting 
European  Pillar  of  Social  Rights,  although 
challenges  remain.  The  effectiveness  of  the  Irish 
tax  and  benefits  system  in  reducing  poverty  and 
inequalities  remains  high.  The  labour  market  has 
recovered  well  from  a  very  sharp  economic 
downturn  a  decade  ago  on  the  back  of  successful 
employment  policy  choices.  Real  disposable 
income  per  person  continues  to  grow  but  remains 
slightly  below  its  2008  level.  While  Ireland 

4 

 
 
                                                           
Executive summary 

performs  well  in  many  education-  and  social-
related  indicators,  the  low  percentage  of  the 
workforce  with  basic  digital  skills  reflects  the 
insufficient  integration  of  digital  skills  in  the 
education  and  training  system.  Finally,  housing 
remains  a  very  pressing  issue,  given  increasing 
homelessness due to shortages of social housing. 

  The  public  debt  ratio  has  come  down,  but 
remains high. The ratio of public debt to GDP 
fell  to  68.4 %  in  2017.  However,  a  range  of 
alternative  metrics  shows  that  public  debt 
remains  high  by  EU  and  historical  standards, 
exposing Ireland to economic shocks. 

findings  of 

The  main 
review 
contained  in  this  report  and  the  related  policy 
challenges are as follows: 

in-depth 

the 

  Private  debt 

to 

levels  continue 

fall, 
improving  the  resilience  of  households  and 
businesses. A large part of the stock of private 
debt is attributed to multinational corporations. 
Debt  of  Irish  companies,  including  debt  of 
redomiciled  public  limited  companies,  and 
households,  relative  to  GDP,  fell  below  the 
indicative 
imbalance 
macroeconomic 
procedure threshold in 2017. However, relative 
to  modified  gross  national  income,  domestic 
debt  remains  relatively  high.  Hence,  total 
private  debt  levels  continue  to  overstate  this 
imbalance.  Rising  housing  prices  increased 
households’ net worth and reduced the number 
of those in negative equity.  

  Domestic  banks  have 

reduced  non-
loans,  and  have  remained 
performing 
profitable 
and  well-capitalised.  Non-
performing loan ratios are down to single-digit 
levels and banks are well on track to meet their 
reduction  targets,  supported  by  portfolio  sales 
and rising property prices. Long-term mortgage 
arrears  (over  two  years  past  due)  remain 
relatively  high,  helping  to  keep  the  non-
performing  loan  ratio  above  the  euro  area 
average.  Banks  remain  well-capitalised  and 
high 
support 
rates  continue 
profitability.  There  are  policy  measures  for 
vulnerable  households.  Take-up  rates  of  these 
schemes are mixed. Insolvency procedures and 
the  use  of  in-  and  out-of-court  options  for 
arrears  resolution  remain  limited.  Applications 
for  the  enhanced  mortgage-to-rent  scheme  are 
picking  up.  The  credit  register  became  fully 
functional for consumer loans in 2018 and will 
be  crucial for assessing  whether borrowers are 
capable of servicing their debts. 

lending 

to 

  Ireland’s  net 

international 

international  position  of 

investment 
position  keeps improving. Its highly  negative 
net international investment position is bloated 
by some large multinational companies located 
in  Ireland  and  the  markedly  negative  net 
position  of  the  International  Finance  Service 
Centre,  although  there  is  strong  evidence  that 
neither  constitute  vulnerabilities  in  domestic 
sectors.  The 
the 
domestic  sectors  has  been  improving  over  the 
past  two  years,  and  is  expected  to  continue  so 
in the near-term on the back of current account 
surpluses and robust economic growth. Overall, 
the  level  of  the  domestically  relevant  external 
although 
position 
vulnerabilities  are  abating.  Some  of 
the 
activities  of  large  multinationals  were  also 
responsible for the recent swings in the current 
account.  Excluding  these  effects,  the  current 
account  is  less  volatile  and  remains  positive, 
implying 
that  Ireland  maintains  a  strong 
competitiveness position overall. 

gauge 

hard 

to 

is 

  The  government  has  implemented  a  broad 
range of measures to tackle the undersupply 
of  housing,  but  results  will  take  time. 
Housing supply is rapidly recovering from very 
low  levels  but  is  still  falling  short  of  demand. 
As a result, house price inflation remains high, 
even  if  it  has  recently  moderated.  The  system 
of  rules  intended  to  protect  the  stability  of  the 
'macro-
financial  system,  known  as 
prudential  framework',  remains  crucial 
to 
ensure  that  new  credit  is  extended  under 
prudent conditions, preventing credit bubbles. 

the 

Other key structural issues analysed in this report, 
which  point  to  particular  challenges  for  Ireland’s 
economy, are the following:  

  Tax  revenue  continues  to  increase  but  the 
volatility  of  corporate 
tax  remains  a 
concern. The high proportion of corporate  tax 
in total taxation and the dependence on a small 

5 

 
 
Executive summary 

number of taxpayers are a concern from a fiscal 
stability perspective.  

also  using  the  economic  opportunities  arising 
from the EU’s ambitious climate objectives. 

that  may  facilitate 

  Ireland’s  tax  rules  appear  to  be  used  by 
multinationals  engaged  in  aggressive  tax 
planning  structures,  but  some  steps  are 
being  taken  to  limit  such  practices.  Some 
tax  planning 
elements 
include  the  limited  application  of  withholding 
taxes  on  royalties  and  dividends.  However, 
Ireland has taken steps to amend aspects of its 
tax  system  to  curb  aggressive  tax  planning,  in 
implementing  European  and 
particular  by 
internationally  agreed  initiatives.  Consultation 
has also started on further changes. 

  The  performance  of  the  Irish  economy  is 
increasingly dependent on the activities of a 
limited  number  of  foreign  firms. 
  The 
diversification  of  exports  and  productivity 
performance  can  improve  the  resilience  of  the 
local production base. This would require more 
effective  public 
innovation 
efforts.  Removing  obstacles  to  the  functioning 
of  some  key  markets  (e.g.  legal  services  or 
retail)  would  also  help  increase  the  flexibility 
and resilience of the Irish economy. 

research  and 

systems 

  The  long-term  fiscal  sustainability  of  the 
healthcare  and  pension 
is  a 
challenge.  The  ambitious  Sláintecare  reform 
represents  a  credible  vision  for  making  the 
health  system  universally  accessible  and 
sustainable.  However,  its  implementation  is 
endangered  by  the  difficulties  in  improving 
budget  management  in  the  health  system  to 
avoid  recurrent  overspends.  The  perverse 
incentives  generated  by  the  coexistence  of  a 
public and private insurance market should also 
be addressed to avoid preferential treatment of 
privately-insured  patients  in  publicly-funded 
hospitals. The envisaged Roadmap for Pension 
Reform, published in 2018, aims to address the 
long-term  sustainability  of  the  state  pension 
system.  

  Economic  growth  and  greenhouse  gas 
emissions  are  yet  to  be  decoupled.  The 
government 
a 
technological  pathway  and  the  policy  and 
investment  needs  to  ensure  environmentally 
and  socially  sustainable  development,  while 

define 

needs 

still 

to 

6 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

5.6 %  growth  in  the  previous  year,  contributing 
substantially to the total GVA (Graph 1.2). Within 
this  category,  the  construction  sector  grew  the 
most in 2017, by 15.2 %. 

Graph 1.2:  Gross value added and contributions 

GDP Growth 

The  Irish  economy  maintains  momentum. 
Ireland  reported  7.5 %  GDP  year-on-year  (y-o-y) 
growth  in  the  first  nine  months  of  2018,  a  level 
well  above  the  euro  area  average.  However,  the 
headline figures remain inflated by the activities of 
multinational  companies  operating  in  the  country. 
The economy is expected to have grown by 6.8 % 
in 2018 and real GDP is forecast to grow by 4.1 % 
in 2019 and 3.7 % in 2020 (European Commission, 
2019a). 

the 

strips  out 

Employment  developments  and 
investment 
underpin  domestic  economic  growth.  Modified 
domestic  demand,  a  measure  of  domestic  activity 
that 
effects  of 
some  of 
multinationals,  grew  by  5.1 %  year-on-year  in  the 
first  three  quarters  of  2018  (Graph  1.1).  It  is 
expected to expand at an average rate of over X % 
between  2018  and  2020.  Private  consumption, 
sustained  by  increasing  disposable  income  on  the 
back  of 
and 
investment  have  been  the  main  drivers  behind 
domestic  demand.  In  particular,  investment  has 
been  bolstered  by  construction  and  investment  in 
machinery and equipment.  

employment  growth, 

strong 

Graph 1.1:  Domestic demand and contributions 

Source: CSO 

The  strong  underlying  activity  is  also  reflected 
by the value added in the domestic sector. Gross 
value  added  (GVA)  in  the  sectors  not  dominated 
by  multinationals  grew  by  4.3 %  in  2017,  after  a 

7 

(1) According to data from CSO, GVA is split between 
sectors dominated by multinationals, where multinationals’ 
turnover exceeds 85 % of the sector total, and ‘Other 
Sectors’ which are non-MNE dominated. Constant prices. 
(2) The jump in multinationals’ value added in 2015 is due to 
the relocation of some large multinationals to Ireland 
Source: CSO 

Downside  risks  continue  to  cloud  the  economic 
outlook.  Primarily  external  in  nature,  these  risks 
relate  to  uncertainties  regarding  the  terms  of  the 
UK’s  withdrawal  from  the EU as  well as changes 
to the international taxation and trade environment. 
On  the  domestic  side,  signs  of  overheating  could 
become  more  apparent  going  forward.  A  large 
degree  of  unpredictability,  linked  to  the  activities 
of  multinationals,  could  drive  headline  growth  in 
any direction. 

Regional disparities 

rather  high 

Regional  disparities  in  Ireland  are  significant 
and  have  been  increasing  over  the  last  decade. 
Ireland  has 
regional  economic 
disparities  compared  to  other  EU  countries  in 
terms  of  GDP  per  capita  (Graph 1.3).  Between 
2000  and  2016,  GDP  per  capita  in  the  Southern 
and  Eastern 
74 %, 
63 percentage  points  more  than  in  the  Border, 
Midland  and  Western  region  and  the  increase 
accelerated after 2012. By 2016, GDP per capita in 

increased 

region 

by 

-8-6-4-202468Intangible Assets excl. net R&D importsMachinery and Equipment excl. aircraft for leasingTotal constructionPublic consumptionPrivate consumptionModified Domestic Demand, y-o-y%pps.-10-505101520253020012002200320042005200620072008200920102011201220132014201520162017Domestic sectorsMNEsGVA total (y-o-y%)pps. 
 
 
 
1. Economic situation and outlook 

the  Southern  and  Eastern  region  was  2.6  times 
higher  than  in  the  Border,  Midland  and  Western 
region.  The  Dublin  area,  with  40 %  of  Ireland’s 
population, contributed by 62 percentage points to 
GDP growth between 2000-2016. 

Where multinationals decide to locate increases 
regional  disparities.  Productivity  growth  varies 
substantially  across  regions  (see  Section  4.4.2). 
These 
regional  disparities  are  very  much 
influenced  by  the  concentration  of  multinationals, 
which  out-perform  domestic  firms  in  terms  of 
productivity  (see  Section  4.4.1),  in  the  Southern 
and Eastern region. 

Graph 1.3: 

Regional Convergence in Ireland 

and 

shortages 

communication 

are  becoming 

representing  35.0 %  of 

(5.7 %  on  average  in  2018),  with  long-term 
unemployment 
total 
unemployment  (third  quarter  of  2018),  below  the 
EU  average  of  42.8 %.  Job  vacancy  rates  are 
trending  upward  in  most  economic  sectors,  while 
skills 
increasingly 
apparent in fast growing  sectors, most notably  for 
technology, 
information 
construction  and  property  professionals 
(see 
Section  4.3.1).  This  is  becoming  a  more  pressing 
challenge for employers. Furthermore, the level of 
basic  digital  skills  in  the  workforce  remains 
relatively  low.  Yet  the  participation  rate  remains 
low (see Box 1.1) and has recovered slowly,  with 
marginal  increases  of  0.3 percentage  points  to 
62.1 %  over  the  year  to  the  third  quarter  of  2018 
(Graph 1.4). In particular, there is scope  for  more 
female employment.  

Graph 1.4: 

Unemployment rate and labour market 
participation rate 

(1) Some explanations of the statistics 
Source: Regional Convergence in Ireland 

Labour market 

Robust  labour  market  performance  continues 
to accompany economic growth. In the first three 
quarters of 2018, employment grew by 3.1 % and 
has  now  surpassed  its  pre-crisis  level  with  job 
creation  taking  place  across  most  sectors.  Against 
this background, labour income is bolstered by the 
slight  acceleration  in  average  hourly  and  weekly 
earnings, which, combined with subdued inflation, 
supports household real disposable income.  

The  labour  market  is  tightening  and  skill 
shortages  are  becoming  more  apparent. 
Unemployment  is  approaching  pre-crisis  levels 

Source: CSO 

Wage  growth  remains  moderate,  but  upward 
pressures  are  emerging 
in  certain  sectors. 
Nominal  compensation  per  employee  grew  by 
0.9 % in 2017, and it is estimated to have reached 
2.7 %  in  2018.  This  remains  slightly  lower  than 
could  be  expected,  given  developments 
in 
inflation, productivity and unemployment, as it has 
been  systematically  the  case  in  the  post-crisis 
period. This has resulted in the largest shortfall in 
wage  growth  across  Member  States  in  the  period 
2010-2017,  with  the  shortfall  being  higher  in 
2010-2013  than  in  2014-2017.  However,  upward 
pressures  are  emerging  in  certain  sectors  with 

8 

20406080100120140160180200220240260GDP per headGDP per headchangeInvestmentratePopulation growthProductivityIndex, EU 28=100EU28Non-capital regionsCapital regionMS average61626364656667246810121416Q101Q102Q103Q104Q105Q106Q107Q108Q109Q110Q111Q112Q113Q114Q115Q116Q117Q118Unemployment rate (lhs)Participation rate (rhs)%% 
 
 
1. Economic situation and outlook 

wages  in  the  second  quarter  of  2018  growing 
above  4 %  in  the  information  and  communication 
sector  (5.4 %),  the  professional,  scientific  and 
technical  activities  sector  (5.3 %),  the  financial 
services  and  insurance  sector  (5 %),  and  the 
building and construction sector (4.3 %).  

Graph 1.5:  Cumulated gap between actual and 

predicted wage growth, EU28, 2010-2017, 
percentage points 

(1) Prediction based on specification without country effects 
over the period of 1995-2017.  
(2) The wage '”benchmark”' represents the wage growth 
that would be expected given developments in inflation, 
productivity and unemployment, in an average EU country 
in an average year. In Ireland, the shortfall in wage growth is 
not caused by the 2015 revision of GDP, which increases 
labour productivity. The effect was neutralised by replacing 
productivity growth in 2015 with the average of 2014 and 
2016. 
Source: Labour Markets and Wage Developments 2018, 
European Commission. 

Social developments 

The  strong  redistributive  effect  of  the  tax  and 
benefit system still reduces high market income 
inequality  to  levels  below  the  EU  average. 
Before  taxes  and  transfers,  household  income  in 
Ireland is among the most unequally distributed in 
the  EU,  with  the  richest  20 %  having  close  to  30 
times the market income of the poorest 20 %. This 
reflects  the  high  variation  in  productivity  across 
the  economy,  in  particular  between  the  tradable 
and  non-tradable  sectors.  In  2017,  the  share  of 
household  disposable  income  of  the  richest  20 % 
was 4.6 times higher than that of the poorest 20 %, 
marking  a  slight  increase  from  4.4  in  2016. 
Nevertheless,  the  inequality  ratio  after  taxes  and 
transfers  still  remains  below  the  EU  average  (5.1 

9 

in  2017)  thanks  to  both  high  progressivity  in 
personal  income  taxes  and  a  high  level  of  cash 
benefits. 

The 

The  population  at  risk  of  poverty  and  social 
exclusion  continues  to  fall  in  line  with  the 
recovery. 
at-risk-of-poverty-or-social 
exclusion  rate  was  at  22.7 %  in  2017  close  to  the 
EU average  of 22.4 %. A key driver was the high 
proportion (16.2 %) of people living in households 
with  very  low  work  intensity.  However,  this 
number has been falling in recent years and labour 
market data suggests that this trend continues. The 
high  level  of  cash  benefits  significantly  reduce 
poverty: the at-risk-of-poverty rate is 52.6 % lower 
after  social  transfers.  However,  this  should  be 
treated with caution, due to the low level of in-kind 
benefits relative to the high cost in the economy.  

Wealth  inequality  is  high,  in  part  due  to  the 
effects  of  the  financial  crisis  on  households  in 
negative  equity.  In  2014,  the  wealthiest  10 %  of 
households controlled 54 % of net wealth, a larger 
share  than  the  euro  area  average.  The  Gini 
coefficient — a measure of statistical dispersion —
 of  net  wealth,  which  also  takes  into  account 
households  in  negative  equity,  was  among  the 
largest  in  the  euro  area.  In  the  near  term,  rising 
property prices are expected to dampen net wealth 
inequality,  given  the  large  number  of  households 
in  negative  equity.  However,  as  the  rate  of  home 
ownership  continues  to  fall  in  favour  of  a  larger 
tenant  population,  continued  increases  in  property 
prices  have  the  potential  to  exacerbate  wealth 
inequalities in the longer term. 

Rapidly  rising  rents,  insufficient  residential 
construction  activity  and  a  lack  of  affordable 
and social housing have driven up homelessness 
especially, in Dublin. The shortage of housing has 
led  to  a  23.4 %  rent  increase  since  2015,  the 
highest  in  the  EU.  Demand  for  social  housing 
stands  at  circa  72 000  homes  with  just  10 000 
planned  for  delivery  in  2019.  While  a  further 
17 000 persons are to be assisted through Housing 
Assistance Payment or the Rental Accommodation 
Scheme,  this  risks  exacerbating  rent  increases  in 
the  already  supply-constrained  private 
rental 
market. A large number of social homes are under-
occupied, (notably in the Dublin area), in part due 
to  current  succession  practices, 
thus  further 
aggravating the situation (Melia, 2018).  

-30-20-10010203040BulgariaLatviaLithuaniaGreeceRomaniaItalyEstoniaSwedenFinlandLuxembourgFranceHungaryGermanySpainSloveniaMaltaSlovakiaCzech Rep.DenmarkAustriaPolandBelgiumCroatiaCyprusNetherlandsPortugalUKIreland2010-20132014-2017Overall 
 
1. Economic situation and outlook 

Box 1.1: Labour force participation rate 

While  the  unemployment  rate  is  approaching  pre-crisis  levels,  the  participation  rate  has  followed  the  rise  in 
employment  only  sluggishly.  According  to  the  Central  Statistics  Office,  the  participation  rate — the  fraction  of  the 
working-age population either working or looking for a job — of individuals over 15 has hovered around 62 % since 2010 
and  remains  4.5  percentage  points  below  its  2007  peak.  Given  the  role  of  labour  supply  in  determining  actual  and 
potential growth, it is crucial to understand why labour force participation has not bounced back with the recovery. 

The  pre-crisis  upward  trend  in  females’  participation  rate  resumed  after  the  cyclical  downturn,  whereas  male 
participation  has  not  recovered.  Two  factors  accounted  for  the  pre-crisis  rise  in  total  participation:  a  gradual  rise  in 
females’  participation  from  a  low  base  and  a  surge  of  males  participation  during  the  construction  boom.  Female 
participation declined only marginally during the recession (-2 percentage points from peak to trough) and has returned to 
its  2007  peak.  However,  females  participation  remains  low  and  has  room  to  increase  (see  Section  4.3.1).  By  contrast, 
males  participation  shrunk  (-8  percentage  points),  as  jobs  in  construction  and  manufacturing  were  hard  hit,  and  has 
hovered around its 2013 level since then. The 2007 peak in male participation was probably unsustainable and reflected 
the  enlargement  of  the  labour  force  through  immigration  (Byrne  et  al.,  2016).  Between  2002  and  2008,  net  inward 
migration accounted for 60 % of the growth of the annual working age population on average. As the participation rate of 
the  Irish provided limited scope for further improvement, net migration met increased labour demand during the 2000s 
boom. In turn, outward migration worked as a safety valve during the downturn by limiting the rise in unemployment.  

Net inward migration has provided an important source of labour 
since  it  turned  positive  in  2015.  The  share  of  non-Irish  nationals  in 
the  labour  force  has  returned  to  its  2008  peak  of  16.3 %.  Further 
increases in the participation rate will likely be driven by immigration 
as  skills  and  labour  shortages  emerge  (see  Section  4.3.1).  In  recent 
years, the overall participation rate has been sustained by the pick-up 
in  non-Irish  nationals’  participation  rate,  which  is  much  higher  than 
that  of  the  Irish  (74.3%  vs  60.3 %  in  2018),  and  has  been  increasing 
since 2015 (+3 percentage points), while that of the Irish remains flat. 
While  the  employment  rate  of  both  Irish  and  non-Irish  nationals  has 
picked-up  since  2015,  the  gap  in  favour  of  non-Irish  nationals  has 
widened  to  10  percentage  points.  As  migrants’  qualifications  have 
improved—49 %  of  immigrants  had  tertiary  education  in  2018— 
immigration may play an important role as a source of skilled labour in 
a tightening labour market. Hence, migration will likely play an increasing role in driving economic growth. Significant 
net inward migration in the future could also increase the strain on the already tight housing market in the short term. In 
particular,  high-skilled  migration  will  likely  contribute  to  increasing  price  pressure  on  the  more  expensive  rental  and 
housing markets, such as Dublin.  

Inflation 

Competitiveness 

Consumer  price  inflation is  rising, but remains 
subdued.  The  Harmonised  Index  of  Consumer 
Prices rose by 0.7 % in 2018. Inflation was modest 
in the first half of 2018 but accelerated in the third 
quarter  as  global  oil  prices  rose.  Services  prices 
keep  being  bolstered  by  rents  and  catering 
services.  However, 
remains 
core 
dampened  by 
the  weakness  of  non-energy 
industrial  goods,  which  reflects  both  low  import 
prices due to appreciation of the real exchange rate 
towards  sterling  and  a  downward  bias  related  to 
quality adjustments methods (Keating et al., 2018). 
The  higher  prices  for  services  are  expected  to 
remain  the  main  positive  driving  force  behind 
inflation, in line with strong domestic demand. 

inflation 

The  Irish  economy  has  maintained  its  external 
competitiveness,  but  risks  persist.  In  2017,  the 
real  effective  exchange  rate  based  on  unit  labour 
costs remained unchanged from the previous year. 
The  sterling  depreciation  in  relation  to  the  euro 
continued to negatively affect the competitiveness 
of  the  economy  in  2017  but  was  partly  offset  by 
continued  weak  consumer  price  inflation.  The 
underlying  trade  balance  also  shows  that  the 
external  competitiveness  of  the  country  has  been 
maintained  (Section  4.4.1).  As  the  labour  market 
tightens, associated wage pressures and increasing 
activity  in  construction,  non-tradable  in  nature, 
to  maintain 
should  be  monitored 
competitiveness  over  the  medium  term.  Also, 
supply  constraints  in  the  housing  sector  could 
negatively  affect  competitiveness  by  restricting 

in  order 

10 

 
1. Economic situation and outlook 

pushing  return  on  equity  to  levels  above  the  EU 
average. 

Deleveraging  of  the  domestic  private  sector  is 
ongoing.  Demand  of  households  for  credit  is 
increasing,  helped  by  rising  property  prices.  New 
mortgage  lending  stood  at  EUR 2.6  billion  in  the 
fourth quarter of 2018, up from EUR 2.2 billion a 
year  earlier.  While  the  flow  of  new  mortgage 
lending  has  increased,  it  is  still  well  below  the 
EUR 9 billion per quarter observed in 2005-2007. 
Macro-prudential  measures  have  been  tightened 
(see  Section  4.2.1)  and  appear  to be  holding  back 
demand. The stock of  household credit appears to 
have reached a trough in 2018, but due to positive 
growth  in  gross  disposable  household  income 
(GDHI),  the  household  debt-to-GDHI  ratio  is 
declining.  The  debt  of  domestic  companies, 
including  debt  of  redomiciled  public 
limited 
companies,  also  declined  in  2017  and  stood  at 
135% of modified gross national income(4). 

Investment and housing 

investment 

Volatility  in  headline  investment  figures  masks 
robust domestic activity. In the first nine months 
of  2018,  headline 
increased  by 
2.8 % year-on-year (y-o-y) driven largely by a fall 
in intellectual property investment in the first half 
of 2018, which then increased in the third quarter. 
However,  these  fluctuations  were  matched  by 
similar  swings  in  imports  and  therefore  with  a 
neutral  impact  on  GDP.  On  the  other  hand,  core 
investment,  i.e.  investment  without  aircraft  and 
intangibles,  grew  by  22.0 % y-o-y.  Construction 
activity increased by 17.9 % y-o-y and is expected 
to  remain  strong  in  the  short  term  as  housing 
supply  is  still  catching  up  with  demand,  and 
supported by various government measures.  

Public investment is on an upward path. Capital 
spending by the government declined considerably 
in the aftermath of the crisis in the context of fiscal 
consolidation,  but  has  been  growing  gradually 
since  2014.  It  is  now  expected  to  reach  4 %  of 
modified gross national income by 2024 (up from 
2.7 %  in  2017)  and  to  remain  around  this  level 
until 2027, according to the National Development 

(4)  Modified gross national income (GNI*) is published by the 
Irish  Central  Statistics  Office  and  excludes  from  the 
standard  gross  national  income  the  globalisation  effects 
that  are  disproportionally  impacting  the  measurement  of 
the size of the Irish economy. 

mobility of labour and by putting upward pressure 
on housing costs (Department of Finance, 2018a). 
Rising  commercial  and  residential  rents,  along 
with  higher  electricity,  legal  and  insurance  costs 
could also affect competitiveness. The activities of 
multinationals 
overall 
productivity  figures  with  significant  productivity 
gaps between low-productivity domestic firms and 
high-productivity  foreign  companies  (see  Section 
4.4.1. for more competitiveness challenges). 

continue 

inflate 

to 

External position 

Sustainability  risks  to  the  domestic  economy 
stemming  from  external  debt  seem  to  be 
diminishing.  The  net  international  investment 
position (NIIP)(3) has improved over the last three 
years and is expected to strengthen further in 2019 
and 2020 on the back of current account surpluses 
and  economic  growth  (European  Commission, 
2019a). The high level of net external liabilities is 
to  a  substantial  extent  due  to  the  operations  of 
some  multinationals  and  the  negative  net  position 
of  the  International  Financial  Services  Centre 
(IFSC),  to  which  domestic  sectors  have  only 
limited  exposure  (European  Commission,  2018a). 
Domestic  sectors  have  improved  their  external 
position  over  the  last  two  years.  Furthermore,  the 
riskier instruments of the NIIP are to a large extent 
owned by multinationals and by IFSC entities. The 
level of the domestic NIIP remains hard to gauge. 

Financial sector 

The  banking  sector  is  gradually  improving  its 
assets  while  maintaining  solid  capital  buffers. 
The  common  equity  tier  1  ratio  -  a  measure  of 
bank solvency that gauges a bank's capital strength 
-  stood  at  23.0 %  in  the  second  quarter  of  2018, 
similar  level  to  one  year  earlier.  While  the 
non-performing  loans  ratio  fell  to  8.5 %  in  the 
second quarter of 2018, down from 11.6 % a year 
earlier,  it  remains  above  the  euro  area  average  of 
4.2 %.  The  decline  in  non-performing  loans  was 
helped  by  the  sales  on  secondary  markets,  but 
long-term mortgage arrears remain relatively high. 
Provisioning  levels  have  remained  broadly  stable 
over  the  year  leading  up  to  the  second  quarter  of 
2018, but are below the EU average. Profits benefit 
from  the  high  lending  rates  prevailing  in  Ireland, 

(3)  The  NIIP  is  defined  as  the  stock  of  a  country’s  external 

assets minus its foreign liabilities. 

11 

 
                                                           
                                                           
Plan. This plan sets out an allocation of EUR 116 
billion  over 
the  period  2018-2027  aimed  at 
meeting  the  infrastructure  and  investment  needs, 
focusing  on  housing,  transport,  education,  health 
and water services (Section 4.4). 

Graph 1.6:  Core investment and contributions 

Source: CSO 

Housing price inflation continues to be high but 
has  eased  recently.  Housing  prices  increased  by 
10.9 %  in  2017,  i.e.  4  percentage  points  (pps) 
above  the  macroeconomic  imbalance  procedure 
threshold.  In  2018,  after  an  increase  to  13.3%  in 
April  2018,  annual  housing  price  inflation  fell 
6.3 pps  in  the  seven  months  to  November  2018. 
Decline  has  initially  been  driven  by  Dublin  but 
since June affected almost every county in Ireland. 
It  is  likely  that  more  binding  macro-prudential 
rules 
to 
(European 
dampening 
Commission,  2019).  A  more  dynamic  housing 
supply  may  have  also  helped  curb  housing  price 
inflation. 

(Section  4.2.1)  have 
housing 

contributed 

demand 

Inflation  in  rents  seems  chiefly  determined  by 
the gap between housing supply and demand. In 
Ireland,  annual  rent  inflation  in  December  2018 
was  6.2 %.  Since  2015,  rents  have  increased  by 
23.4 %,  the  fastest  pace  of  increase  in  the  EU. 
National  growth  rate  was  highly  influenced  by 
Dublin  which  accounted  for  37 %  of  tenancy 
agreements. Rents appear to be chiefly determined 

1. Economic situation and outlook 

by  supply  conditions  and,  to  a  lesser  extent,  by 
supportive macroeconomic conditions. (5) 

Public finances  

in 

Although the economy continues to strengthen, 
improvements 
the  budget  balance  are 
stalling. The general government deficit is forecast 
to  have  fallen  to  0.1 %  of  GDP  in  2018,  an 
improvement  of  0.1 %  of  GDP  compared  2017. 
With  the  measures  announced  in  the  2019  Draft 
Budgetary  Plan,  the  deficit  is  expected  to  remain 
broadly  stable  in  2019.  Risks  to  the  budgetary 
projections  remain  on  the  downside.  They  relate 
mainly 
the 
volatility of some sources of government revenues 
taxes)  and  over-
income 
(notably  corporate 
spending (notably within the health sector).  

to  macroeconomic  uncertainties, 

Aggregate  2018  revenues  were  helped  by  an 
unexpected  temporary  surge.  Exchequer  returns 
in  2018  exceeded  expectations.  In  particular, 
corporate  income  tax  receipts  were  26.6 %  above 
target,  with  international  accounting  changes  a 
contributor  to  the  surge.  Expenditure  outpaced 
budget targets, with a current expenditure overrun 
of 1.6 %.  

Debt  dynamics  are  improving,  although  its 
stock is relatively high. Ten years after the onset 
of  the  global  financial  crisis,  the  gross  general 
government  debt  overhang  remains  high.  It  is 
expected  to  have  declined  to  63.9 %  of  GDP  in 
2018, from 68.4 % of GDP in 2017, and to further 
decline  to  61.1 %  in  2019  and  56 %  of  GDP  in 
2020.  This  is  contingent  on  continued  stable 
medium-term  economic  growth  and  positive 
primary  balances.  A  range  of  alternative  metrics, 
including  an  interest-to-revenue  ratio,  show  that 
Ireland’s  stock  of  public  debt  remains  high  by 
international  and  historical  standards  (Section  3). 
Estimated  exchequer  receipts  of  EUR 4.3 billion 
over  2018-2021  arise  from  the  funds  set  aside  for 
the  resolution  of  the  financial  crisis  and  winding 
down of the National Asset Management Agency. 
The  government  plans  to  direct  these  towards 
lowering  the  elevated  stock  of  debt.  Almost  60 % 
of the debt has a maturity of more than five years. 

(5)  Estimate  based  on  an  error-correction  model  where  rents 
are considered to be in equilibrium with the level of supply 
and  real  disposable  income  in  the  long-term  (Based  on 
European Commission calculations). 

12 

-10-505101520253035Machinery and equipment without aircraftTransfer CostsOther Building and ConstructionImprovementsDwellingsCore Domestic Investment (y-o-y%)pps. 
 
                                                           
1. Economic situation and outlook 

While debt sustainability has improved, long-term 
fiscal  sustainability  risks  related  to  the  cost  of 

ageing remain (Section 4.1.1). 

Table 1.1: 

Key economic and financial indicators - Ireland 

(1) NIIP excluding direct investment and portfolio equity shares 
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches.         
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation 
Source: Eurostat and ECB as of 31-1-2019, where available; European Commission for forecast figures (Winter forecast 2019 for 
real GDP and HICP, Autumn forecast 2018 otherwise) 

13 

2004-072008-122013-1520162017201820192020Real GDP (y-o-y)5.6-0.811.35.07.26.84.13.7Potential growth (y-o-y)4.50.410.06.28.07.63.93.5Private consumption (y-o-y)6.0-1.41.84.11.6...Public consumption (y-o-y)4.4-2.01.63.53.7...Gross fixed capital formation (y-o-y)8.3-6.219.751.4-31.0...Exports of goods and services (y-o-y)6.71.818.04.47.8...Imports of goods and services (y-o-y) 8.2-0.515.518.5-9.4...Contribution to GDP growth:Domestic demand (y-o-y)5.6-2.75.314.2-10.1...Inventories (y-o-y)0.00.00.31.7-1.1...Net exports (y-o-y)-0.32.05.7-11.919.1...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)1.2-2.01.32.62.42.21.81.3Capital accumulation (y-o-y)2.20.86.31.4-0.1-0.3-0.10.0Total factor productivity (y-o-y)1.11.62.52.35.85.72.22.2Output gap2.4-2.5-0.10.70.00.20.81.1Unemployment rate4.813.011.98.46.75.65.14.9GDP deflator (y-o-y)2.1-1.62.8-0.80.41.71.92.1Harmonised index of consumer prices (HICP, y-o-y)2.50.60.3-0.20.30.70.91.4Nominal compensation per employee (y-o-y)5.10.40.92.10.92.73.03.4Labour productivity (real, person employed, y-o-y)1.32.48.01.24.2...Unit labour costs (ULC, whole economy, y-o-y)3.8-2.0-6.60.9-3.2-1.81.11.6Real unit labour costs (y-o-y)1.7-0.4-9.11.7-3.6-3.5-0.7-0.4Real effective exchange rate (ULC, y-o-y)3.5-4.1-8.71.2-2.3-1.4-2.0-0.4Real effective exchange rate (HICP, y-o-y)1.4-2.3-2.11.00.31.3-2.4-0.7Savings rate of households (net saving as percentage of net disposable income)0.26.84.43.86.6...Private credit flow, consolidated (% of GDP)30.77.1-0.4-15.6-7.5...Private sector debt, consolidated (% of GDP)177.1260.6284.0283.3243.6...of which household debt, consolidated (% of GDP)85.7107.677.452.247.7...of which non-financial corporate debt, consolidated (% of GDP)91.4153.0206.6231.1196.0...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)..15.410.38.1...Corporations, net lending (+) or net borrowing (-) (% of GDP)2.38.24.3-4.8-1.05.46.47.0Corporations, gross operating surplus (% of GDP)34.434.645.052.854.055.155.455.7Households, net lending (+) or net borrowing (-) (% of GDP)-9.01.61.91.12.0-0.9-1.5-2.0Deflated house price index (y-o-y)8.3-13.38.36.69.5...Residential investment (% of GDP)12.33.91.61.72.0...Current account balance (% of GDP), balance of payments-3.9-3.32.3-4.28.511.711.611.4Trade balance (% of GDP), balance of payments10.414.921.915.530.4...Terms of trade of goods and services (y-o-y)-1.1-0.70.8-0.4-1.90.00.10.2Capital account balance (% of GDP)0.20.1-1.5-1.6-9.6...Net international investment position (% of GDP)-31.4-120.2-165.4-170.7-149.3...NIIP excluding non-defaultable instruments (% of GDP) (1)1.3-224.8-301.6-246.4-259.1...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)951.01384.01497.91328.41299.3...Export performance vs. advanced countries (% change over 5 years)9.9-1.28.855.361.0...Export market share, goods and services (y-o-y)..16.54.2-0.1...Net FDI flows (% of GDP)11.2-3.8-9.5-3.1-11.4...General government balance (% of GDP)1.5-14.7-3.9-0.5-0.2-0.1-0.10.2Structural budget balance (% of GDP)..-3.6-1.0-0.2-0.2-0.5-0.3General government gross debt (% of GDP)25.584.1100.273.468.463.961.156.0Tax-to-GDP ratio (%)31.829.227.624.023.522.722.622.3Tax rate for a single person earning the average wage (%)21.919.819.819.3....Tax rate for a single person earning 50% of the average wage (%)7.14.53.43.1....forecast 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

improving 

the  skills  of 

aimed  at 
the  adult 
working-age  population  and  the  acquisition  of 
digital  skills  are  promising,  yet  it  is  too  early  to 
assess  their  positive  impact.  The  lack  of  basic 
digital  skills among those in  employment remains 
a concern and requires further investments. Ireland 
has  taken  steps  to  make  quality  childcare  more 
affordable  with  the  Early  Childhood  Care  and 
Education universal free preschool programme and 
the Affordable Childcare Scheme. The insufficient 
provision of affordable childcare remains the main 
impediment  to  increasing  activity  rates.  Recent 
reform  efforts  have  tried  to  tackle  the  problem  of 
weak  work  incentives  for  low-income  groups. 
Most  of  the  measures  foreseen  in  the  Action  Plan 
for Jobless Households are yet to be implemented. 
In particular, integrated support for people furthest 
from  the  labour  market  needs  to  be  improved.  In 
addition,  people  with  disabilities  are  still  facing 
considerable challenges, although support is being 
enhanced. 

than 

pace 

Progress  has  been  made  since  2014 
in 
implementing  financial  sector  country  specific 
recommendations. 
at  which 
The 
non-performing loans are being reduced has picked 
up, helped by a combination of portfolio sales and 
restructuring 
activities.  Long-term  mortgage 
arrears  have  proven  to  be  the  most  difficult  to 
restructure, but they have also fallen, although at a 
slower  pace 
stock  of 
non-performing  loans.  The  supervisor  is  closely 
loan 
monitoring 
reduction 
restructuring 
and 
practices.  Several  policy  measures  have  been 
introduced  to  support  debtors  in  distress  and 
insolvency 
increase 
arrangements, but the take-up of these measures is 
only slowly gaining traction. The credit register is 
up and running for consumer loans. It is planned to 
become fully operational in 2019. 

the  banks’  non-performing 

the  number  of  personal 

the  overall 

strategies 

their 

of 

all 

79 % 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  Ireland  have 
recorded  at  least  some  progress.  21 %  of  these 
country-specific 
(CSRs) 
recorded  'limited'  or  'no  progress'  (Graph2.1). 
Labour market policies supporting job creation and 
life-long  learning  have  been  among  the  most 
successful. 

recommendations 

Graph 2.1: 

Ireland - Level of implementation today of 
2014-2018 CSRs 

(1) The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact 
(2) The multiannual CSR assessment looks at the 
implementation until 2019 Country Report since the CSRs 
were first adopted. 
Source: European Commission 

Rapid  improvement  in  the  fiscal  situation  has 
been  supported  by  implementation  of  country 
specific recommendations since 2014. Ireland has 
achieved success in stabilising its public finances. 
Public investment is on an upward path. Efforts to 
limit  tax  expenditures  and  broaden  the  tax  base 
have  been  mixed.  Expenditure  ceilings  now  take 
into account demographic pressures and carry-over 
effects,  although  their  repeated  changes  are  still  a 
concern  for  budgetary  execution.  Measures  have 
been  taken  to  address  the  expected  increase  in 
age-related  expenditure,  but  some  remain  in  their 
infancy.  

Ireland  has  introduced  a  range  of  labour 
market reforms supporting the country specific 
recommendations  over  recent  years.  Reforms 

14 

No Progress11%Limited Progress10%Some Progress46%Substantial Progress28%Fullimplementation5% 
 
 
2. Progress with country-specific recommendations 

Table 2.1: 

Annual assessment of  the 2018 CSRs 

 * This overall assessment of CSR1 does not include an assessment of compliance with the Stability and Growth Pact. 
Source: European Commission 

the 

(6)  progress 

in 
Ireland  has  made  some 
country-specific 
2018 
addressing 
recommendations  (see 
table  2.1).  Scope  of 
important  tax  expenditure  has  been  limited,  but 
Ireland  has  not  yet  implemented  the  envisaged 
measures to accelerate the reduction of public debt 
or  address  the  expected  increase  in  age-related 
expenditure.  This  means  that  limited  progress  has 
been made on country specific recommendation 1, 
which  reflects  euro  area  recommendation  2.  With 
regards  to  country  specific  recommendation  2, 
Ireland  has  made  some  progress  in  implementing 
the  National  Development  Plan,  in  line  with  euro 
area  recommendation  1.  However,  the  set-up  of  a 
the 
performance  and  monitoring 
improvement  of  the  system  for  project  selection 

framework, 

(6)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
country  specific  recommendation  is  presented  in  the 
Overview Table in Annex A. This overall assessment does 
not include an assessment of compliance with the Stability 
and Growth Pact. 

the  capacity  of 

the  assessment  of 

and 
the 
government departments for the implementation of 
the  plan  are  pending.  Ireland  has  made  some 
progress in the upskilling of the adult working-age 
population.  The  new  pilot  programme  EXPLORE 
aimed  at  increasing  lifelong  learning  and  offering 
upskilling opportunities for adults was launched in 
2018,  while  the  Agency  for  upskilling  those  in 
employment  (SkillsNet)  was  also  reinforced. 
Ireland  has  also  made  some  progress  on  country 
the  scale 
specific  recommendation  3.  Given 
reforms  needed,  progress  on 
the 
productivity growth of Irish firms has been limited.  
While 
the 
the  Government  has  announced 
ambitious  'Future  Jobs'  programme  and  made 
operational 
Technologies 
Innovation Fund (see Section 4.4.1 and Annex A), 
the  use  of  direct  policy  instruments  remains  to  be 
the  main 
explored  and 
instrument of public R&D. On the other hand, the 
promotion  of  faster  and  durable  reductions  in 
long-term arrears has made a substantial progress. 

tax  credits 

Disruptive 

fostering 

remain 

the 

15 

Ireland Overall assessment of progress with 2018 CSRs:  Some progress CSR 1: Achieve the medium-term budgetary objective in 2019. Use windfall gains to accelerate the reduction of the general government debt ratio. Limit the scope and the number of tax expenditures, and broaden the tax base. Address the expected increase in age-related expenditure by increasing the cost-effectiveness of the healthcare system and by pursuing the envisaged pension reforms. (MIP relevant) Limited progress*   Limited progress made in reducing the debt-to-GDP ratio.   Some progress made in limiting tax expenditure.   Limited progress in addressing the expected increase in age-related expenditure. CSR 2: Ensure the timely and effective implementation of the National Development Plan, including in terms of clean energy, transport, housing, water services and affordable quality childcare. Prioritise the upskilling of the adult working-age population, with a focus on digital skills. (MIP relevant) Some progress   Some progress made in ensuring the timely and effective implementation of the National Development Plan  Some progress in prioritising the upskilling of the adult working-age population, with a focus on digital skills CSR 3: Foster the productivity growth of Irish firms, and of small and medium enterprises in particular, by stimulating research and innovation with targeted policies, more direct forms of funding and more strategic cooperation with foreign multinationals, public research centres and universities. Promote faster and durable reductions in long-term arrears by the use of secondary markets, building on initiatives for vulnerable households and, where necessary, using write-offs of non-recoverable exposures. (MIP relevant) Some progress   Limited progress in fostering the productivity growth of Irish firms and of small and medium enterprises in particular.  Substantial progress in promoting faster and durable reductions in long-term arrears.   
                                                           
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to 
fostering growth and competitiveness in Ireland. 

The financial allocation from the European Structural and Investment Funds (ESI Funds) to Ireland amounts to 
EUR 3.36  billion  in  the  2014-2020  Multiannual  Financial  Framework,  potentially  representing  around  0.2 %  of 
GDP  (0.3 %  of  modified  gross  national  income)  annually.  The  allocation  supports  Ireland  in  overcoming  increasing 
challenges in competitiveness and regional disparities due to a dual economy in the country. At the end of 2018, EUR 2.3 
billion (70 % of the total ESI Funds) had been allocated to specific projects supporting, in particular, closer cooperation 
between businesses and research institutions and R&D investment in the public and private sectors.  

ESI  Funds  have  helped  to  address  policy  challenges  identified  in  the  2018  Country  Specific  Recommendations 
(CSRs).  By  the  end  of  2018,  around  EUR 207  million  from  the  European  Regional  and  Development  Fund  had 
contributed  to  fostering  R&I  and  small  and  medium-sized  enterprises’  competitiveness  (CSR3)  by  providing  financial 
support  to  47 000  businesses,  assistance  to  1 500  start-ups  and  training  to  around  50 000  participants  and  42 500 
businesses. Funds also supported 860 researchers and 370 new industrial partners to engage in innovation activities and 
collaborate with research centres. As a result, 4 700 new jobs and over 70 new start-ups and spin-offs were created and 
some 250 patent licences were granted. Horizon 2020 and European Agricultural Fund for Rural Development (EAFRD) 
respectively  contributed  with  an  additional  EUR 621  and  EUR 39  million  to  promote  R&I  in  Ireland.  The  EAFRD 
financed  17  European  Innovation  Partnerships  and  provided  training  to  68  000  beneficiaries.  Furthermore,  in  the 
framework of the National Broadband Plan, the European Regional and Development Fund  is helping to bring high-speed 
broadband speeds to the mostly  rural intervention area and help Ireland to progress in the achievement of  the EU 2025 
Gigabit Society objectives.  

EU funds have also addressed the upskilling and investment challenges in Ireland (CSR 2). For instances, because of 
the  European  Social  Fund  investments,  some  56 000  people  were  engaged  in  education  or  training,  79 000  gained  a 
qualification  and  6 600  were  employed  at  the  end  of  their  training.  The  Connecting  Europe  Facility  has  committed 
EUR 80 million to a number of energy network projects with the participation of Ireland. The European Agricultural Fund 
for Rural Development has promoted investments in environmentally friendly agricultural production methods. At the end 
of 2018, more than EUR 1 billion had been paid out through the Irish Rural Development Programme for environmental 
and climate change actions. 

The  Commission  can  provide  tailor-made  technical  support  upon  a  Member  State’s  request  via  the  Structural 
Reform Support Programme to help Member States implement growth-sustaining reforms to address challenges 
identified in the European Semester process or other national reforms. Ireland, for example, is receiving support to 
improve  the  fiscal  transparency  of  public  finances,  enhance  strategic  human  resource  management  and  to  establish  a 
modern regulatory environment for gambling and betting with a view to the establishment of an independent regulatory 
authority. In addition, work has started on the development of an authorisation and supervision framework for a central 
securities depository.  

In Ireland, the overall volume of approved operations by the European Investment Bank with European Fund for 
Strategic  Investments  backing  amounted  to  EUR  1.4 billion  in  February  2019,  which  is  set  to  trigger  a  total  of 
EUR 6.5 billion in additional private and public investments. So far, 21 projects involving Ireland have been approved 
under  the  infrastructure  and  innovation  window  of  this  fund.  They  amount  to  EUR 1  billion  in  total  financing,  which 
should,  in  turn,  generate  EUR 4.9  billion  in  investments.  Under  the  SME  component,  9  agreements  with  intermediary 
banks  have  been  approved  for  a  total  of  EUR 279  million,  which  should  mobilise  around  EUR 1.5  billion  of  total 
investment.  14 188  SMEs  and  mid-cap  companies  are  expected  to  benefit  from  this  support.  The  European  Investment 
Bank  is  for  instance  providing  EUR 70 million  to  a  public-private  partnership  for  the  construction  of  14  new  health 
centres across Ireland. This investment will increase access to primary healthcare and social services, make services more 
cost-effective and improve facilities.  

More information at: https://cohesiondata.ec.europa.eu/countries/IE.  

16 

 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MIP IN-

DEPTH REVIEW 

in-depth  review 

The  2019  Alert  Mechanism  Report  concluded 
should  be 
that  a  new 
undertaken for Ireland to assess the persistence 
or  unwinding  of  the  imbalances.  (European 
Commission,  2018).  In  spring  2018,  Ireland  was 
identified  as  having  macroeconomic  imbalances 
(European  Commission,  2018m).  The  imbalances 
identified  related  in  particular  to  large  stocks  of 
public and private debt and net external liabilities. 
High  stock  of  non-performing  loans  and  rapidly 
close 
rising  house  prices 
monitoring.  This  chapter  summarises  the  findings 
of 
the 
Macroeconomic  Imbalance  Procedure  (MIP)  in-
depth  review  that  is  contained  in  various  sections 
in this report. (7) 

also  warranted 

context  of 

analyses 

the 

the 

in 

3.1. 

IMBALANCES AND THEIR GRAVITY 

Private sector debt remains high, at 243.6 % of 
GDP  at  the  end  of  2017,  despite  continued 
efforts  to  reduce  it.  Overall  indebtedness  is 
heavily  affected  by  multinational  companies. 
While  the  debt  of  all  non-financial  corporations 
(NFCs)  fell  from  231 %  to  196 %  of  GDP  during 
2017,  debt  of  Irish  NFCs,  including  debt  of 
redomiciled public limited companies (PLCs), fell 
from  90.1 %  of  GDP  in  2016  to  83.6 %  in  2017. 
Relative 
income 
to  modified  gross  national 
(GNI*),  debt  of  domestic  companies,  including 
debt  of  redomiciled  PLCs,  amounted  to  136 %  in 
2017. Total debt of households and domestic NFCs 
amounted  to  131.3 %  of  GDP  in  2017,  slightly 
below  the  indicative  MIP  threshold  of  133 %  of 
GDP.  Although  rising  housing  prices  are  putting 
upward  pressure  on  household  debt,  households 
have  continued  to  reduce  their  debt-to-GDP  ratio 
and  brought  it  down  to  47.7 %  of  GDP  in  2017. 
Relative  to  disposable  income,  household  debt 
declined 
is  relatively  high 
compared to other EU countries and  suggests that 
households  remain  relatively  more  vulnerable  to 
interest  rate  and  income  shocks.  Although  an 
increasing  share  of  new  mortgages  has  interest 

to  135.7 %.  This 

(7)  Analyses relevant for the in-depth review can be found in 
the  following  sections:  public  debt  in  Section  4.1.1, 
financial  sector  imbalances  in  Section  4.2.1,  private 
indebtedness  in  Section  4.2.2,  volatility  of  the  external 
position in Section 4.4.1 and the property market in Section 
4.4.2 

rates fixed for more than one year, around 90 % of 
the stock of loans is with variable rates.  

The  public  debt  ratio  has  come  down,  while 
remaining  elevated.  Public  debt  as  a  share  of 
GDP has significantly declined, reaching 68.4 % in 
2017.  The  improvement  (of  5.0 %  of  GDP) 
compared to 2016 is due to the denominator effect 
of strong GDP growth. At 111 % of GNI* in 2017, 
the  debt  burden  is  de  facto  among  the  highest  in 
the  EU.  However,  financial  markets’  perceptions 
of  sovereign  risk  remain  favourable,  reflected  in 
low sovereign bond yields and credit default swap 
spreads. 

The stock of non-performing loans decreased in 
the year to June 2018, helped by portfolio sales. 
While  the  aggregate  non-performing  loans  ratio 
was  8.5 %  at  the  end  of  June  2018,  down  from 
11.6 %  a  year  earlier,  it  remains  higher  than  the 
euro  area  average  of  4.2 %.  The  reduction  in  the 
stock  of  non-performing  loans  is  the  result  of  a 
and 
restructuring 
combination  of 
portfolio  sales,  with  varying  degrees  of  success 
among 
individual  banks.  Long-term  arrears 
continue to be relatively high, accounting for more 
than half of total non-performing loans. 

activities 

The  external  position  of  the  economy  is  still 
rather negative, but risks to the domestic sector 
seem  to  abate.  The  net  international  investment 
position  stood  at  134.5 %  of  GDP  in  the  third 
quarter  of  2018,  a  significant  improvement  from 
the  2015  peak  of  242.7 %.  Furthermore,  the  net 
external  position  of  some  domestic  sectors  has 
improved  over  the  last  two  years.  The  external 
risks  of  the  domestic  sector  seem  contained  but  it 
remains  difficult  to  assess  them  fully  due  to  the 
impact  of  multinationals  on  headline  statistics. 
Nevertheless, there is strong  evidence that the  net 
international 
is  boosted 
investment  position 
beyond  fundamental  levels  by  the  large  negative 
position  of  multinationals  and 
International 
Finance Service  Centre (8), to which the domestic 
sector  has  only  very  little  exposure.  The  current 
account  balance  remains  extremely  volatile  and 
heavily  influenced  by  some  large  multinationals 

(8)  The  International  Finance  Service  Centre  is  a  hub  for 
international financial transactions that has little connection 
with the financing of the domestic economy. 

17 

 
 
                                                           
                                                           
(Graph 4.4.1).  The  modified  current  account 
balance, which discounts for these effects, remains 
positive  and  displays  less  volatility  around  a 
moderately  declining  trend.  The  Irish  economy 
appears 
external 
have  maintained 
competitiveness.  

its 

to 

Graph 3.1:  Overvaluation gap with respect to 

price/income, price/rent and fundamental 
model valuation gaps 

(1) Overvaluation gap with respect to price/income, 
price/rent and fundamental model valuation gaps 
Source: European Commission 

Annual  house  price  inflation  has  moderated 
notably since April 2018 but remains high. The 
recent  sharp  pickup  in  construction  coupled  with 
more  stringent  macro-prudential  rules  appear  to 
have  eased  pressure  on  house  prices,  notably  in 
Dublin. However, despite the expansion in housing 
supply, a gap between demand and supply persists 
and continues to be the main driver of house price 
increases.  Although  there  are  not  yet  consistent 
signs of overvaluation, the price-to-income ratio is 
already  above  its  fundamental  value,  indicating 
affordability  issues  (Graph3.1).  In  addition,  the 
number  of  years  of  gross  disposable  income 
required by an average household in Ireland to buy 
a  100 square  metres  dwelling  amounted  to  16  in 
2017.  This  period  was  above  the  prudential 
benchmark  equal  to  10  and  one  of  the  longest  in 
Europe. (European Commission, 2018d) 

3. Summary of the main findings from the MIP in-depth review 

3.2. 

EVOLUTION, PROSPECTS AND POLICY 
RESPONSES 

Ireland’s  general  government  debt-to-GDP 
ratio is projected to continue declining from its 
peak  of  almost  120 %  in  2012.  The  government 
expects  to  use  the  proceeds    from  the  return  of 
funds  set  aside  for  the  resolution  of  the  financial 
crisis, notably  the  winding  down  of  the  National 
Asset  Management  Agency,  and  any  windfall 
receipts to accelerate its reduction. The authorities 
had  set  a  target  of  debt-to-GDP  of  45 %  to  be 
achieved  by  the  end  of  the  next  decade  and  an 
intermediary  one  of  55 %  until  major  capital 
projects  are  completed.  However,  these  are  no 
longer referenced in the latest budget. 

arrears 

resolutions 

increased  since 

Insolvency  procedures  as  well  as  in-court  and 
out-of-court 
remain 
under-used.  The  number  of  personal  insolvency 
the  Abhaile 
applications  has 
aid-and-advice scheme was set up. However, there 
has been an increase in creditors’ rejections of the 
proposed insolvency arrangements, which transfers 
the cases to court, thereby reducing the number of 
concluded arrangements. The number of successful 
arrangements  between  debtors  and  lenders  has 
been 
since  end-2017.  Collateral 
repossessions  are  still  quite  rare.  On  the  other 
hand,  the  credit  register  should  become  fully 
operational in March 2019. 

stagnating 

The  external  position  of  some  domestic  sectors 
is  improving.  In  2017  and  2018,  the  net  external 
position  of  domestic  banks  improved  after  banks 
restored  their  access  to  market  funding  in  2016, 
with  positive  impact  also  on  the  Central  Bank’s 
position. The net international investment position 
of the general government remains negative but it 
follows  a  continuous  upward  path;  furthermore,  a 
substantial  part  of  this  debt  comprises  long-term 
debt  towards  official  creditors,  from  the  financial 
assistance  programme,  with  long-term  maturity 
and  subject  to  extension  (European  Commission, 
2019), 
they  do  not  constitute  a 
vulnerability.  The  situation  of  the  non-financial 
corporations  appears  to  be  significantly  driven  by 
intergroup  credits  of  multinationals  to  which 
domestic  sectors  have  only  limited  exposure. 
There  is  however  no  conclusive  evidence  on  the 
level of the domestically relevant net international 
investment position. (see Box 3.1 for more detailed 
analysis) 

therefore 

18 

-40-30-20-1001020304050601999200020012002200320042005200620072008200920102011201220132014201520162017Price-to-rent vs hist. avg.Price-to-income vs hist. avg.Model overvaluation gap 
 
3. Summary of the main findings from the MIP in-depth review 

including 

The government has taken a range of measures 
to  support  housing  supply, 
the 
construction of social housing. The establishment 
of  the  Land  Development  Agency,  the  Serviced 
Site Fund and the Regeneration Development Fund 
may increase the availability of land serviced with 
the  necessary  infrastructure.  The  new  planning 
rules for apartment design, the announced removal 
of blanket restrictions on building  heights  and the 
increase in the vacant site levy could further boost 
housing supply. However, there are concerns over 
the  construction  sector's  capacity  to  deliver  the 
required  level  of  housing  and  infrastructure  in  a 
timely  manner  as  well  as  regarding  incentives  for 
house  ownership  created  by  property  taxes  based 
on 
valuations.  The 
house 
Construction  Sector  Group  (CSG),  established  by 
the  government  following  the  launch  of  Project 
Ireland  2040,  may  help  assess  the  supply  of 
necessary  skills  and  measures  enhancing  this 
sector’s capacity. 

below-market 

3.3.  OVERALL ASSESSMENT  

Public  and  private  debt,  as  well  as  rapidly 
rising  housing  prices,  are  a 
source  of 
vulnerability 
the  economy.  Debt  of 
for 
households  and  domestic  companies,  including 

redomiciled  public  limited  companies,  relative  to 
GDP,  fell  below  the  indicative  macroeconomic 
imbalance  procedure  threshold  in  2017.  However, 
relative to modified gross national income, debt of 
the  domestic  private  sector  remains  elevated. 
Although  new  lending  with  interest  rates  fixed 
between one and five years is increasing, 90 % of 
household debt is on variable interest rates. Rising 
property  prices  should  support  banks'  efforts  to 
advance  non-performing  loans  reduction  plans, 
although  the  share  of  long-term  arrears  remains 
relatively high. The public debt-to-GDP ratio is on 
trajectory  and  a  balanced 
a  firm  downward 
government  position  is  expected  by  2020.  Some 
windfall  gains  are  planned  to  reduce  government 
debt.  The  activities  of  some  large  multinationals 
companies  operating  in  Ireland  and  the  markedly 
negative  net  position  of  the  International  Finance 
Service Centre complicate assessment of Ireland’s 
highly  negative  net 
investment 
position, even though there is strong evidence that 
neither  constitute  vulnerabilities  of  domestic 
sectors. The government has repeatedly intervened 
to  tackle  the  undersupply  of  housing,  but  it  will 
take  time  for  the  measures  to  have  an  effect. 
Insufficient capacity in the construction sector and 
housing  ownership 
remain  a 
tax 
concern. 

international 

incentives 

19 

 
3. Summary of the main findings from the MIP in-depth review 

Box 3.1: Net international investment position - additional instruments 

Complementary indicators assessing the stability of the net international investment position 
(NIIP)  instruments  can  offer  further  insights.  The  NIIP  sustainability  is  contingent  on  how 
risky its components are. In this respect, the NIIP excluding non-defaultable instruments (NENDI) 
is a useful complementary indicator in assessing the external sustainability. The NENDI excludes 
direct  investment  and  portfolio  shares  from  the  NIIP,  in  theory  non-defaultable,  and  thus  it 
comprises purely arms-length debt and any other instruments that may be subject to default such 
as insurance, mutual fund shares and derivatives (European Commission, 2018h). Nonetheless, it 
should be noted that due to the large occurrence of debt-equity conversions in Ireland, the NENDI 
figure is volatile. This makes the interpretation not straightforward. 

The  riskier  instruments  of  the  NIIP  are  owned  largely 
by  multinationals  and  International  Finance  Service 
Centre  entities.  At  the  end  of  2017,  the  NENDI  stood 
at -259 % of GDP driven by the investment fund shares with 
a net position of -661 % of GDP, largely associated with the 
International  Finance  Service  Centre  sector. (1) (2)  Debt 
instruments  had  a  positive  net  position  of  269 %  of  GDP. 
Debt liabilities are mostly attributed to the sectors other than 
(in 
monetary 
proportion of 77 %). In this category, the debt attributed to 
non-financial corporations belongs largely (more than 75 % 
(3)) to non-financial corporations with a  foreign parent and 
it  is  linked  to  the  non-resident  funding  of  intellectual 
property assets (Central Statistics Office, 2017). This is due 
to some multinationals borrowing money abroad to finance 
their investment by purchasing intellectual property from the parent company, and is therefore not a liability 
of  the  Irish  sector  (Central  Statistics  Office,  2018b).  The  equity  instruments  (excluding  investment  fund 
shares) had a net position of 110 % of GDP).  

institutions  and  government 

financial 

The underlying NIIP appears to have improved but is still relatively elevated.  In order to discount for 
the impact of multinationals on headline figures, the underlying NIIP can be estimated by adding cumulated 
modified  current  account  balance  (CA*) (4)  to  earlier  NIIP  figures  that  are  known  to  be  less  affected  by 
offshore  activities  than  current  data.  These  estimates  suggest  that  the  underlying  NIIP  would  be 
around -80 % to -110 % of modified gross national income (GNI*) (-51% to -68% of GDP)  (5). 

(1)  The  investment  fund  shares  are  owed  in  proportion  of  23 %  by  the  money  market  funds  sector  and  77 %  by  the 
financial corporations other than monetary financial institutions (MFIs). When looking at the position of other financial 
corporation than MFIs, divided by IFSC and non-IFSC, only the ones part of the IFSC sector hold liabilities, therefore 
the investment fund shares liabilities belonging to the financial corporation other than MFIs can be associated with the 
IFSC sector. 

(2)  When looking at the total liabilities of other financial corporations than MFIs subsector, they increased substantially in 
2014  and  2015  as  a  source  of  new  available  data  source  in  that  period  and  an  increase  in  the  balance  sheet  size  of 
treasury companies (CSO (2018), Macroeconomic Scoreboard 2017, December 2018) 

(3)  Excluding redomiciled public limited companies (PLCs) as there is no data showing which part of their debt is to the 

domestic or external sectors. 

(4)  The modified current account balance (CA*) is published by the Irish Central Statistics Office and  excludes from the 
standard current account balance the globalisation effects that are disproportionally impacting the measurement of the 
size of the Irish economy. 

(5)  Based on European Commission calculations. This estimate is constructed by taking 2007-2013 as base years for the 
NIIP and subsequently adding cumulated CA* numbers. Data before 2015 and the constructed CA* is accepted to be 
much less biased by the operations of multinational firms. Positive and negative valuation effects are assumed to cancel 
out. 

20 

 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Table 3.1: 

MIP assessment matrix (*) — Ireland 2018 

(Continued on the next page) 

21 

  Severity of the challenge Change and prospects Policy response  Imbalances (unsustainable trends, vulnerabilities and associated risks) Private debt  Private sector consolidated debt stood at 243.6 % of GDP in 2017, down from 283.3 % in 2016.It remains still among the highest in the EU, mainly due to high indebtedness of multinational companies. Debt of households and Irish companies, including the debt of redomiciled public limited companies (PLCs), has fallen to 131.3 % of GDP. Relative to modified gross national income (GNI* 1), debt of the private sector stood at 213 %. Corporate debt (196 % of GDP at the end of 2017) figures are strongly influenced by the activities of multinationals. Debt of domestic companies, including the debt of redomiciled PLCs,  stood at 83.6 % of GDP (or 135 % of GNI*) Household debt fell to 47.7 % of GDP in 2017. Household debt, relative to gross disposable income, still remains among the highest in the EU (136 % of disposable income at the end of 2017, down from 218 % in 2009). The judicial procedures for mortgage arrear settlement are slow and cumbersome while insolvency and bankruptcy are underused. Long-term defaulted mortgages remain unresolved and a burden for both banks and debtors.                       Household debt continued to decrease, by 10 percentage points of GDP in 2017. The decline was the result of active deleveraging. The economic recovery is facilitating debt repayment and supporting the recovery in collateral value.  SMEs have borne the brunt of the deleveraging in the corporate sector.   The Abhaile aid-and-advice scheme for mortgage debtors in distress could lead to a broader use of personal insolvency.  The Central Bank of Ireland proposed measures to enhance the protection of mortgage holders, including a greater transparency of mortgage products and switching. Moreover, macro-prudential measures have been recalibrated, incentivising more prudent lending standards Public debt  Gross general government debt remained high at 68.4 % of GDP in 2017. A range of alternative metrics, including an interest-to-revenue ratio, show that Ireland’s stock of public debt remains high by international and historical standards. At 111 % of GNI* in 2017, the debt burden is de facto among the highest in the EU. Gross general government debt fell by 5.0 percentage points in 2017, mostly due to a high nominal GDP growth. It is expected to have declined to 63.9 % of GDP in 2018, from 68.4 % of GDP in 2017, and to further decline to 61.1 % in 2019 and 56 % of GDP in 2020. While the general government deficit fell in 2017, the pace of fiscal consolidation has slowed in recent years following several in-year expenditure increases. It is not forecast to improve much in 2018 and 2019. The structural deficit is expected to increase to around 0.5 % of GDP in 2019 from 0.2 % in 2018. The risks to the fiscal outlook relate mainly to macroeconomic uncertainties, the volatility of some sources of government revenue (notably corporate income taxes) and over-spending (notably within the health sector).  In 2018, Ireland is projected to have respected its medium-term budgetary objective. If compliance with the medium-term budgetary objective can no longer be established at the time of the ex-post assessment, an overall assessment of compliance will need to take into account a possible deviation from the adjustment requirements. In 2019, Ireland is projected to remain at its medium-term budgetary objective. Budget 2019 estimates exchequer receipts of EUR 0.8 billion in 2018 from the return of funds set aside for the resolution of the financial crisis. It is the stated position of the government that these and further estimated exchequer receipts of EUR 3.5 billion, spread over 2020 and 2021, arising from the winding down of the National Asset Management Agency will be directed towards lowering the debt.  While it is important to bear in mind a possible trade-off with faster debt reduction, the planned rainy day fund could contribute to prudent management of public finances. The target of debt-to-GDP of 45 % by the end of the next decade and an intermediary one of 55 % until major capital projects are completed, while still government policy, are no longer referenced in the latest budget.  Financial sector challenges  The non-performing loans ratio fell to 8.5 % at the end of June 2018, down from 11.6 % registered one year prior. There are significant differences in asset quality among banks. Provisioning levels are lower than the EU average. At the end of June 2018, 15.0 % of the total mortgage balance was in arrears, down from a high of 26.3 % in 2013. 60 % of mortgage arrears are past due for more than two years. The number of repossessions remains low, while there has been some increase in the number of insolvency procedures initiated (although from a low base). The pace at which non-performing loans are declining has picked up, supported by the sales of bad loans. The amount of long-term arrears indicates an insufficiently effective judicial route and a propensity of lenders and debtors to delay the process.  Bank profitability continues to recover, however potential spillovers from the UK make the outlook uncertain. Provision write-backs that had previously contributed to profits are less likely to happen again on a large scale (Section 4.2.1).   The banks meet capital requirements, with an average commom equity tier 1 (CET1) ratio of 23.0 % at the end of June 2018. Following positive growth in new lending in mortgages, consumer and corporate loans since mid-2017, credit stabilised in the mid of 2018. On the aggregate, the economy is still in a deleveraging mode. The marked increase in personal insolvency applications could be the result of the Abhaile aid and advice scheme for the support of distressed debtors.  By end-June 2017, the total lending by the Strategic Banking Corporation of Ireland (SBCI) including risk-sharing guarantee schemes,  was EUR 920 million to over 22 000 Irish SMEs. A new Agriculture Cashflow Support Loans Scheme was successfully launched in 2016.  The central credit register became operational for consumer loans in 2018.                                                             1 Modified gros national income is published by the Irish Central Statistics Office and excludes from the standard gross national income the globalisation effects that are disproportionally impacting the measurement of the size of the Irish economy.  
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Table (continued) 

(*) first column summarises ‘gravity’ issues, aiming to put the imbalances in order of magnitude. The second column reports 
findings concerning the ‘evolution and prospects’ of these imbalances. The third column reports recent and planned 
measures. Findings are reported for each source of imbalance and adjustment issue. The final three paragraphs summarise 
the overall issues, in terms of their gravity, developments and prospects and the policy response to them. 
Source: European Commission 

22 

External sustainability   The net international investment position (NIIP) is improving although the underlying, domestically relevant NIIP remains hard to gauge. Ireland had a negative NIIP of 149 % of GDP in Q4-2017. Non- International Finance Service Centre (IFSC) financial intermediaries held 62.8 % of GDP in net assets at the end of 2016.  Non-financial companies net liabilities were 140.3 % of GDP  The general government sector’s negative net external position stood at 41.9 % of GDP. The International Financial Services Centre’s net position was negative at 48.5 % of GDP along with gross positions of over 1200 % of GDP. The NIIP deteriorated significantly in 2015 primarily due the very sizeable on-shoring of intellectual property assets to Ireland, arising from the tax optimisation strategies of a small number of multinational enterprises. Some of these companies are very large compared to the Irish economy. The incurrence of these liabilities has only limited implications for the external sustainability of the underlying domestic economy.  The external position of the domestic sectors, such as the Central bank, commercial banks and general government, has improved in recent years.  The maturity profile of external debt is generally favourable, in particular for external liabilities vis-a-vis official creditors. Approximately 40 % of medium/long-term external debt will mature from 2026 onwards. The riskier instruments of the NIIP belong largely to multinationals and IFSC sector, to which domestic sector has little exposure. The NIIP without non-defaultable instruments (NENDI – see Box 3.1 for details) is negative but if IFSC sector is excluded then the NENDI would turn positive (Section 4.4.1). Net equity position is positive.  Property market  Residential property prices increased by 10.9 % in 2017 [provisional data- Eurostat]. Annual housing price inflation accelerated further in the first quadrimester of 2018 to 13.3 % in April 2018 and declined afterward to 8.2 % in September 2018. Rents increased 5.8 % y-o-y in September 2018, reaching a new all-time high in 2018. (see Section 1) At this stage, average national housing prices do not look unsustainable according to standard measures but some indicators such as the price-to-income (affordability) index exceeded its annual long-term average in 2017.  If not addressed, constraints limiting the construction sector and the supply of housing could contribute to imbalances building up. The steep increase in construction coupled with more binding macroprudential rules, appear to have curbed price inflation in recent months. Despite improvements, housing supply still falls short of demand, fuelling property and rent prices.  The government has actively intervened to address housing supply constraints but measures will take time to generate effects.  Updated guidelines for planning authorities on design standards for new apartments were published in March 2018.The public consultation on the draft guidelines on urban development and building heights was launched in August 2018. These planning reforms are expected to support housing delivery by reducing construction costs and promoting a more compact urban growth.  The National Development Plan (NDP), launched in February 2018 expects to support the provision of 112 000 social houses by 2027. The Serviced Site Fund and the Regeneration Development Fund, set-up by the NDP, should support the delivery of infrastructure to unlock local authority-owned land as well as urban and rural regeneration interventions. The Land Development Agency launched in September 2018 may facilitate the release, assembly and effective use of strategically located land banks suitable for public and private housing provision (see section 4.4.3) Conclusions from IDR analysis  Large stocks of public and private debt make Ireland vulnerable to adverse shocks but the flow variables have continued to improve. While the stock of non-performing loans is falling, long-term mortgage arrears remain relatively high. Banks are well-capitalised, which makes them well placed to intensify restructuring efforts. Provisioning levels, however, remain low. Housing supply shortages persist and, together with increasing demand, translate into price increases.   Following a recovery in credit demand in 2017, the stock of household credit have been broadly stabilised since the mid of 2018. Household debt fell to 47.7 % of GDP in 2017. Household debt relative to modified GNI however is elevated and among the highest in the EU. While the situation of non-financial corporations is more difficult to interpret given the weight of multinationals on total corporate debt, it is clear that most domestic companies keep reducing their deb relative to GDP. Public debt is on a firm downward trajectory and a balanced government position is expected by 2020. The pace at which non-performing loans are declining has picked up, supported by disposals. While the high negative net international investment position appears to be driven to a substantial extent by factors that are unrelated to the domestic economy, the external sustainability of the domestic sector is gradually improving due to current account surpluses. The marked increase of property prices and rents, on the back of a still insufficient supply response, makes it urgent to address any constraints limiting the construction sector and the supply of housing.  Comprehensive policy measures have been taken in recent years to address all the vulnerabilities highlighted above. These include measures to reduce the amount of non-performing loans although those aimed at reducing long-term arrears have been subject to a slow start. Some windfall gains are planned to be used to reduce government debt. The government has repeatedly intervened to tackle the undersupply of housing, but it will take time for the measures to have an effect. Furthermore, macro-prudential policies have been tightened and help to ensure the resilience of households and banks. High uncertainty surrounds the final outcome of the negotiations between the UK and the EU.   
 
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

4.1.1.  FISCAL POLICY* (9) (PUBLIC DEFICIT AND 

DEBT DEVELOPMENTS)  

It  could  be  prudent  to  accelerate  deficit  and 
debt  reduction,  in  particular  as  indicators 
suggest  that  the  economy  is  operating  close  to 
its  potential.    In  the  run-up  to  the  economic  and 
financial  crisis,  Ireland  employed  a  pro-cyclical 
budgetary  policy  approach,  with  public  spending 
and  taxation  adding  fuel  to  the  fire  when  the 
capacity  of 
the  economy  was  constrained. 
Approaching full employment, the government has 
acknowledged  the  need  to  manage  budgetary 
policy  to  improve  living  standards  in  a  way  that 
does  not  contribute  to  overheating  the  economy 
(Department of Finance and Department of Public 
Expenditure  and  Reform,  2018).  However, 
including the pre-committed expenditure increases, 
the  total  Budget  2019  package  was  worth  around 
1 %  of  GDP  (close 
to  EUR 3.5  billion),  a 
considerable stimulus to the economy. 

in 

the 

improvements 

Public  debt  continues  to  fall,  but  remains 
the  Irish  Fiscal 
significant.  As  warned  by 
Advisory  Council, 
the 
primary  budget  balance  have  stalled  since  2015, 
despite  the  favourable  environment  (Irish  Fiscal 
Advisory  Council,  2018).  Other  metrics,  like  the 
interest-to-revenue 
in  2017, 
highlight  that  debt  remains  high  by  EU  standards 
(see Section 3). Contingent liabilities continued to 
decline.  In  Ireland,  a  major  part  of  the  guarantees 
is towards financial institutions. They fell to 0.5 % 
of GDP in 2017, from 1.9 % in 2016. 

ratio,  at  7.6 % 

Government  financing  has  benefitted  from  the 
low  interest  rate  environment  and  supportive 
bond  market  conditions.  Euro  area  sovereign 
bond  yields  remain  low  by  historical  standards. 
The  ten-year  rates  in  Ireland  stood  at  0.91 % in 
December  2018  (10).  This  also  reflects  Ireland’s 
continuing 
fiscal 
performance. At the same time, the lion’s share of 
Irish  sovereign  debt,  over  95 %  of  the  total,  is  at 

economic 

strong 

and 

(9)  An  asterisk  indicates  that  the  analysis  in  the  section 
the 
in-depth 
contributes 
Macroeconomic  Imbalances  Procedure  (see  Section  3  for 
an overall summary of main findings). 

review 

under 

the 

to 

(10)  10-year bond yields, 24 October 2018. Source: Bloomberg 

fixed  rates  (Department  of  Finance,  2018) (11). 
Hence,  the  risks  to  debt  projections  mainly  relate 
to  changes  to  the  economic  outlook.  Almost 
EUR 17.3  billion  in  nominal  benchmark  bonds 
were issued in 2018, well in the EUR 14-18 billion 
range  targeted  at  the  start  of  the  year.  Issuance 
included  EUR 3  billion  in  Ireland’s  first-ever  sale 
of sovereign green bonds to diversify the issuance, 
accessing a new category of investor and providing 
that  meets  untapped 
a  new  debt 
investor  demand  (National  Treasury  Management 
Agency, 2018). They are designed to be aligned to 
the  Green  Bond  Principles,  published  by  the 
International Capital Market Association. 

instrument 

loans  from 

Ireland’s  market  activity  has  extended  the 
maturity  profile  of  its  debt.  At  the  end  of  2017, 
public debt amounted to EUR 201 billion, with the 
weighted  average  maturity  at  around  10  years 
remaining  one  of  the  longest  in  the  EU.  Around 
25.4 %  of  long-term  marketable  and  official  debt 
represented  official 
the  financial 
assistance  programme  partners.  Redemptions  of 
European Financial Stability Facility and European 
Financial  Stabilisation  Mechanism  loans  currently 
extend  until  2042.  The  maturities  of  loans  to 
Ireland  under  the  latter  have  been  extended.  It  is 
therefore  not  expected  that  Ireland  will  have  to 
repay  any  of  these  loans  before  2027.  This 
extension  and 
the  ensuing  operations  entail 
financial  benefits  for  Ireland,  linked  to  the  EU’s 
favourable  funding  conditions.  Together  with 
sensible  debt  management  operations,  these  have 
contributed  to  the  decline  in  the  effective  interest 
rate. It was estimated at around 2.9 % in 2017, 0.2 
percentage  points  lower  than  in  2016,  and  is 
projected  to  have  further  declined  to  2.6 %  in 
2018. 

Debt sustainability analysis and fiscal risks 

debt 

improving, 

Although 
sustainability 
remains  vulnerable  to  unfavourable  shocks. 
Short-term  sustainability  does  not  appear  to  be  a 
cause  for  concern.  In  principle,  Ireland  also  faces 
low fiscal sustainability risks in the medium term, 
as  measured  by  both  the  debt  sustainability 

(11)  When account is taken of the interest rate hedging that is in 

place to protect against floating rate exposures.  

23 

 
 
                                                           
                                                           
analysis  and  the  S1  indicator.(12)  This  reflects  a 
relatively  strong  initial  budgetary  position  and  a 
debt  ratio  already  close  to  60 %  of  GDP  in  2020 
(Annex  B).  When  debt  metrics  are  measured 
relative to gross national income, however, most of 
the  distribution  of  the  debt  burden  lies  above  the 
60 %  threshold  over  the  projection  period  (Graph 
this  analysis  still  underestimates 
4.1.1),  and 
vulnerabilities in the Irish context. Furthermore, in 
case  of  combined  negative  shocks  (corresponding 
to the 90th percentile rank of the debt distribution), 
the  debt  ratio  would  lie  close  to  or  above  the 
threshold of 90 % of gross national income. 

Graph 4.1.1:  Government debt projections, % of gross 

national income 

4.1. Public finances and taxation 

decrease of 0.2 pps of GDP for the EU as a whole. 
The  demographic  factor  alone  would  lead  to  an 
increase  of  4 pps  of  GDP  in  pension  expenditure 
by  2070.  Other  factors  such  as  coverage  and 
benefit  level  soften  the  overall  impact  on  pension 
spending, though. 

than 

the  baseline  projection. 

The  pension  expenditure-to-GDP  ratio  would 
peak  at  7.5 %  of  GDP  in  2053  up  from  5 %  in 
2016.  It  would  nevertheless  fall  back  to  6.6 %  in 
2070, compared to 11.0 % for the EU as a whole. 
However,  if  fertility  rates  were  20 %  lower  than 
the  entire 
the  baseline  assumption  during 
projection  period,  ageing  would  be  more 
pronounced and pension expenditure would rise by 
2.9 pps  of  GDP  between  2016  and  2070,  1 pp 
the 
higher 
employment  rate  of  workers  aged  55-74  were  to 
rise  by  10 pps  on  top  of  the  baseline  assumption, 
the increase in pension expenditure by 2070 would 
be  0.4 pps  of  GDP  lower.  The  introduction  of  a 
link between legal retirement ages and gains in life 
expectancy  would  reduce  the  baseline  projection 
by 0.5 pps of GDP. (13) The Roadmap for Pension 
Reform,  published  in  2018,  aims  to  address  the 
long-term sustainability of the state pension system 
and  will  build  on  a  reform  already  introduced  in 
2014,  to  move  the  state  pension  eligibility  age  to 
68  by  2028.  However,  the  remaining  envisaged 
reforms have not yet been finalised. 

If 

Source: see Box 3.1 in European Commission (2019), Fiscal 
Sustainability Report 2018 

4.1.2.  FISCAL FRAMEWORKS AND SPENDING 

REVIEWS 

Spending  on  long-term  care,  pensions  and 
healthcare is projected to increase over the next 
decades  as  a  result  of  an  ageing  Irish 
population. According to the 2018 Ageing Report, 
long-term  care  expenditure  would  increase  by 
1.9 percentage points (pps) of GDP between 2016 
and  2070,  with  an  increase  of  1 pp  of  GDP  for 
healthcare  spending,  both  above  EU  average 
expenditure growth (see Section 4.3.4). Outlays for 
pension benefits are projected to rise by 1.6 pps of 
GDP  over  the  same  period,  compared  to  a  slight 

  adjustment 

(12)  The  medium-term  sustainability  indicator  S1  shows  the  
additional 
  of  
improvement    in    the  government  structural  primary 
balance over five years to reach a 60 % public debt-to-GDP 
ratio  by  2033,  including  financing  for  future  additional 
expenditure arising from population ageing. 

  required, 

  terms 

  in 

. 

Expenditure overruns in some departments are 
a  cause  for  concern.  The  pace  of 
fiscal 
consolidation has slowed in recent years, following 
several in-year expenditure increases. Expenditure 
ceilings have kept drifting up on the back of better-
than-expected (but possibly temporary) revenue. In 
some  departments,  slippages  of  EUR 810 million 
in total emerged in 2018, driven by expenditure in 
healthcare and, to a lesser extent, the department of 
housing.  This  was  offset  mainly  by  lower  than 
expected  spending  in  other  departments  and  debt 
interest  payments.  Overall,  the  purse  strings  have 
been  loosened  in  2018,  with  expenditure  up  by 

(13)  At unchanged policy,  state pension age is set to rise to 68 
years  in  2028  (for  both  men  and  women)  with  no 
possibility of receiving old-age pension benefits before that 
age. 

24 

40506070809010011012020162017201820192020202120222023p10_p20p20_p40p40_p60p60_p80p80_p90gdebt_gdp_DSM 
 
                                                           
                                                           
4.1. Public finances and taxation 

announced in advance, as part of Budget 2019. The 
Parliamentary  Budget  Office  has  highlighted  that, 
while  some  are  only  technical  in  nature,  it  would 
be  useful  if  all  measures,  and  associated  costings, 
were published in advance of consideration of the 
proposal  by  the  parliament,  where  practicable 
(Parliamentary Budget Office, 2018). 

4.1.3.  TAXATION  

tax 

and 

factors, 

revenue 

changes 

including 

Tax  revenue  continues  to  increase  but  the 
volatility of the corporate income tax remains a 
concern.  Corporation 
in  2018 
increased  by  EUR 2.2  billion  (or 27 %)  compared 
to  2017,  with  EUR 0.7  billion  linked  to  non-
in 
recurring 
international  reporting  standards.  This  increase 
comes after a surge of 11.6 % in 2017. Corporation 
tax  revenue  also  remains  highly  concentrated.  In 
2017,  10  companies  accounted  for  39 %  of  tax 
foreign-owned  multinational 
revenue 
enterprises  paid  80 %  of  corporate 
taxation. 
Corporate  income  taxes  as  a  percentage  of  total 
taxation  continued  to  increase,  amounting  to 
12.2 % of total taxation in 2017. This is the highest 
level since  2003 and an increase of 3.9 pps. since 
2014.  The high proportion of corporate taxes and 
the  dependence  on  a  small  number  of  major 
taxpayers make Irish public finances dependent on 
a small number of multinationals. The Minister of 
Finance  has  announced  that  he  plans  to  propose 
increased 
measures 
concentration  of  overall 
taxation  revenue  on 
corporation tax receipts. 

to  address 

in  2019 

the 

the 

tax  base  and  decrease 

The  measures  of  budget  2019  will  moderately 
tax 
broaden 
expenditure. The measure with the biggest impact 
is an increase in the lower value-added-tax rate on 
hospitality,  from  9 %  to  13.5 %.  Furthermore,  the 
vehicle  registration  tax  relief  granted  for  certain 
leased vehicles will be suppressed and the scope of 
the  sugar  sweetened  drinks  tax  will  be  widened. 
The  tax  mix  will  also  be  slightly  changed, 
including  increased  betting  duties,  higher  excise 
duty  on  tobacco  products  and  higher  employer 
contributions  to  the  National  Training  Fund  levy. 
At the same time, personal income tax is lowered 
by  changing  bands  and  increasing  certain  tax 
credits,  while  universal  social  charge  is  also 
lowered through bands and rate changes. A timely 
review of the property tax has been announced for 

7.2 %  y-o-y.  Within 
this,  current  primary 
expenditure  increased  by  6.5 %,  while  capital 
expenditure  was  up  sharply,  by  31.1 %  (see 
Section 4.4.3).  

in 

terms  of 

incremental 

The  rolling  nature  of  the  spending  review  puts 
equal  emphasis  on  the  existing  level  of  public 
expenditure  and  incremental  amounts  to  be 
made  available  in  future  budgets.  This  is  a 
welcome shift in the focus away from the year-on-
year 
in  spending.  The 
increases 
spending  review  process  has  in  its  second  three-
year cycle continued to focus on key priority areas 
of  expenditure, 
the  amount  of 
expenditure  and  the  significance  of  the  emerging 
policy  challenges.  This  includes  staffing  and  pay 
bill  trends  to  guide  future  workforce  projections 
and planning. However, it remains to be seen how 
the  budget  preparations  will  actually  benefit  from 
the  spending  review  process.  Concerning  capital 
expenditure, the multi-annual allocations agreed in 
the  2018  budget  are  being  extended  under  the 
National Development Plan for a  further  year and 
so  will  now  underpin  each  department’s  capital 
planning process for a five-year period from 2018 
to  2022.  These  five-year  allocations  will  be 
reviewed and extended annually on a rolling basis 
to  include  a  fifth  year,  as  part  of  the  annual 
budgetary  process.  The  government’s  capital 
allocation  for  2019  is  broadly  in  line  with  the 
overall  allocation  set  out 
the  National 
Development Plan. 

in 

the 

Surplus 

National 

The planned rainy day fund could contribute to 
prudent management of public finances. To this 
end, the government has published the draft law to 
establish  the  fund,  which  will  formally  be  known 
(Exceptional 
as 
Contingencies) Reserve Fund. The bill is currently 
before  the  parliament.  So  far,  the  allocations  for 
the fund for 2019-2023 in the 2019 budget remain 
unchanged from the Stability Programme 2018 (at 
EUR 500  million  per  annum).  However, 
the 
legislation  provides  for  a  facility  to  add  potential 
windfall  tax  receipts  or  income  to  the  fund  where 
the parliament so approves.  

increase 

Timely  publication  of  all  finance  bill  measures 
In  principle, 
would 
tax  measures 
Finance  Bills  give  effect 
announced  in  the  Budget.  However,  the  latest 
Finance  Bill  includes  some  measures,  with  a 
impact,  which  were  not 
possible  budgetary 

transparency. 
to 

25 

 
4.1. Public finances and taxation 

mentioned in the  Roadmap, could be  instrumental 
in  stopping  payments  leaving  the  EU  potentially 
untaxed.  Ireland  has  now  fully  ratified 
the 
Multilateral  Convention  to  Implement  Tax  Treaty 
Related  Measures  to  Prevent  Base  Erosion  and 
Profit  Shifting,  which  provides  for  a  minimum 
level of protection against treaty abuse. Ireland has 
chosen to apply it to the vast majority of its treaty 
partners,  even  though  it  has,  similar  to  a  majority 
of  countries,  put  in  a  number  of  reservations  not 
forming part of the minimum standard. The actual 
changes  will  depend  on  the  combined  effect  of 
reservations by Ireland and its partners. Ireland has 
published 
in  November  2018  a  Competent 
Authority Agreement with Malta to make sure that 
the  bilateral  tax  treaty  between  Ireland  and  Malta 
is  not  used  for  aggressive  tax  planning  practices 
through  the  so-called  ‘Single  Malt’  structure.  (17)  
It is too early to assess the effect of these various 
measures,  as  well  as  of  the  US  tax  reform,  in 
limiting aggressive tax planning.  

The  potential  of  environmental  taxation  to 
support  environmental  objectives  in  a  socially 
fair  manner  has  not  been  fully  exploited. 
Revenue  from  environmental  taxes  are  above  EU 
average  as  a  percentage  of  total  taxes  (7.6 %  v 
6.1 %  in  2017),  but  fossil  fuel  subsidies  remain 
significant  and  have  in  fact  been  rising  over  the 
past  decade.  Peat  production  and  consumption 
remain  subsidised  and  other  subsidies  and 
exceptions  exist  for  petroleum,  natural  gas  and 
coal  (OECD,  2018c).  Diesel  is  still  taxed  at  a 
lower  rate  both  in  terms  of  carbon  and  energy 
content,  even  though  it  emits  more  air  pollutants. 
The  different  tax  treatment  of  diesel  and  gasoline 
for  road  use  is  nevertheless  beginning  to  be 
addressed  with  a  1 %  vehicle  registration  tax 
surcharge  for  diesel  engine  passenger  vehicles 
registering  in  Ireland  from  1 January  2019.  In 
addition,  fiscal  measures  are  being  extended  in 
2019  to  support  the  purchase  of  electric,  hybrid 
and plug-in hybrid vehicles.  

The  government  decided  against  raising  the 
carbon  tax  in  the  2019  budget.  The  Climate 
Change  Advisory  Council  strongly  advocated 

(17)  Tax arrangement that consists in having a firm registered in 
Ireland but managed from Malta, whereby its profits would 
automatically  be  taxed  in Malta  (where  corporate  taxation 
for foreign income can be between 0 and 5 %) based on the 
tie-breaker  rule  in  the  current  double  tax  convention 
between Ireland and Malta. 

2019.  It  is  an  opportunity  to  broaden  the  tax  base 
and change the tax mix in a more sustainable way 
less detrimental to growth (see Section 4.4.2). 

share  of  GDP 

level  of  outbound 

flows,  coupled  with 

High  capital 
limited 
application of withholding taxes on royalties (14) 
and  dividends  (15)  may  be  an  indication  that 
Ireland's  tax  rules  are  used  by  companies  to 
engage  in aggressive tax planning. Ireland has a 
royalties  and 
very  high 
dividends  as  a 
(European 
Commission,  2018a).  Changes  to  tax  residence 
implemented  since  2015  have  reduced 
rules 
opportunities for aggressive tax planning, although 
are 
companies 
grandfathered 
of 
2020. (16)  Intangibles worth billions of euros were 
on-shored in 2015, while companies were allowed 
to  offset  capital  allowances  for  intangible  assets 
against  100 %  of  the  income  arising  from  the  use 
intangibles  purchased  or  developed 
of 
between  2015  and  October  2017.  Following 
recommendations  from  the  Coffey  Review,  the 
quantum  was  reduced  back  from  100 %  to  80 % 
but  only  for  new  capital  allowances  on  intangible 
assets.  

before 
the 

incorporated 

2015 
end 

those 

until 

agreed 

initiatives. 

Ireland is acting to curb aggressive tax planning 
through  the  implementation  of  European  and 
internationally 
Some 
provisions  of  the  Anti-Tax  Avoidance  Directive 
have been transposed into national law, such as the 
exit  tax  since  October  2018  or  the  Controlled 
Foreign  Company  rules  (option  B)  since  January 
2019. Ireland has provided for a specific anti-abuse 
rule to prevent the risk that the exit tax at 12.5 % 
could  be  used  to  circumvent  the  capital  gain  tax, 
whose  rate  is  at  33  %.  Public  consultations  are 
ongoing on the interest limitation and hybrid rules. 
In  September  2018,  the  government  published  a 
Corporation  Tax  Roadmap,  which  announces 
consultations  in  2019  on  the  transfer  pricing 
methodology and on the possibility of a transition 
from  a  worldwide  to  a  territorial  tax  system.  A 
possible  review  of  the  withholding  tax  system,  as 

(14)  The  withholding  tax  on  royalties  only  applies  to  patents. 
Furthermore, in the case of patents, exemptions exist. 
(15)  There  is  a  broad  range  of  exemptions  of  outbound 

withholding taxes on dividend payments. 

(16)  A  company  is  deemed  to  be  resident  for  tax  purpose  in 
Ireland  if  it  was  incorporated  in  Ireland  on  or  after 
1 January  2015.  If  a  company  was  incorporated  before 
1 January  2015, 
to 
is  a 
31 December 2020. 

transition  period  up 

there 

26 

 
                                                           
                                                           
4.1. Public finances and taxation 

(Climate  Change  Advisory  Council,  2018)  an 
increase  in  the  tax  from  EUR 20/ton  of  CO2  to 
EUR 30 as a first  signal towards further increases 
to  EUR 80  by  2030.  The  government  seriously 
considered the measure and commissioned a study 
by the Economic and Social Research Institute (de 
Bruin  and  Yakut,  2018)  to  assess  its  impact,  but 
decided  against  it  in  this  budget  pending  further 
analysis of the impacts of multi-annual increases in 
carbon 
the 
implementation  of  such  a  policy..  The  increase 
would  have  been  an  important  and  much-needed 
to  economic  agents.  The  government 
signal 
indicated  that  it  would  again  consider  raising  the 
carbon tax in future. 

commencing  with 

tax  before 

27 

 
 
 
4.2.  FINANCIAL SECTOR 

4.2.1.  BANKING SECTOR* (18)  

Graph 4.2.1:  Access to finance by SMEs — Have you 

applied for credit? 

New  lending  continues  to  be  subdued,  which  is 
mainly  due  to  weak  demand  for  loans.  For  the 
first three quarters of 2018, the flow of new loans 
to  households  and  non-financial  corporations  was 
EUR 23.8 billion,  up  from  EUR 22.7 billion  for 
the  same  period  a  year  ago,  with  newly  issued 
mortgages, excluding renegotiations, expanding by 
over  40 %.  Despite  recent  improvements,  these 
figures are substantially below the pre-crisis levels, 
especially 
than 
EUR 1 million)  loans  to  non-financials,  which 
have remained below one-fifth of their peak values 
in 2010.  

ticket 

small 

(i.e. 

less 

for 

External  uncertainties  undermine  the  market 
performances of Irish banks. Much like the rest 
of  the  Irish  economy,  domestic  banks  remain 
susceptible  to  external  spill-overs,  most  notably 
from  the  UK’s  decision  to  leave  the  EU.  As  a 
result of these external  sources of uncertainty, the 
stock prices of the Irish banks dropped, especially 
in the third quarter of 2018, trading well below the 
these 
euro-area 
conditions,  the  state-owned  Allied  Irish  Banks 
(AIB) and Bank of Ireland (BOI) have maintained 
healthy capital ratios in the EU-wide stress test of 
2018, even under the adverse scenarios. 

indices.  Despite 

financial 

Demand  for 
loans  among  SMEs  remains 
depressed. According to the Survey on the access 
to finance of enterprises (SAFE), loan applications 
by  Irish  SMEs  have  been  declining  since  2012 
(Graph  4.2.1).  Only  13 %  of  respondents  applied 
for  new  loans  in  2017,  down  from  19 %  in  2012. 
Discouragement and external funding do not seem 
to be the main drivers, implying that an increasing 
share  of  SMEs  either  use  internal  funds  or  are 
deterred 
altogether. 
Supplementary  results  show  that  applicants  are 
increasingly likely to receive the full amounts they 
asked  for  in  their  loan  applications  (Graph  4.2.2), 
suggesting  that  credit  supply  factors  are  not 
driving the weak lending conditions.  

investment 

from 

(18)  An  asterisk  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
Section 3 for an overall summary of main findings). 

Source: European Commission, SAFE survey 

Graph 4.2.2:  Access to finance by SMEs — If applied, what 

was outcome 

(1) Figures provide averages for loan and credit line 
applications and allocations. For loan applications, the 
remaining responses correspond to other reasons for not 
applying, including sufficient internal funding and other 
unidentified reasons. “Other funding” include trade credit, 
loans from a related company, shareholders, family or 
friends, leasing and factoring, grants, issuance of equity or 
debt securities. “Discouraged” corresponds to possible 
rejection. 
Source: European Commission, SAFE survey 

28 

19%19%19%18%16%16%14%13%11%15%15%14%12%9%9%8%5%6%7%5%6%6%5%5%65%60%59%63%66%69%72%73%0%20%40%60%80%100%20102011201220132014201520162017% of all respondentsYesNo: DiscouragedNo: Other ext. fundingNo: Other reasons40%42%41%46%58%63%59%63%25%23%25%21%15%11%14%15%24%22%18%18%12%10%5%9%8%8%13%10%13%15%20%12%0%20%40%60%80%100%20102011201220132014201520162017% of all respondents that appliedReceived fullReceived partialBank rejectionRefused (by client)Pending application 
 
                                                           
 
 
 
 
4.2. Financial sector 

Table 4.2.1: 

Financial soundness indicators for domestic and foreign banks 

(1) Due to the sizeable exposures of banks to central banks and other financial institutions, the aggregate non-performing 
loan (NPL) ratio differs substantially from the NPL ratio for the private sector alone, comprising only of loans to non-financial 
corporates and households.  
(2) ECB aggregated balance sheet: loans excl to gov and MFI / deposits excl from gov and MFI 
(3) For comparability only annual values are presented 
Source: ECB CBD 

Increased  portfolio  sales  are  facilitating  faster 
non-performing loans reduction in the banking 
sector. The three main domestic banks continue to 
improve  their  asset  quality,  (Graph  4.2.3).  While 
the  aggregate  non-performing  loans  (NPL)  ratio 
fell to 8.5 % of gross loans in the second quarter of 
2018,  down  from  11.6 %  one  year  earlier,  it 
remains above the euro area average of 4.2 %. The 
non-financial  private  sector  non-performing  loans 
ratio  remains  nevertheless  elevated,  at  11.8 %, 
pushed  up  by  still-high  mortgage  arrears.  Asset 
quality improvements over the past year have been 
primarily driven by loan sales, which will continue 
in 
the 
announced  sales  are  fully  implemented.  The  sales 
that  have  been  executed  so  far  have  led  to  a 
significant 
arrears. 
Provisioning  levels  remain  low  at  32.1 %  as  of 
June 2018.   

the  upcoming  months,  assuming 

in  mortgage 

reduction 

that 

in 

rise 

voluntary 

temporary 

After  a 
late  2017, 
repossessions  have  reverted  to  their  downward 
trend.  Voluntary  repossessions  peaked  in  the  last 
quarter of 2017, driven by a temporary ‘voluntary 
surrender’  programme  implemented  by  an  Irish 
bank.  Both 
court-ordered 
repossessions declined in the first half of 2018. An 
analysis of the repossession data (Central Bank of 
Ireland, 2018a) reveals that banks are  more  likely 
to  engage 
than  non-banks, 
including  credit  purchasers,  although  this  result  is 
partly  driven  by  the  rise  in  repossessions  at  end-
2017 and may change over time as more loans are 
held by credit purchasers. 

in  repossessions 

and 

Graph 4.2.3:  Non-performing loans reduction by portfolio 

(1) Figures only cover the three main domestic banks (i.e. 
AIB, Bank of Ireland, and PTSB).  
(2) CRE stands for Loans backed by commercial real estate.  
Source: CBI 

arrears 

Long-term  mortgage 
resolution 
continues  to  be  slow  due  to  the  inherent 
difficulty of restructuring these  cases.  Although 
the  stock  of  long-term  mortgage  arrears  (i.e. 
arrears  of  more  than  two  years)  has  declined  by 
EUR 1.4 billion in the year to September 2018, the 
share of these problem loans in the overall share of 
mortgage  loans  (8.5 %)  and  among  90+  days  past 
due  mortgage 
remains  high. 
Moreover,  there  is  evidence  that  the  pace  of 
reduction  in  long-term  arrears  is  slowing  down 
(O’Malley, 2018). Since vulnerable households are 
more  likely  to  be  in  long-term  arrears,  a  positive 

(72 %) 

loans 

29 

0.010.020.030.040.050.060.0Sep-14Dec-14Mar-15Jun-15Sep-15Dec-15Mar-16Jun-16Sep-16Dec-16Mar-17Jun-17Sep-17Dec-17Mar-18Jun-18EUR bn.Residential mortgagesCRECorporate/SMEConsumer(%)2012201320142015201620172018q12018q2Non-performing debt16.618.416.311.710.38.18.16.9Non-performing loans (1)--21.614.913.19.99.88.5to NFCs & households (1)--28.420.516.614.113.711.8to NFCs--37.822.915.311.811.09.1to households--22.819.117.415.515.413.4Coverage ratio53.257.246.740.235.529.933.332.1Loan to deposit ratio (2)128.7113.699.484.378.579.579.077.9Tier 1 ratio16.717.320.523.223.023.422.623.5CET 1 ratio--20.122.322.222.922.123.0Return on equity (3)-14.6-13.28.56.86.35.06.36.9Return on assets (3)-0.9-0.90.90.90.90.70.91.0 
 
 
 
 
development has been the increase in approvals for 
the  Enhanced  Mortgage-to-Rent  scheme. (19)  In 
particular, the number of approvals under the new 
scheme  has  already  surpassed  the  number  of 
approvals under the original  scheme  in 2012. The 
number  of  personal  insolvency  applications  also 
continues to increase following the introduction of 
the  Abhaile  aid-and-advice  scheme.  However,  the 
number  of  debtors  successfully  entering  into  an 
arrangement  with  their lender has been stagnating 
since end-2017. 

for 

the 

functioning  of 

A number of initiatives have been proposed that 
aim  to  address  the  social  and  economic  impact 
of  non-performing  loan  resolution  may  have 
consequences 
the 
financial  sector.  The  Consumer  Protection  Bill 
(Regulation  of  Credit  Servicing  Firms)  Act  2018, 
which  came  into  effect  on  21  January  2019, 
subjects authorisation and regulatory requirements 
on  loan  purchasers.  Following  a  critical  opinion 
from 
the  European  Central  Bank  (European 
Central  Bank,  2018a),  certain  provisions  of  the 
original  proposal,  including  the  requirement  to 
disclose  the  purchasing  prices  to  borrowers  were 
removed.  Any  inconsistencies  of  the  bill  with  the 
European Commission’s March 2018 proposal for 
a  directive  on  credit  servicers,  credit  purchasers 
and  the  recovery  of  collateral  will  be  addressed 
until  the  latter  enters  into  force. (20)  Another 
relevant  initiative  is  the  draft  Mortgage  Arrears 
Resolution  (Family  Home)  Bill  2017,  which  sets 
up  the  Mortgage  Resolution  Office,  to  administer 
restructuring  solutions  and  may  potentially  call 
into question agreed restructuring terms (European 
Central Bank, 2018b). Other recent initiatives may 
also  have  unintended  consequences  by  generating 
undue obstacles to non-performing loan resolution, 
including  the  Courts  and  Land  and  Conveyancing 
Law  Reform  Bill  2018,  which  was  sent  to  the 
European  Central  Bank  for  its  opinion  in  January 
2019,  and  the  "No  Consent,  No  Sale"  Bill,  which 
proposed  in  early  2019.  Lastly,  concerns  remain 

(19)  The Mortgage-to-Rent scheme was revised over the course 
of  2017  with  a  range  of  amendments  to  its  eligibility 
criteria and administration came into effect to enable more 
properties to qualify and to make the scheme more flexible 
and accessible to borrowers. 

(20)  It  is  important  to  note  that  the  principle  of  maintaining  a 
level-playing  field  between  loan  purchasers,  servicers  and 
originators  is  also  a  crucial  provision  of  the  European 
Commission’s  recent  proposal  for  a  directive  on  credit 
servicers,  credit  purchasers  and  the  recovery  of  collateral, 
COM(2018)135. 

4.2. Financial sector 

that  a  draft  bill  enabling  the  Central  Bank  of 
Ireland (CBI) to cap interest rates on variable rate 
mortgages, 
if  enacted,  could  have  negative 
implications  for  the  transmission  of  monetary 
policy, financial stability and bank competition. 

The  tracker  mortgages  examination  is  in  its 
final phases. In 2015, the CBI initiated a systemic 
examination  of  borrowers  that  were  wrongfully 
taken off a tracker rate (21) or received an incorrect 
margin  on  the  tracker.  As  of  the  end  of  2018, 
39 800  customers  have  been  identified  as  being 
impacted  across  several  lenders.  Around  97 %  of 
these  customers  have  received  offers  of  redress 
and compensation, with EUR 650 million paid out 
by lenders. 

into 

force  at 

The  authorities  have  recalibrated  the  macro-
prudential  toolkit  to  increase  the  resilience  of 
to  macro-prudential 
banks.  Amendments 
the 
measures,  which  entered 
beginning  of  2018,  mean  that  first-time  buyers 
(FTB)  and  second  and  subsequent  buyers  (SSBs) 
are treated differently for the purposes of the loan 
to income  allowances. While  up to  20 % of FTBs 
can still be exempted from the 3.5-loan-to-income 
(LTI)  requirement,  up  to  10 %  of  SSBs  can  also 
benefit  from  this  exemption.  Required  deposits 
remained  unchanged  at  10 %  of  FTBs  and  20 % 
for  SSBs.  The  third  review  of  the  framework 
currently  in  place  was  completed  in  November 
2018 and without  making any changes to existing 
parameters.  Moreover,  the  CBI  has  introduced  a 
1 %  countercyclical  capital  buffer  in  July  2018, 
effective from July 2019.  

4.2.2.  PRIVATE INDEBTEDNESS* (22) 

Private sector debt remains high, pushed up by 
large  multinational  companies  in  Ireland.  The 
private  sector  has  continued  to  reduce  debt  in 
2018,  driven  by  the  corporate  sector.  The  private 
debt-to-GDP 
influenced  by 
multinational  corporations’  activities,  affecting 

is  heavily 

ratio 

(21)  A tracker loan consists of a variable rate loan, which tracks 
a  publicly  available  rate,  typically  the  European  Central 
Bank’s  main  borrowing  rate,  plus  a  margin.  In  turn,  a 
standard variable rate loan is a loan where the interest rate 
is set by the issuing bank, usually in relation to the bank’s 
funding costs. 

(22)  An  asterisk  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
Section 3 for an overall summary of main findings). 

30 

 
                                                           
                                                           
4.2. Financial sector 

unaffected  by 
the  presence  of  multinational 
companies  and  comparable  across  countries, 
remains  among  the  highest  in  the  EU  at  136 %, 
despite a significant reduction in that metric since 
it peaked in 2009 at 218 %.  

Graph 4.2.5:  Household debt and estimated benchmark 

Source: European Commission 

The  debt  servicing  ratio  of  Irish  households  is 
currently  at  historically  low  levels,  but  still 
represents one of the highest in the EU. Despite 
a  marked  decline  in  household  debt,  relative  to 
gross  disposable 
from  215 %  of 
income, 
disposable  income  in  2009  to  135.7 %  in  2017, 
household indebtedness is among the highest in the 
EU. The high level of debt, together with the high 
lending rates prevailing in Ireland, is also reflected 
in a high debt servicing ratio, estimated at 7.9 % of 
disposable 
relatively  high 
compared to other EU countries. (23)  

income.  This 

is 

both  the  numerator  and  the  denominator  of  the 
debt  ratio.  Debt  of  households  and  domestic 
companies,  including  that  of  redomiciled  public 
limited companies, relative to GDP, fell below the 
indicative  Macroeconomic  Imbalance  Procedure 
(MIP) threshold in 2017 (Graph 4.2.4). Relative to 
GNI*, debt of domestic companies and households 
stood at 213 % in 2017. 

While high, the debt of non-financial companies 
has  continued  its  downward  trend.  Debt  of 
non-financial  corporations  fell  from  231 %  to 
196 % of GDP in the course of 2017. Multinational 
companies located in Ireland are driving the trend, 
falling  from  140.9 %  of  GDP  in  2016  to  112.4 % 
in 2017. Debt of Irish companies, including that of 
redomiciled  public  limited  companies,  fell  from 
90.1 % of GDP to 83.6 % over the same period. 

Graph 4.2.4:  Private indebtedness 

Source: CSO 

Rising property prices put upward pressure on 
household  debt.  Household  debt  as  a  percentage 
of  GDP  has  fallen  from  its  peak  of  116.2 %  in 
2009  and  was  47.7 %  in  2017  (Graph  4.2.5).  
While  some  of  the  decline  is  explained  by  the 
surge  in GDP in 2015, active deleveraging efforts 
by  households  have  also  contributed  significantly 
to the decline. However, household savings rate is 
low  and  to  ensure  debt  sustainability  over  the 
medium  term,  households  would  need  to  increase 
their savings rate by 2.4 pps of GDP. Furthermore, 
that  nominal 
increasing  credit  flows  suggest 
household  debt  bottomed  out  in  2018.  Household 
debt relative to gross disposable income,  which is 

The  composition  of  mortgages  suggests  that 
households  are  becoming  more  resilient  to 
the  still-high  debt 
economic  shocks.  Given 
servicing ratio, Irish households remain vulnerable 
to  sudden 
income  shocks.  Households  are 
nevertheless becoming less exposed to interest rate 
shocks, as an increasing share of new mortgages is 
loans  with  interest  rate  fixation  of  one  to  five 
years. Moreover, CBI (Gaffney et al., 2018) shows 
that  recent  new  loans  with  deferred  amortisation 
are  rarely  related  to  primary  dwellings.  In  2007, 

(23)  The debt servicing ratio  follows the methodology outlined 

in Drehmann et al., (2015). 

31 

0100200300400500600% of GNI*NFCs (foreign parent)NFCs (Irish parent)HouseholdsMIP thresholdHouseholds and NFCs, % of GDP-40.0-20.00.020.040.060.080.0100.0120.0140.0959799010305070911131517% of GDPFundamental-based benchmarkHousehold debtPrudential benchmark, household debtGap to economic fundamentalsGap to prudential threshold 
 
 
                                                           
4.2. Financial sector 

15 %  of  new  mortgages  were  with  deferred 
amortisation.  While 
the  composition  of  new 
mortgages  is  encouraging,  its  impact  on  the  stock 
the 
of  mortgages  remains 
mortgage  stock  remains  characterised  by  variable 
interest rates.  

limited.  90 %  of 

32 

 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  LABOUR MARKET   

Labour  market  conditions  continue  to  improve 
fully 
overall,  but  some  groups  are  not 
benefitting  from  it.  Job  creation  during  the 
recovery has taken place across most sectors of the 
economy (Graph 4.3.1). In 2018, construction and 
accommodation  and  food  services  contributed 
most  to  the  growth  in  employment,  reflecting  the 
strength of domestic activity. Unemployment kept 
on falling (5.4 % in the fourth quarter of 2018), as 
did  youth  unemployment  (12.5 %  in  the  fourth 
quarter  of  2018).  Wage  pressures  are  emerging  in 
certain  sectors  (see  Section  1).  Steady  economic 
growth 
the  main 
employment  and  social  indicators.  Furthermore, 
terms  of  skills,  there  are  no 
other  than 
significant disparities in the main labour and social 
indicators  at  regional  level  (Nomenclature  of 
for  statistics  NUTS  2 (24)). 
territorial  units 
However,  inactive  people,  low  work  intensity 
households,  people  with  disabilities,  and  low-
skilled  individuals  are  still  facing  considerable 
challenges. 

is  positively 

reflected 

in 

in 

There  are  some  labour  shortages  coupled  with 
skill shortages emerging in certain sectors. Even 
though  Ireland  is  one  of  the  countries  where 
employers  report  the  least  difficulty  in  hiring 
(ManpowerGroup,  2018),  78 %  of  employers 
report  having  experienced  moderate  to  extreme 
skill shortages in 2017 (20 % labelled as extreme) 
(Hays,  2018).  According  to  the  survey  on  the 
access  to  finance  of  enterprises,  the  share  of 
companies  that  consider  the  availability  of  skilled 
staff  or  experienced  managers  as  their  most 
pressing problem has increased from 15 % in 2017 
to 22 % in 2018. The largest shortage occupations 
are  information  and  communication  technologies 
property 
professionals, 
professionals.  Skills  needs  are  being 
tackled 
through training (see Section 4.3.2) and migration.  

construction 

and 

Digital  skills  of  the  wider  workforce  and 
shortages  of  information  and  communication 
remain 
(ICT) 
technology 
challenges.  Whilst 
ICT 
specialists  in  the  overall  workforce  (4.4 %)  is 
slightly above the EU average of 3.7 % (European 

the  proportion  of 

professionals 

(24)  There are two NUTS2 regions in Ireland: Border, Midland, 
and  Western  region  (IE01),  and  Southern  and  Eastern 
region (ie02) 

there 

Commission,  2019b), 
is  a  significant 
shortage  of  specific  ICT  skills,  as  highlighted  in 
various  reports  (SOLAS,  2018).  Roughly  half  of 
the enterprises who tried to recruit ICT specialists 
experienced  difficulties  (European  Commission, 
2019b). As  for  more universal digital skills, 52 % 
of  the  adult  population  lack  even  basic  digital 
skills, well above the EU average of 43 %.  

Graph 4.3.1:  Change in employment by sector 

(1) Employment — domestic concept (thousand), sum of y-
o-y changes based on non-seasonally adjusted data, first 
quarter of each year.  
(2) Tradable services are:  wholesale and retail trade, 
transport, accommodation and food service activities 
Source: European Commission 

Regional  differences  persist  in  terms  of  skilled 
and  high-skilled  labour  and  targeted  training 
for small and medium enterprises needs. Ireland 
shows large regional differences in job skill levels. 
The Southern and Eastern region is among the top 
20 %  of  the  Organisation  for  Economic  Co-
operation  and  Development  (OECD)  regions 
(considered  an  appropriate  comparison  among 
industrialised  countries  in  the  absence  of  regional 
Eurostat  data)  and  the  Border,  Midland  and 
Western  region  in  the  bottom  20 %.  Wages  in 
multinationals of EU and US origin are 64 % and 
74 %  higher 
in  domestic 
companies  (OECD,  2018a).  Hence,  high-skilled 
human  capital  tends  to  gravitate  towards  working 
for  the  multinationals  and  towards  the  greater 
Dublin  area  and  the  Southern  and  Eastern  region. 
Moreover,  OECD  findings  show  a  shortage  of 
managerial skills in small and medium enterprises 
(OECD, 2018a). 

respectively 

than 

33 

-400-300-200-10001002003004005002008-20122013-2018Total 
 
                                                           
 
4.3. Labour market, education and social policies 

Congress of Trade Unions, 2017), with nearly 8 % 
of  the  workforce  having  significant  variations  in 
their  hours  of  work.  The  social  security  system 
covers  all  people  in  employment,  provided  their 
income  meets  the  income  threshold  indicating 
attachment to the workforce i.e. EUR  38 per week 
in the case of employees or EUR  5 000 per annum 
in  the  case  of  the  self-employed..  The  self-
employed  do  not  have  formal  coverage 
to 
unemployment  benefits  and 
to  accident  and 
occupational  injuries,  and  are  excluded  from 
contributory sickness benefit schemes. 

New  measures  are  targeting  the  quality  of 
employment.  The  Government  published 
the 
‘Employment  Miscellaneous  Provisions’  Bill  in 
tackling  exploitative 
July  2018.  It  aims  at 
employment  arrangements  by  providing  better 
information  on 
the  nature  of  employment, 
strengthening  provisions  around  minimum  pay, 
prohibiting  zero  hour  contracts,  and  protecting 
employees  who  wish  to  invoke  their  rights  under 
the Act against being penalised. 

Labour market participation remains relatively 
low. Whilst the activity rate in Ireland continues to 
increase  (78.2 %  in  the  third  quarter  of  2018  for 
individuals  between  20  and  64),  it  has  not  yet 
reached  its  pre-crisis  high  and  remains  slightly 
below  the  EU  average  (78.4 %).  The  activity  rate 
is  particularly  low  for  the  low  skilled  and  for 
women.  According  to  recent  research  (OECD, 
2018b),  limited  work  experience,  low  levels  of 
skills,  and  scarce  job  opportunities  are  the  more 
common  potential  employment  barriers  amongst 
individuals  with  no  or  weak 
labour  market 
attachment.  Over  110,000  inactive  people  could 
benefit  from  non-standard  working  arrangements 
to  transition  from  inactivity  into  the  labour  force 
(SOLAS, 2018). 

The  insufficient  provision  of  childcare  is  the 
main  cause  of  high  female  inactivity.  In  2017, 
54.2 %  of  inactive  Irish  females  reported  caring 
responsibilities  as  the  main  reason  for  inactivity, 
against  an  EU  average  of  31 %.  This  is  the  main 
reason  behind  the  above-average  gender  gap  in 
employment rates for the age group 20-64 (12.8 % 
in the second quarter of 2018 vs 11.9 % in the EU) 
(Graph 4.3.3).  

employment 

Disparities  persist 
levels 
in 
between  different  skill  groups.  The  differences 
between  the  employment  rates  of  low-,  medium-, 
and high-skilled workers remain among the highest 
in  the  EU  in  2017  (Graph  4.3.2),  although  it  has 
decreased since 2014. Indeed, the employment rate 
of high-skilled workers (84.0 % in the third quarter 
of  2018)  is  significantly  higher  than  that  of 
medium- 
low-skilled  workers 
(51.3 %). Ireland saw a rise in skills mismatches in 
recent years following considerable job destruction 
affecting  primarily  low-skilled  workers  in  the 
construction sector. Efforts to raise the skills of the 
working  age  population  are  already  ongoing  (see 
Section  4.3.2)  but  are  likely  to  require  further 
investments to meet the size of the challenge.  

(72.3 %)  and 

Graph 4.3.2:  Relative dispersion of employment rates by 

education level, 2010, 2014 and 2017 

Source: Own calculations based on Eurostat. Annual 
average based on the average of four quarters 

the 

quality 

Underemployment 
of 
and 
employment remain an issue. About a quarter of 
all  part-time  employees  in  2017  would  take  full-
time  employment  if  they  could  find  it  (Eurostat). 
Bogus  self-employment,  zero-hour  contracts  and 
the  status  of  individuals  working  within  the  ‘gig 
economy’  have  been  the  focus  of  much  policy 
tend  to  be 
debate.  Atypical  forms  of  work 
associated with higher income volatility and lower 
job  security 
(European  Commission  2018j). 
Precarious  employment  has  risen  in  Ireland  (Irish 

34 

0.00.10.20.3UKPTNLDKEEATDELVCZSIFISECYEULUELMTESROPLHULTFRSKIEITBGHRBE201720142010 
 
4.3. Labour market, education and social policies 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights  is  designed  as  a  compass  for  a  renewed  process  of  upward 
convergence towards better working and living conditions in the European Union.1 It sets out twenty 
essential  principles  and  rights  in  the  areas  of  equal  opportunities  and  access  to  the  labour  market;  fair 
working conditions; and social protection and inclusion.  

also 

shows 

relatively 

  Ireland  performs  relatively  well  on  a 
the  Social 
indicators  of 
number  of 
Scoreboard 
the  European 
supporting 
Pillar  of  Social  Rights,  while  challenges 
remain.  The  Irish  tax  and  benefits  system 
continues  to  be  very  effective  in  reducing 
poverty  and  inequalities,  but  with  a  slight 
increase  in  inequality  recently.  The  labour 
good 
market 
Real 
employment-related 
disposable  household  income  per  capita  has 
been  bolstered  by  accelerating  wages  and 
subdued  inflation,  but  it  remains  below  pre-
crisis  levels.  Many  people  have  yet  to  reap 
the  social  benefits  of  the  economic  upturn. 
The  employment 
rate  of  people  with 
disabilities  is  the  lowest  in  the  EU.  Child 
poverty remains a concern with one in every 
ten  children  living  in  persistent  poverty.  At 
the  same  time,  a  low  percentage  of  the 
population has at least basic digital skills.  

outcomes. 

The  rapidly  rising  number  of  homeless 
people  as  a  result  of  rent  increases  and 
insufficient  social  housing  merits  urgent 
action.  Insufficient  levels  of  investment  and 
construction  over  the  last  decade,  including 
social housing, have led to a huge shortage of 
adequate  accommodation  for  those  most  at 
risk.  The  bulk  of 
is 
concentrated  in  the  major  urban areas  and  it 
is  affecting  different  groups,  notably  single 
parents,  single  men,  the  elderly,  people  with 
disabilities  and  an  increasing  number  of 
families  and  youth.  Meeting  social  housing  demand,  in  line  with  the  Pillar  principle  on  housing  and 
homelessness,  will  take  several  years  of  sustained  investment  to  address  quantity,  quality  and  variety  of 
housing and to provide supporting services. 

the  challenge 

Ireland is delivering very well on education in general in line with the Pillar principle on education, 
training and lifelong learning. The education system in Ireland continues to show positive outcomes with 
the rate of early school leavers standing at 5.1%, one of the lowest in the EU. The level of tertiary education 
completion places Ireland among the top three EU Member States and the country ranks top in terms of the 
percentage of students attaining baseline proficiency by migrant background.  

(1) The European Pillar of Social Rights was proclaimed on 17 November 2017 by the European Parliament, the Council 
and  the  European  Commission.  https://ec.europa.eu/commission/priorities/deeper-and-fairer-economic-and-monetary-
union/european-pillar-social-rights/european-pillar-social-rights-20-principles_en 

Formal  childcare  remains  unaffordable  for 
many.  While  participation  in  early  childhood 

education  and  care  from  age  four  is  now  well 
above the EU average at 98.8 %, the participation 

35 

Early leavers from education and training (% of population aged 18-24)Best performersGender employment gapOn averageIncome quintile ratio (S80/S20)To watchAt risk of poverty or social exclusion (in %)On averageYouth NEET (% of total population aged 15-24)Better than averageEmployment rate (% population aged 20-64)On averageUnemployment rate (% population aged 15-74)On averageLong-term unemployment  (% population aged 15-74)On averageGDHI per capita growth On averageNet earnings of a full-time single worker earning AWBetter than averageImpact of social transfers (other than pensions) on poverty reductionBest performersChildren aged less than 3 years in formal childcareOn averageSelf-reported unmet need for medical care On averageIndividuals' level of digital skillsTo watchSocial protection and inclusionEqual opportunities and access to the labour marketMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.Themethodologylooksjointlyatlevelsandchangesoftheindicators in comparison with the respective EU averages and classifies Member States insevencategories(from"bestperformers"to"criticalsituation").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEU average, but it is improving fast. For methodological details, please consult the draft Joint Employment Report 2019, COM (2018)761 final.NEET:neitherinemploymentnorineducationandtraining;GDHI:grossdisposablehousehold income.                      Dynamic labour markets and fair working conditionsSOCIAL SCOREBOARD FOR IRELAND 
 
4.3. Labour market, education and social policies 

year  (61  weeks  in  all).  The  scheme  is  open  to  all 
childcare providers who are registered with Tusla. 
Finally,  a  new  paid  parental  leave  scheme  will 
come  into  effect  in  November  2019.  This  will 
provide two weeks non-transferable paid leave per 
parent in the first year of a child’s life and will be 
increased to four weeks in 2020 and seven in 2021. 
The  real  impact  of  these  measures  remains  to  be 
seen, as several are announcements for future years 
and it is too early to assess them.      

The  rate  of  quasi-jobless  households  continues 
to represent an important challenge in terms of 
social  inclusion  and  untapped  human  capital. 
Persistent joblessness mostly affects women, older 
adults,  those  with  less  education,  adults  with  a 
disability  and  single-adult  households  (NESC, 
2018).  The  population  under  60  living  in  quasi-
jobless  households  is  falling,  although  it  remains 
above  the  pre-crisis  level  (13.7 %  in  2008).  This 
suggests  activation  policies  combined  with 
improved labour market conditions are benefitting 
the most deprived. As a result, since 2012, the gap 
between the EU and Irish rates has narrowed and is 
expected  to  close  further  in  2018.  However, 
Ireland  has  the  highest  share  of  people  living  in 
quasi-jobless  households  in  the  EU  (16.2 %  in 
2017,  vs  9.5 %  in  the  EU),  indicating  that  further 
investment  needs  exist.  Ireland  has  one  of  the 
in  such 
highest  shares  of  children 
households  (13.4 %  vs  10.5 % 
the  EU). 
Furthermore, the share of low-skilled people living 
in  quasi-jobless  households  (36.9 %  in  2016)  is 
much  higher  than  the  EU  average  (21.5 %).  This 
partly  results  from  inactivity  traps  discouraging 
activity due to the loss of benefits.  

living 
in 

through 

to  work  and 

Recent  reform  efforts  have  tried  to  tackle  the 
problem  of  weak  work  incentives  for  low-
income groups, including partners who are out 
of work. Ireland has addressed those disincentives 
by  tapering  the  withdrawal  of  benefits  when 
returning 
the  Housing 
Assistance  Payment  Scheme.  The  Housing 
Assistance  Payment  Scheme  has 
increased 
financial work incentives for jobless households as 
recipients  remain  eligible  when  they  are  in  full-
time  employment,  in  contrast  with  the  Rent 
Supplement Scheme. However, disincentives seem 
to  have  increased  for  second  earners  in  a  couple, 
since  household  income  is  expected  to  rise  above 
the  maximum  qualifying  threshold  when  they 

of  children  below  three  years  of  age  in  formal 
childcare  is  below  the  EU  average.  Childcare 
provision  in  Ireland  (34.4 %  in  2017)  has  caught 
up with the EU average (34.0 % in 2017), although 
Irish families avail of a much lower rate of formal 
childcare  for  children  enrolled  in  childcare  for  30 
hours  or  more  (10.6 %  compared  to  7.0 %  for 
children  under  3).  Childcare  costs  are  the  highest 
in the EU: in 2015, the net cost for a lone  mother 
with  two  children  and  low  earnings  amounts  to 
42 % of her disposable income (OECD, 2017e).  

Graph 4.3.3:  Activity rate by gender and age, 2017 

Source: Eurostat 

Several  measures  have  been  taken  to  enhance 
the  provision  of  childcare,  in  line  with  the 
European  Pillar  of  Social  Rights.  The  bill 
establishing 
the  Single  Affordable  Childcare 
Scheme  was  passed  in  2018  and  the  information 
technology  system  is  now  ready  to  be  deployed 
after  some  setbacks.  Once  implemented,  this 
legislation  will  give  parents  a  clear 
legal 
entitlement  to  financial  support  for  childcare.  The 
2019 budget announced the allocation of EUR 0.5 
million  to  create  a  team  of  Childminding  Support 
Officers 
registration  of 
childminders  with  the  national  child  and  family 
agency  Tusla  and  help  them  upskill  to  required 
regulatory standards to be developed in the coming 
years.  Government  estimates  point  to  35 000 
childminding services caring for 88 000 children in 
the  country  but  in  November  2017  just  122 
childminders  were 
registered  with  Tusla 
(Children’s  Rights  Alliance,  2018).  In  2017, 
Ireland  extended 
‘free  universal  Early 
Childhood  Care  and  Education  year’  for  a  second 

to  assist  with 

the 

the 

36 

35.045.055.065.075.085.095.020-2425-2930-3435-3940-4445-4950-5455-5960-64Males EU-28Males IEFemales EU-28Females IE 
 
4.3. Labour market, education and social policies 

The  JobPath  activation  programme  has  now  been 
fully rolled out and the first results suggest that it 
has  contributed  significantly  to  the  drop  in  long-
the  20 447 
term  unemployment:  26 %  of 
participants  who  completed  the  programme  got  a 
job  (JobPath  Performance  Data,  2017).  The 
chances  of  employment  improved  by  as  much  as 
JobPath, 
42.5 % 
according  to  a  2017  evaluation.  However,  long-
term unemployment among youth remains high in 
the Border, Midland and Western region (5.2 % vs 
4.2 %  in  the  EU),  indicating  a  need  for  further 
targeted efforts.  

following  participation 

in 

still 

People  with  disabilities  are 
facing 
considerable  challenges,  although  support  is 
being  enhanced.  Ireland  has  one  of  the  lowest 
employment  rates  for  people  with  disabilities  in 
the EU (26.2 % compared to  48.1 % in the EU in 
2017) and one of the highest gaps between people 
with  and  without  disabilities  (45.1  percentage 
points). The Comprehensive Employment Strategy 
for  People  with  Disabilities  2015-2024  aims  at 
increasing the statutory target of 3 % of employees 
with  disabilities  in  the  public  sector  towards  6 % 
by  2024.  In  addition,  a  EUR 16  million  Ability 
Programme 
the 
employability  of  people  with  disabilities  aged  15-
29  has  been  announced.  Additional  funding 
totalling  EUR 150 million  has  been  allocated  for 
disability  services  in  the  2019  budget.  How  this 
money  will  be  invested  remains  to  be  seen  as 
details  have  so  far  not  been  released  on  specific 
measures and programs. 

(2018-2021) 

invest 

in 

to 

Social  dialogue  is  characterised  by  its  mostly 
consultative  nature.  In  2015  the  government 
created  a  structured  forum  for  national  economic 
dialogue  where 
the 
opportunity  to  raise  concerns  and  share  views 
ahead  of  the  annual  budget  on  key  policy  issues. 
However, they are rarely involved and consulted in 
relation  to  the  European  Semester  process  by  the 
government. 

social  partners  have 

into  work (25).  The  government  also 
move 
committed  itself  to  bringing  in  a  Working  Family 
Payment  to  promote  work  by  supplementing  on  a 
gradual  basis  the  income  of  households,  at  the 
same  time  incentivising  more  working  hours  and 
full-time  work.  However,  analyses  previously 
undertaken cast some doubt on the likelihood of it 
being effective (European Commission, 2018).  

to 

further  help 

The  Action  Plan  for  Jobless  Households  is  in 
place 
jobless  households.  
Unveiled by the Government in September 2017, it 
targets jobless lone parents and spouses of benefit 
recipients  with  children  aged  7  to  14  who  are 
judged  fit  to  work,  as  well  as  people  with 
disabilities.  Two  aspects  are  being  prioritised. 
First, the family-focused case management system 
is  being  piloted  in  five  areas  with  a  full  roll  out 
taking  place  in  the  first  six  months  of  2018. 
Second,  in  relation  to  disability  support,  the 
national  consultation  for  ‘early  engagement’  and 
the  reconfiguration  of  the  qualifying  age  for 
Domiciliary  Care  Allowance  and  Disability 
Allowance payments was conducted with the next 
steps still to be announced by the Government.  

Despite  considerable  improvement  in  Ireland’s 
Active Labour Market Policy framework, some 
scope  for  improvement  remains.  In  line  with 
falling unemployment figures, participant numbers 
dropped from 84 238 in 2014 to 59 333 in 2018 (-
30 %),  with  27 %  of  those  wanting  to  work 
participating  (2016). (26)  The  2017  allocation  for 
active  labour  market  policies  of  EUR 925  million 
is one of the highest recorded levels of funding per 
1,000  persons  on 
thus 
highlighting  the  scope  to  reduce  or  reallocate 
funding  requirements  on  a  cyclical  basis  as  the 
labour  market  improves.  The  low  dominance  of 
specific-skills 
training  and  a  continued  high 
reliance  on  second-chance  education  initiatives  as 
well  as  the  relatively  weak  linkages  with  work-
based  vocational  training  are  areas  that  would 
benefit  from  a  redesign  and  enhanced  investment 
to make interventions more effective.  

the  Live  Register, 

Policy  measures 
long-term 
to 
unemployment  are  having  a  positive  impact. 

tackle 

4.3.2.  SOCIAL POLICY  

(25)  Assessment based on OECD Tax-benefit model 
(26)  Key  performance  indicator  in  the  Benchmarking  on 
Unemployment  Benefits  and  Active  Labour  Market 
Policies  conducted  within  the  EMCO  Committee.  For 
details, see European Commission (2018m). 

The  population  at  risk  of  poverty  or  social 
exclusion  continues  to  fall,  but  child  poverty 
remains a challenge. The decline  from 24.2 % in 
2016 to 22.7 % in 2017 is driven by improvements 

37 

 
                                                           
4.3. Labour market, education and social policies 

in  all  three  dimensions  (27)  of  the  at-risk-of-
poverty-or-social exclusion rate, in line with rising 
household  incomes  and  robust  labour  market 
conditions (Graph 4.3.4). The population under 60 
living in households with very low  work intensity 
has  fallen  steadily  since  2013,  while  severe 
to 
material  deprivation  rates  have  continued 
the  peak 
to  5.2 %,  about  half  of 
decline 
experienced  in  the  wake  of  the  crisis  (9.9 %  in 
2013).  Monetary  poverty  rates  have  also  declined 
(15.6 %  in  2017),  and  are  now  comparable  with 
pre-crisis  levels.  Minimum  income  benefits  are 
among the most adequate in the EU (91.3 % of the 
poverty  threshold  and  70.4 %  of  the  income  of  a 
low  wage  earner). (28)Furthermore,  Ireland  ranks 
close  to  EU  average  for  indicators  related  to  the 
adequacy  of  unemployment  benefits  (European 
Commission,  2018m).  However,  fighting  child 
poverty  remains  a  challenge.  In  2017,  25.2 %  of 
children in Ireland were at risk of poverty or social 
exclusion, highlighting potential investment needs. 
A national debate including all major stakeholders 
was  launched  in  2019  under  the  name  No  Child 
2020.  This  initiative  seeks  to  raise  awareness  and 
mobilise all concerned towards concrete policy and 
joint actions to eradicate child poverty. 

Graph 4.3.4:  Main social indicators 

a 

have 

created 

Severe  shortages  in  housing  supply  and  social 
housing 
very 
challengingsituation.  The  rapid  increase  in  rents 
(see Section 1), combined with rising house prices, 
creates  an  affordability  constraint  for  households 
which  can  increase  poverty  risk,  in  particular  for 
women,  and  further  exacerbate  homelessness. (29) 
The  2019  budget  has  increased  by  25 %  the 
allocation to housing, bringing the total budget for 
2019  to  EUR 2.4  billion  (European  Commission, 
2019). Whilst expenditure is envisaged to facilitate 
the delivery of 27 000 new social homes, this falls 
very short of the actual demand which in July 2018 
stood  at  71 858  homes  (Housing  Agency,  2018). 
The social housing needs of 27 400 households are 
expected  to  be  met  in  2019.  Much  work  and 
investment remains to be done in order to provide 
a  varied  range  of  social  housing  that  caters  for 
different users and age groups.  A large number of 
social  homes  are  under-occupied  (notably  in  the 
Dublin  area),  in  part  due  to  current  succession 
practices,  thus  further  aggravating  the  situation 
(Melia,  2018).  Expenditure  levels  on  housing  and 
social  housing,  though  growing,  still  stand  at  a 
level  just  below  the  2008  peak,  thus  further 
contributing 
the  critical  situation  (DPER, 
2018b).  

to 

Homelessness  remains  on  a  worryingly  fast 
upward trend. In July 2018 there were circa 6 024 
homeless  adults  and  3 867  homeless  children  in 
Ireland,  an  annual  increase  of  16 %  and  25 % 
respectively.  Approximately  1700  families  are 
living in emergency accommodation as a result of 
evictions  or  rent  hikes.  Stark  regional  and  urban 
differences exist, with 68 % of all homeless people 
concentrated  in  Dublin  in  July  2018.  The  South-
West  region  accounted  for  7 %  of  all  homeless 
people  and  the  Mid-West  for  6 %  (Graph  4.3.5). 
This 
of 
unemployment,  are  considerably  more  likely  to 
have a disability (27.1 % of homeless people had a 
disability, 
the  general 
population)  and  were  more  likely  to  be  male 
(58 %).  A  growing  number  of  young  people 
leaving state care are also increasingly exposed to 
homelessness  with  an  8 %  annual  rise  in  the 
number  of  18-24  year  olds  living  in  emergency 

against  13.5 %  of 

population 

faces 

high 

rate 

a 

(29)  In 2017, the at-risk-of-poverty (AROP) rate after deducting 
housing costs  was  28.1 %  (29.2 %  for  women),  as  against 
15.6 %  (16.5 %)  before  housing  costs  were  taken  into 
account. 

38 

Source: Eurostat 

(27)  Three dimensions of at-risk-of poverty or social exclusion 
rate  are  income  poverty,  work  intensity  and  material 
deprivation. 

(28)  According  to  the  Benchmarking  Framework  on  Minimum 
Incomes conducted within the Social Protection Committee 
(SPC). For details, see European Commission (2018m).  

051015202530352005200620072008200920102011201220132014201520162017% of populationIEAt-risk-of-poverty-or-social-exclusion rateAt-risk-of-poverty rateSevere material deprivationPeople living in low work intensity households 
 
                                                           
                                                           
4.3. Labour market, education and social policies 

income 

inequality (30) 

Ireland’s 
is 
comparatively  low,  but  concerns  related  to  the 
opportunities  for  those  from  a  disadvantaged 
background  remain.  While  the  high  degree  of 
income tax progressivity and high cash benefits are 
effective  in  equalising  highly  unequal  market 
incomes (European Commission, 2017a), there is a 
high risk of poverty (57 % of the total cohort) for 
households  with  dependent  children  and  very  low 
work intensity. Access to tertiary education is also 
linked  to  socio-economic  background  (European 
Commission, 2018a). 

The  availability  of  medical  cards  for  the 
unemployed  and  inactive  significantly  reduces 
health  inequalities  for  the  poorest  households. 
face  a 
However,  middle-income  households 
comparatively  high  level  of  unmet  needs  for 
medical  examination  due  to  the  cost  of  meeting 
such  needs  (Statistics  on  Income  and  Living 
to  analysis 
Conditions,  EU-SILC).  According 
carried out by the European Social Policy Network 
for  the  2018  Pension  Adequacy  Report,  social 
welfare  pensions  are  very  redistributive  due  to 
earning-based 
their 
contributions. 
Ireland 
effectively  prevent  older  people  from  falling  into 
poverty  during  their  retirement:  the  at-risk-of-
poverty or social exclusion rate (as a percentage of 
total population) was 16.2 % for people over 65 in 
2017,  considerably  below  the  average  in  the  EU 
(European Commission, 2018g). 

flat-rate  payments 

and 
transfers 

Social 

in 

steps 

important 

New measures have been taken to fight poverty. 
Recently  announced  increases  of  EUR 5  in  all 
weekly  welfare  payments,  a  national  minimum 
wage increase setting the new rate at EUR 9.80 an 
hour  and  targeted  support  for  some  of  the  more 
vulnerable  groups 
to 
are 
consolidate  the  reduction  in  the  at-risk-of-poverty 
or social exclusion rate. New  measures to address 
child  poverty  will  be  implemented:  the  qualified 
child  increase  —  an  allowance  paid  to  parents 
dependent  on  social  welfare  in  respect  of  each 
qualified child up to age 18, which is extended to 
encompass  older  school/college  going  children  to 
age 22— will be increased in 2019 for all children. 
The  income  disregard  for  Lone  Parents  in  receipt 
of  One-Parent  Family  Payment  and  Jobseeker’s 

accommodation.  Temple 
Street  Children’s 
University  Hospital  reported  discharging  29 % 
more  children  up  to  the  age  of  16  with  ‘no  fixed 
address’ in 2018 compared to 2017. 

in  2016 

Policy  measures  are  being  taken  to  tackle 
homelessness  but  their  effectiveness  remains 
uncertain.  As  of  November  2018,  over  20 000 
new  homes  have  been  made  available  within  the 
Rebuilding  Ireland  Action  Plan  for  Housing  and 
Homelessness  adopted 
(Rebuilding 
Ireland,  2018).  In  addition,  at  the  end  of  the  third 
just  under  64 000  housing 
quarter  of  2018, 
solutions  have  been  provided  under  Rebuilding 
Ireland programmes. A key focus of 2019 activity 
will be  on prevention and the delivery of  services 
for  homelessness.  An  allocation  of  EUR 146 
million (+ EUR 30 million on 2018) is expected to 
provide emergency homeless services and provide 
homeless 
and 
sustainable  housing  solutions  to  5 000  adults, 
including  by  extending  the  services  provided  by 
local  centres  coordinating  family-related  support. 
Further  dedicated  investments  may  be  needed  to 
help  the  6 000  people  estimated  as  homeless  in 
Ireland  and  their  children  and  to  prevent  further 
increases in the number. 

households  with 

long-term 

Graph 4.3.5:  Homelessness statistics per region, July 2018 

Source: Ireland's Department of Housing, Planning & Local 
Government  

(30)  Market income inequality is the highest in the EU but the 
tax/benefit system brings final income inequality below the 
EU average. 

39 

02004006008001000120014001600010002000300040005000600070008000FamiliesAdults, dependantsAdultsDependantsFamilies 
 
                                                           
4.3. Labour market, education and social policies 

Transitional  Payment  are  increasing  by  EUR 20 
per  week.  The  rates  of  payment  for  working  age 
schemes  (including  One-Parent  Family  Payment 
Jobseeker’s  Transitional  Payment)  also 
and 
increased  by  EUR 5  per  week.  Poverty  proofing 
has  also  been  introduced  through  the  Single 
Affordable  Childcare  Scheme  by  adjusting  the 
lower  income  band.  An  interdepartmental  group 
will  be  set  up  to  improve  synergies  and  policies 
across departments to further tackle child poverty. 
As  many  of 
these  announcements  will  only 
materialise  in  the  months  and  years  to  come,  it  is 
too early to assess their suitability and impact.  

4.3.3.  EDUCATION AND SKILLS  

targeted  initiatives  including  skills  programmes, 
performance and innovation funding, technological 
university development and apprenticeships in the 
sector.  The  Department  of  Education  and  Skills 
has  recently  announced  a  new  EUR 5.7 million 
‘Higher  Education  Access  Fund’  to  help  students 
from  under-represented  groups  to  access  higher 
Capital 
education. 
investments plans have been devised. An initiative 
worth  EUR 300 million 
to 
increase  investment  in  higher  education  courses 
will  be  developed  in  the  coming  months.  This 
seeks  to  cushion  negative  trade  impacts  on  the 
Irish  economy  arising  from  the  UK’s  withdrawal 
from  the  EU,  whilst  also  addressing  the  future 
skills needs of the economy. 

from  2020-2024 

Contingency 

Human 

Ireland  maintains  a  very  good  overall 
performance  in  education  and  the  provision  of 
basic  skills.  Pupil’s  performance  is  benefiting 
from  Ireland’s  literacy  and  numeracy  strategy, 
from  investment  in  support  for  disadvantaged 
pupils  and  special  educational  needs,  and  from 
curricular  reforms.  DEIS  (Delivering  Equality  of 
the  policy 
in  Schools)  remains 
Opportunity 
instrument 
educational 
disadvantage.  However,  higher  than  average  early 
school  leaving  rates  for  people  with  disabilities 
exist  (27.8 %  vs  the  EU  average  of  23.6 %). 
Ireland has one of the widest early school leaving 
gaps between people  with and  without disabilities 
in  the  EU  (22.5  percentage  points  vs  the  EU 
average of 12.6 percentage points).  

addressing 

for 

The  tertiary  attainment  rate  is  very  high  and 
ambitious goals have been set for the future. In 
2017,  53 %  of  30-34  year-olds  had 
tertiary 
qualifications, compared to an EU average  of just 
below  40 %.  The  employment  rate  of  these 
graduates  is  above  the  EU  average  (International 
Standard  Classification  of  Education  ISCED  5-8: 
89.5 %  vs  EU  84.9 %).  The  tertiary  education 
attainment  gap  between  people  with  and  without 
disabilities  is  much  wider  than  the  EU  average 
(24.6 percentage points vs the EU average of 13.2 
percentage  points),  which  aggravates  inequalities 
in terms of access to employment and participation 
in society by this group.  

There is increased long-term investment in Irish 
higher  education.  Additional  funding  of  more 
than  EUR 150 million  has  been  provided  for 
higher  education  in  budgets  2017-19  to  support 

learning.  However, 

Reforms  are  ongoing  in  further  education  and 
training  and  adult 
the 
employment  rate  of  recent  vocational  education 
and training graduates, at 72.3 % in 2017, was still 
below  the  EU  average  of  76.6 %.  Recruitment  of 
new  apprentices  and  trainees  is  progressing  and 
should reach 30 500 for the period 2017-19. A new 
policy  framework  (SOLAS,  2018a)  was  officially 
launched 
in  September  2018.  Employees, 
particularly  those  in  vulnerable  jobs,  will  be  able 
to  access  upskilling  and  reskilling  opportunities 
through  engagement  with 
directly  at  work, 
companies,  mainly  small  and  medium  enterprises, 
and  as  part  of  regional  economic  development 
strategies.  Springboard+  2018  was  launched  with 
an  increase  of  25 %  in  the  number  of  places 
available on 2017. The agency for upskilling those 
in employment (SkillsNet) will also be reinforced. 
Also  the  new  pilot  programme  EXPLORE,  aimed 
at  increasing  lifelong  learning  participation  rates 
and  offering  upskilling  opportunities  for  adults, 
was 
in  2018  with  a  budget  of 
EUR 1 million.  It  sets  out  to  reduce  the  lack  of 
digital skills among adults in work above 35 years 
of  age.  Together,  these  initiatives  should  help 
increase  adult  participation  in  learning  which  at 
8.9 %  is  still  well  below  the  EU  benchmark  of 
15 %.  At  the  same  time,  the  benchmarking  on 
to  boost 
skills  highlights  an  acute  need 
participation  among  low-qualified  adults  aged  25-
64,  currently  at  3.1 %  (European  Commission, 
2018m).  

launched 

These  specific  initiatives  remain  insufficient  to 
address  the  substantial  digital  skills  gaps  of 
adults. The EXPLORE pilot has a limited reach at 

40 

 
4.3. Labour market, education and social policies 

implementation challenges to realising the original 
vision  of  universal  entitlement,  and  investment 
needs remain in order to shift focus to primary and 
community care. Yet the costs of not implementing 
the Sláintecare vision would be much higher in the 
long run.  

Ireland has the largest duplicate market across 
the  EU.  Its  characteristic  ‘duplicate  insurance’ 
enables  patients  to  jump  the  queue — providing 
faster  private  sector  access  to  medical  services 
where there are waiting times in the public system 
(OECD  et  al.,  2018g).  This  creates  perverse 
incentives  in  publicly-funded  hospitals,  where 
preferential treatment of privately-insured patients 
adds  to  doctors’  private  revenues.  It  is 
the 
Sláintecare  vision  to  ultimately  remove  private 
practice  from  public  hospitals,  but  Ireland  has  so 
far  proven  unable  to  confront  the  powerful  stakes 
of the enormous insurance market. An independent 
review  is  underway,  albeit  constrained  by  lack  of 
data on private practice. 

Access  to  some  core  health  services  is  still  not 
universal  in  Ireland.  An  outlier  in  the  EU,  only 
around  50 %  of  the  Irish  population  are  covered 
for  the  costs  of  general  practitioner  visits  (OECD 
et  al.,  2018g;  European  Commission,  2018o),  and 
general  practitioners  are  reluctant  to  see  both 
coverage and service provision expanded without a 
commensurate  change  in  remuneration.  Without 
the  expansion  of  coverage  under  Sláintecare, 
patients  will  continue  to  use  hospital  services  for 
conditions  that  should  normally  be  treated  in 
primary  care  settings  (OECD  et  al.  2017;  OECD 
2018f). Strong investment needs remain in order to 
deliver care at its lowest point of complexity. 

framework 

system.  The 

Budget management is weak across all levels of 
the  health 
of 
accountability  for  expenditure  under  the  Health 
Service  Executive  (HSE)  to  parliament  is  highly 
complex (Houses of the Oireachtas, 2018) and the 
HSE  has  repeatedly  struggled 
to  effectively 
manage  a  budget  and  stay  within  it,  despite 
in  expenditure 
subsequent  annual 
(DPER,  2018b).  Comprehensive  planning  and 
funding  models  are  either  non-existent,  poorly 
functioning or unconnected locally and regionally. 
Governance  and  accountability  are  hampered  by 
lack  of  data  on  health  workforce  and  private 
practice. For 2019, the Department of Health plans 

increases 

this stage, Springboard+ focuses only on advanced 
information  and  communication 
technologies 
(ICT)  skills,.  The  ICT  apprenticeships  offer 
training in specific ICT fields. Whilst funding has 
been  made  available for  years  (31) for introductory 
digital literacy courses across Ireland, this has not 
been  sufficient  to  address  the  significant  digital 
the  wider 
skills  gaps,  which  persist  among 
population  or  indeed  within  the  workforce  where 
levels  are  below  the  EU  average.  This  requires  a 
comprehensive  and  coordinated  policy  action  and 
sufficient  investment,  which  complements  the 
comprehensive digital skills policy and investment 
for  primary  and  higher  education  already  in  place 
or planned.  

Reforms  and  developments  in  relation  to  skills 
intelligence  and  governance  are 
improving 
actions and policy coordination. New initiatives, 
such  as  the  establishment  of  the  National  Skills 
the 
Council  and  Regional  Skills  Fora,  have 
potential  to  provide  a  mechanism  for  ensuring  a 
closer  match  between 
labour  provision  and 
demand. The new National Skills Council manages 
prioritisation of skills needs.   

4.3.4.  HEALTHCARE 

The  Irish  healthcare  system  faces  a  crisis  of 
cost-effectiveness.  Year  after  year  significant 
overspends are recorded in healthcare, yet process 
and  output  measurements  do  not  reveal  an 
improvement  in  performance.  Neither  are  the 
to  any  major 
persistent  deficits  attributable 
expansion 
its 
relatively  young  population,  Ireland  is  one  of  the 
highest per capita spenders on health in the EU and 
the  ageing  of  the  population  is  likely  to  lead  to 
higher  spending  and  fiscal  sustainability  concerns 
(see  Section  4.1.1).  Considerable  scope  exists  for 
savings  to  be  made  (DPER,  2018e),  potentially 
freeing up resources for ambitious reform plans. 

in  service  provision.  Despite 

The  ‘Sláintecare’  ten-year  plan  for  healthcare 
reform  captures  the  holistic  overhaul  that  the 
Irish  health  system  requires.  A  Sláintecare 
Programme 
Implementation  Office  has  been 
created,  aiming  to  translate  the  2017  cross-party 
Sláintecare  Report  into  reality.  There  are  serious 

(31)  For  example  the  Digital  Skills  for  Citizens  scheme  or  the 

previous BenefIT scheme. 

41 

 
                                                           
4.3. Labour market, education and social policies 

long  run.  There  are  a  number  of  examples. 
Savings  could  be  made  from  a  higher  uptake  of 
biosimilar  medicines,  where  Ireland  lags  behind 
(DPER,  2017).  Realistic  budgeting  that  avoids 
recurrent  overspends  is  a  necessary  condition  for 
the Health Service Executive to effectively manage 
their  expenditure.  Staffing  costs  and  skill  mix  are 
not being actively managed and represent a risk of 
budget  overspends  and  crowding  out  of  other 
health expenditure (DPER 2018c; 2018d). Finally, 
good  quality  hospital  performance  data,  through 
the  planned  deepening  and  extending  of  Activity-
Based Funding, are necessary to get to the bottom 
of  the  budgeting  and  performance  problems  in 
public hospitals.  

4.3.5.  INVESTMENT NEEDS  

sectors 

the  full 

Increased  investment  in  skills,  education  and 
training as well as social inclusion are essential 
for  improving  Ireland’s  productivity  and  long-
term inclusive growth. Emerging skills shortages 
and  mismatches 
require 
in  certain 
investments in under-tapped human capital, as well 
as better alignment of education curricula to labour 
market  needs.  Using 
labour  market 
potential  requires  investing  in  access  to  quality 
childcare  facilities  to  further  promote  women’s 
labour market participation, support for jobseekers 
and  people  with  disabilities,  and  the  activation  of 
those  living  in  jobless  households.  Investments  in 
social  housing  infrastructure  and  social  services 
are  crucial  to  address  the  severe  social  housing 
shortages  and  rising  homelessness  and  reducing 
the number of children at risk of poverty and social 
exclusion. 

to increase the budget allocation for the HSE while 
requiring it to avoid overspends. 

Public  hospitals  constitute  an  area  where  the 
cost-effectiveness  crisis  is  most  acute.  Over  the 
2014-2017  period  expenditure  increased  by  17 % 
while outputs remained relatively  flat and  waiting 
times increased sharply (DPER, 2018b). Compared 
with  other  EU  countries,  Ireland  has  the  highest 
occupancy  rate  for  one  of  the  lowest  numbers  of 
hospital  beds  per  1000  population  (32)  (OECD  et 
al.,  2018g).  Efforts  to  implement  Activity-Based 
and 
as 
Funding, 
Accountability Frameworks, have only had limited 
success  so  far  (DPER,  2018b)  and  there  has  been 
little progress since the 2015 Flory  Report,  which 
stressed the need for hospitals to produce realistic 
annual efficiency improvement plans.  

Performance 

as  well 

long-term  care 

Ireland’s  system  of  long-term  care  also  faces 
is 
challenges.  Spending  on 
projected  to  increase  much  faster  than  the  EU 
average,  leading  to  fiscal  sustainability  concerns 
(European  Commission  et  al.,  2018q).  There  is 
currently  no  statutory  entitlement  to  formal  home 
care, with long waiting lists and government plans 
to  introduce  a  statutory  scheme  having  been 
(see  Section  4.1.1  and  European 
delayed 
in  a  more 
Investing 
Commission,  2018n). 
developed  formal  home  care  sector  could  help 
about 
reduce 
EUR 1 billion 
the 
burden  on  (mostly  female)  informal  carers,  thus 
enabling them to return to the labour market. 

in  2016 — while  relieving 

costs — reaching 

exchequer 

Short-term  cost  containment  will  be  needed  to 
make the full Sláintecare vision a reality in  the 

(32)  While  the  low  capacity  of  the  Irish  hospital  sector  is  well 
established,  the  comparability  may  be  distorted  by  the 
exclusion of private hospital beds and other methodological 
differences in Irish data. 

42 

 
                                                           
 
 
4.4. COMPETITIVENESS REFORMS AND INVESTMENT 

4.4.1.  COMPETITIVENESS AND PRODUCTIVITY 

GROWTH 

Competitiveness* (33) 

these  effects, 

The  current  account  balance  remains  volatile 
and  heavily  influenced  by  the  activities  of 
multinationals.  In  2017,  the  current  account 
surplus stood at 8.5 % of GDP following a deficit 
of  4.2 %  in  2016.  The  headline  figures  are 
disrupted  by  the  activities  of  multinationals  both 
through  the  trade  balance  and  income  flows.  To 
the  Irish  Central 
account  for 
Statistics  Office  (CSO)  publishes  a  modified 
measurement  of 
(CA*) 
(Central  Statistics  Office,  2018).  This  underlying 
balance fell from 2.6 % of modified gross national 
income  (GNI*)  in  2016  to  1.2 %  in  2017  (Graph 
4.4.1),  as  opposed  to  the  strong  increase  in 
headline  current  account  over  the  same  period.  A 
large  part  of  the  divergence  between  the  two 
measures 
of 
foreign-owned  domestic  capital  and  activities 
related  to  trade  in  R&D,  such  as  imports  of 
intellectual  property  services,  which  are  excluded 
from the headline current account balance.  

the  current  account 

depreciation 

relates 

the 

to 

and 

saving 

preferred 

The  public  sector  has  contributed  most  to  the 
reversal  of  the  current  account  balance  in 
recent  years.  Before  the  crisis,  households  had 
been  driving  downwards 
the  current  account 
balance,  mostly  due  to  the  large  take-up  of 
mortgages  linked  to  the  housing  boom  (Graph 
4.4.1).  After  2008,  households  have  reduced  their 
investments 
and 
deleveraging.  The  financial  corporations  sector 
seems to have been running a moderate surplus for 
more  than  a  decade.  The  balance  of  non-financial 
corporations  has  been  rather  volatile  over  the 
years. Since 2013, these fluctuations seem to have 
been  driven  mostly  by  large  multinationals,  while 
the position of the other non-financial corporations 
was positive. The impact of multinationals is even 
more 
the  period  2015-2017 
contributing  largely  to  the  shift  in  the  current 
account balance. Over the crisis period and in the 
immediate aftermath, the government balance was 
to 
highly  negative, 
the 
counterbalance 

line  with 
efforts 
the  negative  pressures  of 

relevant  over 

in 

economic  downturn. 
the 
In 
improvement  in  the  current  account  balance  has 
been  mostly  driven  by  the  declining  government 
deficit, supported by economic recovery. 

recent  years, 

Graph 4.4.1:  Current account balance by sectors 

(1) The current account for various sectors is computed as 
savings-investment for each sector. 
From 2013 onwards data allows to split the non-financial 
corporations sector into Large multinationals and 
Other non-financial corporations 
Source: European Commission calculations based on CSO 
data 

The  underlying trade balance suggests that the 
Irish  economy  has  maintained  its  external 
competitiveness.  The  trade  balance  is  influenced 
by  the  activities  of  multinationals  through,  inter 
alia,  contract  manufacturing,  merchanting (34)  and 
imports  of  services  related 
to  R&D.  When 
adjusting  for  these  effects,  the  underlying  trade 
balance 
less 
volatility  around  a  moderately  increasing  trend, 
implying 
the  country  maintains  a  solid 
competitiveness position (Graph 4.4.2). 

remains  positive  and  displays 

that 

(34)  ‘Contract  manufacturing’  is  a  process  in  which  resident 
multinational companies issue contracts to foreign firms to 
produce goods on their behalf. As resident companies own 
these  goods,  their  sales  are  recorded  as  exports  of  the 
resident  country  even  though  they  do  not  enter  the 
domestic  economy.  ‘Merchanting’  refers  to  the  purchase 
and  resale  of  goods  which  do  not  enter  the  merchant’s 
economy. 

(33)  An  asterisk  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
Section 3 for an overall summary of main findings). 

43 

-20-10010201998200020022004200620082010201220142016Non-financial corporationsLarge MNEsOther NFCs than large MNEsFinancial corporationsGeneral governmentHouseholdsNot sectorizedCACA* (% of GNI*)% of GDP 
 
                                                           
 
                                                           
4.4. Competitiveness reforms and investment 

headquarters, 

some  multinationals’ 

the  productivity  growth  of 

companies (European Commission, 2018a, Section 
4.4.1).  The 
latter  have  displayed  substantial 
productivity growth following the re-domiciliation 
the 
of 
development  of  contract  manufacturing  and 
significant  foreign  direct  investment  inflows.  By 
contrast, 
the 
predominantly  domestic  part  of  the  economy  has 
remained  flat  or  even  declined,  although  the 
current  productivity  is  relatively  high  compared 
with  other  Member  States  (OECD,  2018c).  The 
productivity  gap  between  these  two  groups  of 
firms  continues  to  widen  as  labour  productivity 
grew  10  times  more  in  the  foreign-dominated 
sectors  compared  to  the  domestic  ones  in  2017 
(6 % vs 0.6 %) (Central Statistics Office, 2018c).  

Excluding  sectors  dominated  by 
the  US 
multinationals,  Ireland  still  performs  well  on 
productivity  compared  with  other  countries. 
However, there are considerable differences across 
firms.  Firm-level  analysis  shows  that  the  majority 
of  businesses  have  experienced  declining  total 
factor  productivity  since  2006  particularly  in  the 
services  sector  (OECD,  2018c).  The  cumulative 
labour  productivity  growth  of  Irish  small  and 
medium  sized  enterprises  (SMEs)  between  2008 
and  2017  shows  a  similar  picture  (Graph 4.4.3). 
Over  this  period,  small  firms  increased  their 
productivity by 28.4 %, above the  EU average. In 
contrast,  medium-sized  firms 
in  Ireland  had 
actually experienced a negative cumulative growth 
in apparent labour productivity (-13.4 %, while the 
EU  average  was  16.9 %) (European  Commission, 
2018). In the context of a tightening labour market 
for  a  number  of  qualifications,  the  share  of 
employment  in  SMEs  is  decreasing.  In  the  period 
2008-2017,  while  SMEs  lost  over  57 000  jobs, 
larger firms gained almost 43 000, probably due to 
higher  wages.  In  relative  terms,  this  is  the  largest 
transfer  of  jobs  from  SMEs  to  larger  firms  in  the 
EU between 2008 and 2017. 

in 

differences 

Concentration of economic activity is increasing 
with  few  sectors  and  firms  driving  the  Irish 
economy.  The  foreign-domestic  divide  explains 
growth, 
the 
sectors. 
employment 
Within-sector 
are 
particularly  important  in  R&D,  pharmaceuticals, 
telecommunications  and  wholesale  and  retail. 
Intra-sectoral 
labour  productivity  dispersion 
reaches  78 percentage  points  in  pharmaceutical 

productivity 
and  wages  within 
productivity 

differences 

Graph 4.4.2:  Headline trade balance vs. underlying trade 

balance 

Source: CSO 

In 

run, 

short 

Even  though  Ireland  remains  one  of  the  most 
competitive  EU  economies,  it  faces  important 
challenges. (35) 
cost 
the 
competitiveness  may  deteriorate  due  to  skills 
shortages and rising housing, electricity, legal and 
insurance  costs.  In  the  long  term,  the  growth 
potential  could  be  limited  by  the  availability  of 
talent  and  skilled  labour,  infrastructure  deficits, 
and  regional  imbalances.  Uncertainties  linked  to 
the  global  environment  are  also  impinging  on 
economic  activity.  In  addition,  Ireland  has  so  far 
failed  to  decouple  its  economic  growth  from  the 
emissions  of  greenhouse  gases  and  air  pollutants. 
This  raises  health,  climate  and  environmental 
that  Ireland  may  miss 
concerns  and  means 
opportunities 
the  EU’s  ambitious 
to 
decarbonisation objectives. 

linked 

Productivity 

Ireland’s competitiveness position is backed up 
by  a  sound  overall  productivity  performance, 
but  the  duality  of  the  economy  is  increasing. 
After  the  crisis,  the  Irish  economy  has  performed 
remarkably  well  in  productivity  growth  terms. 
the 
there  are  big  differences 
However, 
performance  of  domestic  and  multinational 

in 

(35)  The  importance  of  these  challenges  led  the  International 
Institute for Management Development to relegate  Ireland 
from 6th to the 12th position in the World Competitiveness 
ranking in May 2018 although the World Economic forum 
upgraded  it  from  the  24th  to  the  23rd  notch  of  its 
competitiveness ranking in October 2018. 

44 

-30000-20000-1000001000020000300004000050000Net exports of services without net imports of R&DNet exports of servicesNet exports of goodsNet exports of goods (cross-border)Trade balanceTrade balance excluding effects of multinationalsbillionEUR 
 
                                                           
4.4. Competitiveness reforms and investment 

Graph 4.4.3:  Cumulative Labour Productivity Growth 2010-

2017 

of  Finance, 

products,  where  the  top  10 %  of  manufacturing 
firms  account  for  70  %  of  aggregate  productivity 
(Department 
2018b).  Export 
concentration  by  products,  firms  and  destinations 
is  also  very  high.  The  top  50  firms  account  for 
70 % of total turnover (McCarthy, 2018) and about 
75 %  of  exports 
(National  Competitiveness 
Council,  2018b).  The  top  five  industrial  goods 
exports  accounted  for  over  40 %  of  the  total  in 
2015.  Although 
some 
there 
diversification  in  export  destinations,  about  40 % 
of all exports went to the US and the UK in 2017. 

been 

has 

to 

The  high  concentration  and  increasing  duality 
might  impinge  on  the  future  sustainability  and 
resilience of the economy (OECD, 2018, National 
Competitiveness  Council,  2018b,   (36)).  There  is 
evidence  of  a  fair  level  of  efficiency (37)  in  the 
current  allocation  of  resources  in  manufacturing. 
However,  the  heavy  reliance  on  a  limited  number 
of  firms  and  sectors  makes  the  Irish  economy 
vulnerable 
international  economic  shocks, 
including  in  trade,  and  to  the  terms  of  the  UK’s 
withdrawal  from  the  EU.  Against  this  backdrop, 
increasing the productivity of domestic companies 
is  crucial  in  strengthening  the  resilience  of  the 
economy  and  ensuring  a  sustainable  growth. 
Deepening the innovation process remains equally 
important, either through increased R&D efforts or 
enhanced  spill-overs  from  the  cooperation  with 
multinationals  or  research  centres.  Diversifying 
exports and integration in global value chains, and 
building  up  human  capital  are  also  means  of 
attaining higher levels of resilience and sustainable 
growth. However, progress in these areas has been 
so far rather limited. 

(36)  Following the 2016 Council Recommendation, Ireland has 
appointed 
the  National  Competitiveness  Council  as 
National  Productivity  Board  in  March  2018.  National 
Productivity Boards are objective, neutral and independent 
institutions that can investigate the productivity challenges, 
contributing  to  evidence-based  policy  making,  boosting 
domestic  ownership  of  structural  reforms.  Reports  and 
bulletins  produced  by  the  Productivity  Board  have  been 
consulted  extensively  by  the  Commission including  in the 
European Semester exercises. 

(37)  According to Papa J. et al (2018), 54 % of aggregate labour 
productivity is accounted for by allocative efficiency,  (i.e. 
the  allocation  of  resources  across  firms  of  different 
productivity  level)  while  the  rest  is  accounted  for  by 
within -firm productivity in the 2006-2014 period. 

(1) 2016 data 
Source: Eurostat and CSO (2018a) 

increased 

Business  R&D  expenditure  is  increasing,  while 
its  intensity  remains  below  the  EU  average. 
Business  R&D  expenditure 
from 
EUR 1.5 billion  in  2006  to  EUR 2.2 billion  in 
2017. However, 64 % of total business expenditure 
is  by  foreign  firms  operating  in  a  few  sectors.  In 
contrast,  the  R&D  efforts  of  most  domestic  firms 
remain moderate, albeit increasing. Business R&D 
intensity  stood  at  0.7 %  of  GDP  (1.2 %  of  GNI*) 
in 2017, below the EU average of 1.3 %. Ireland is 
on  target  to  reach  both  the  goal  of  1 200  R&D 
performers (i.e. firms spending over EUR 100 000 
on  research,  development  and  innovation)  with 
1 184  companies  in  this  category  and  the  goal  of 
200  large  R&D  performers  (where  spend  is  over 
EUR 2 million  on  research,  development  and 
innovation),  with  184  firms  in  this  category. 
However,  the  most  recent  Innovation  in  Irish 
Enterprises  survey  shows  no  progress  towards 
meeting  the  share  of  innovative  enterprises  target 
(Eurostat,  2017)  of  73 %  of  enterprises  (57 %  of 
all  Irish  enterprises  with  more  than  10  employees 
consider  themselves  R&D  active  in  2016,  down 
from 61 % in 2014).  

45 

-101030507090110130GreeceLuxembourgItalyUnited KingdomPortugalBelgium (1)NetherlandsHungaryFinlandAustriaFranceCyprusSwedenDenmarkEuro areaEuropean UnionSpainGermanyCzechiaSloveniaEstoniaSlovakiaCroatiaMaltaBulgariaPolandIreland Domestic*LithuaniaLatviaIrelandRomaniaIreland Foreign* 
                                                           
 
4.4. Competitiveness reforms and investment 

Graph 4.4.4:  Trend productivity growth has slowed Index 

2000= 100 

(1) Labour productivity is calculated as GDP per hour 
worked. Labour productivity growth can be broken down 
into the contribution from multifactor productivity growth 
and capital deepening, with the latter weighted by its 
income share. Growth in capital deepening is measured as 
the growth in the aggregate flow of capital services minus 
the growth in aggregate hours worked. Multifactor 
productivity growth is measured as the difference between 
the change in GDP and the change in measured inputs 
(capital and labour), where the inputs are weighted by their 
respective cost shares.  
Source: OECD, 2018c 

Foreign  firms  operating  in  Ireland  tend  to 
benefit  more  from  public  sector  R&D  support. 
Accounting  for  80  %  of 
total  public  R&D 
spending,  tax  credits  are  the  main  instrument  of 
public R&D support in Ireland (Irish Government 
and  Evaluation  Service,  2018). 
Economic 
Although evaluations conclude that that tax credits 
have  a  considerable  additional  impact  (60 %) 
(National  Competitiveness  Council, 
2018b, 
OECD, 2018), they also report that  multinationals 
account  for  99 %  of  the  tax  credits  claims  for 
investments 
intangible  capital  (45  %  for 
physical  capital).  In  cooperation  with  the  OECD, 
the Irish authorities are currently exploring ways to 
improve  the  impact  of  public  sector  R&D  on 
SMEs, both through direct and indirect measures. 

in 

innovation 

Stronger  linkages  between  multinationals  and 
domestic firms could help improve the diffusion 
economy.  
throughout 
of 
Technology 
the 
can 
productivity  of  Irish  firms  through,  inter  alia, 
cooperation  agreements  with  multinationals,  but 
research  has  shown  that  spillovers  may  appear 
only  if  local  firms  engage  in  innovation  activities 

spillovers 

increase 

the 

themselves (38).  This  finding  underscores 
the 
importance  of  policies  aimed  at  increasing  the 
R&D  efforts  of  domestic  firms.  Although  the 
Global  Sourcing  Initiative  provides  opportunities 
for  Irish  firms  to  connect  into  global  supply 
networks,  multinational  firms  are  not  always 
inclined 
agreements. 
Alternative and complementary ways of increasing 
spill-overs  and  promoting  the  integration  of  all 
capable  local  firms  into  the  supply  chains  could 
further enhance linkages (OECD, 2018c). 

cooperation 

these 

to 

In  addition,  cooperation  between  firms  and 
public  research  centres  is  improving  although 
much  work  lays  ahead  in  this  area.  (39)  The 
recently 
launched  Disruptive  Technologies 
Innovation Fund has been endowed with EUR 500 
million  to  further  encourage  cooperation  between 
domestic  firms  and  research  centres,  as  well  as 
national and foreign firms. Other initiatives such as 
Science  Foundation  Ireland  Research  Centres  and 
Enterprise  Ireland and the Industrial Development 
Agency  Ireland’s  Technology  Centres  help  to 
foster this collaboration. 

Low levels of public R&D remain a concern. It 
will be difficult for Ireland to reach its 2020 R&D 
investment  target  of  2.5 %  of  Gross  National 
Product.  In  2017,  Ireland  had  an  overall,  public 
and  private,  R&D  intensity  of  1.05  %  of  GDP 
(1.7 %  of  GNI*)  compared  to  an  EU  average  of 
2.0 %.  Ireland’s  public  R&D  intensity  declined 
from 0.5 % in 2010 to 0.3 % of GDP in 2017 (40). 
In  absolute  terms,  although  public  expenditure  in 
R&D  grew  from  EUR 836  million  to  EUR 907 
million  over  the  same  period,  it  decreased  from 
EUR 951  in  2016.  These  relative  low  levels  of 
expenditure  may  have  a  negative  impact  on  the 
ability to sustain in the longer run the high quality 
of  the  Irish  scientific  production  and  the  highly 
qualified  human  resources  needed  in  the  Irish 
economy.(41) 

New  initiatives  are  being  launched  to  foster 
business research and  innovation. A  key step is 

(38)  As shown by Schieldslag and others (2018) 
(39)  The  level  of  business  enterprise  funding  of  public  R&D 

continues being one of the lowest in the EU (22nd) 

(40)  This  decrease  was  partly  due  to  the  upwards  revision  of 

Ireland’s GDP from 2015 onwards. 

(41)  Irish  universities  have  already  fallen  down  the  latest 
international  rankings.  Six  of  the  eight  top-ranked  Irish 
universities  have  lost  ground  in  the  QS  World  University 
Rankings 2019 

46 

050100150200250Labour productivityCapital deepeningMultifactor productivityAveragegrowth = 2.3%Averagegrowth = 7.0%1985-19942006-20141994-20062006-2014Avg. growth: 4.5Avg. growth: 3.0Avg. growth: 4.1Avg. growth: 2.2Avg. growth:3.0Avg. growth: 3.6Avg. growth: 7.0Avg. growth: 0.2Avg. growth: 2.3 
 
                                                           
4.4. Competitiveness reforms and investment 

electronic 

computer, 
and  optical  products, 
publishing,  broadcasting  and  communications, 
electrical equipment and other services. (42)  

Graph 4.4.5:  Training expenditure domestic firms and 

multinationals in Ireland. Manufacturing and 
Services 2000-2016 

Source: Department of Business (DBEI(2018a)) 

Digitisation 

the  EU 

second  highest 

Digitisation  plays  a  key  role  in  achieving  a 
resilient,  knowledge-based  economy.  Due  to  the 
large  presence  of  high-tech  multinationals,  the 
information and communications technology (ICT) 
sector  accounts  for  12 %  of  GDP,  by  far  the 
highest  share  in  the  EU.  About  16 %  of  public 
R&D  expenditure  is  dedicated  to  the  ICT  sector, 
the 
(European 
in 
Commission,  2018c).  Notwithstanding  these  high 
rates, strengthening the domestic ICT sector and its 
interlinkages with other parts of the Irish economy 
would be beneficial for the overall economy given 
the  high  productivity  and  export  potential  of  this 
sector  and  well-paid  employment  it  provides. 
Furthermore,  the  efficient  adoption  of  digital 
technologies  by  domestic  companies  across  a 
broader range of sectors, besides ICT, may help to 
improve  their  productivity,  innovation  capabilities 
and market reach. 

(42)  Trading  between 

Irish-owned 

foreign 
multinationals  could  also  facilitate  technology  transfer. 
However,  survey  data  (DBEI(2018a))  suggest  that  the 
share  of  Irish  inputs  in  the  procurement  of  foreign  firms 
has been falling in recent years as well. 

firms 

and 

Investments’ 

the  announcement  of  the  EUR 3.16  billion  capital 
the  ‘Business,  Enterprise  and 
funding  under 
Innovation  Priority 
to  projects 
highlighted  in  Project  Ireland  2040  over  the  five 
years to 2022. The third Innovation 2020 Progress 
Report  outlines  advances  made  in  delivering  the 
140  actions.  Ireland  has  revised  the  Research 
Prioritisation themes to align the  research funding 
to 14 priority areas (so-called Smart Specialisation 
areas)  (Department  of  Business,  Enterprise  and 
Innovation,  2018a).  The  ‘Review  of  R&D&I 
Supports  available  to  Businesses  in  Ireland  to 
Maximise  Business  Expenditure  on  Research  and 
Development’  (Indecon,  2017)  also  provides 
policy recommendations. 

focus  on 

In July 2018, the Irish authorities announced an 
ambitious  programme  to  help  domestic  firms 
improve  their  productivity.  Future  Jobs  Ireland 
‘raising  productivity, 
includes  a 
Irish-owned 
particularly  among  SMEs  and 
companies’.  (Department  of  Business,  Enterprise 
and  Innovation,  2018)  The  framework  includes 
various  instruments  to  foster  the  diffusion  of  new 
technologies  by  Irish  firms  with  a  view  to 
increasing  their  productivity.  Future  Jobs  Ireland 
2019  will  be  formally  launched  at  the  end  of 
February 2019.  

firms  can  help  workers 

In the medium to long term, the availability of a 
diverse and skilled labour pool may be the main 
factor  contributing  in  improving  productivity. 
Despite  public-sector  sponsored  programmes  in 
fields  such  as  digital  skills,  significant  challenges 
remain  (Section  4.3).  Further  efforts  will  be 
required  to  meet  the  need  for  skilled  workers  in 
areas  of  increasing  demand  such  as  construction 
and  logistics.  Irish  firms  might  also  increase  their 
absorption  capacity  of  new 
technologies  by 
improving  their  staff  training.  Training  activities 
within 
foreign, 
technologically  advanced  firms  to  acquire  skills 
that may be transferred later on to local firms when 
workers  move  across  firms.  In  2016,  two  out  of 
three  SMEs  surveyed  reported  that  their  main 
priority  was  investing  in  training  staff  (Gargan  et 
al.,  2018).  However,  the  share  of  payroll  costs  of 
firms’  expenditure  on  structured 
training  of 
employees  has  been  falling  both  in  Irish-owned 
and  foreign  firms  operating  in  Ireland  in  the 
manufacturing  and  services  sector  (Graph  4.4.5). 
The  number  of  sectors  reporting  more  substantial 
reductions in training spending is quite significant: 

in 

47 

0.51.01.52.02.53.0%Training by IRISH manufactures (% of payroll)Training by FOREIGN manufacturers in Ireland (% of payroll)Training by IRISH services firms (% of payroll)Training by FOREIGN services firms in Ireland (% of payroll) 
 
                                                           
4.4. Competitiveness reforms and investment 

of  digital  technology  by  domestic  companies 
and  for  a  thriving  domestic  ICT  sector.  Digital 
skills gaps remain to be addressed (Section 4.3.1). 
As  for  connectivity,  fast  broadband  coverage  is 
above 
the  EU  average  following  significant 
progress  in  recent  years.  However,  significant 
challenges remain with only 53 % of homes having 
access  to  ultrafast  broadband,  below  the  EU 
average  of  58 %.  The  situation  is  much  worse  in 
rural areas (Section 4.4.2) (European Commission, 
2018a,  European  Commission,  2018).  Fixed 
broadband  also  remains  relatively  expensive  in 
to  other  EU  countries 
Ireland  as  compared 
(European Commission, 2018p). 

4.4.2.  PUBLIC AND PRIVATE INVESTMENT NEEDS  

Evolution of investments 

The  total  stock  of  capital  in  Ireland  remained 
strong in 2017 compared to the previous years. 
The  activities  of  multinationals  operating 
in 
Ireland  continue 
the  main  driver  of 
to  be 
investment  (Section  1).  In  2017,  the  net  stock  of 
direct  investment  fell  to  EUR -27 billion  largely 
driven  by  withdrawals  of  investment  by  the  US 
and the UK (Central Statistics Office, 2018a) while 
investment  from  the  EU  remained  strong.  The 
services  sector  remains  the  largest  sector  for 
inward  investment.  In  2017,  flows  of  direct 
investment  into  Ireland  registered  a  disinvestment 
of EUR 1 billion, compared to a positive inflow of 
in  2016.  Reinvested  earnings 
EUR 36 billion 
inflows  were  more 
than  offset  by  equity 
withdrawals and other capital investment.  

assets, 

imports  by 

Over  the  years,  the  share  of  ‘mobile’  assets  in 
the  Irish  capital  stock  has  increased.  Headline 
investment  figures  remain  heavily  volatile  (see 
large 
Section  1).  The 
some 
including 
of  R&D 
multinationals 
intellectual  property,  had  a  significant  impact  on 
the  capital  stock,  increasing  the  share  of  mobile 
stock 
restructuring 
decisions  by  some  of  the  multinationals  holding 
these mobile assets could have implications for the 
relocation  of  these  mobile  assets,  reversing  the 
positive impact of the inflows reported since 2015 
(McCarthy, 2018). 

(Graph  4.4.6).  Corporate 

Despite  the  booming  economy, 
investment 
growth  by  domestic  firms  and  small  and 

A substantial share of beneficiaries of Ireland`s 
start-up  support  schemes  are  ICT  companies, 
with  Deeptech  and  Fintech  being  prioritised 
the 
areas.  Effective  scale-up 
long-term  success  of  start-ups  and  Ireland  ranks 
relatively  high  in  the  EU.  However,  Ireland 
produced  only  one  of  the  84  most  significant  EU 
‘scalers’  (Start-up  Europe  Partnership,  2018)  and 
only  four  of  the  top  100  ‘elite’  start-ups  (Start-up 
Europe Partnership, 2018a).  

is  critical  for 

Irish  small  and  medium-sized  enterprises 
perform  well  in  online  trading  indicators,  but 
their adoption of digital technologies is uneven. 
In  2018,  31 %  of  Irish  small  and  medium-sized 
enterprises  (SMEs)  traded  online,  the  top  two 
highest  share  in  the  EU  (EU  average  is  17%) 
(European  Commission,  2019b). 
  Whilst  a 
relatively  high  share  of  SMEs  also  use  cloud 
computing  and  social  media  for  their  businesses, 
the adoption of other types of digital technologies 
(e.g RFiD, eInvoice, Enterprise Resource Planning 
and Supply Chain Management) is less widespread 
(European Commission, 2019b).  

To  date,  the  flagship  policy  scheme  in  Ireland 
has focused on helping small companies to start 
trading  online.  This  has  helped  the  scheme`s 
beneficiaries  increase  their  sales  and  reach  new 
markets  (including  export  markets).  Ireland  has 
also  launched  a  new  scheme  to  support  eligible 
SMEs in the retail sector specifically to develop a 
more competitive online offer. SMEs can also take 
advantage  of  the  services  offered  by  a  number  of 
recently  established  Technology  Centres  which 
focus  on  digital  technologies,  such  as  advanced 
manufacturing. 

The first programmes to be launched in Ireland 
by the European Investment Advisory Hub will 
have  a  focus  on  the  digitisation  of  Irish 
SMEs.(43)  European  Investment  Bank  experts 
together  with  Irish  authorities  will  identify  the 
knowledge  and  funding  gaps  that  are  preventing 
the digitisation of Irish SMEs and will identify and 
develop funding mechanisms to address them.  

Future-proof  connectivity  and  sufficient  digital 
skills remain crucial for the effective utilisation 

43  ttp://www.eib.org/en/infocentre/press/releases/all/2018/2018-
178-digitalisation-of-irish-smes-and-national-research-
investment-to-benefit-from-european-best-practice.htmc 

48 

 
                                                           
4.4. Competitiveness reforms and investment 

Investment needs 

to 

investment 

decarbonisation, 

to 
Investment  challenges  relate  primarily 
housing 
infrastructure, 
innovation.  Infrastructure 
supply,  skills  and 
deficits  such  as 
transport,  energy,  water, 
in 
digitalisation and housing supply, as well as skills 
shortages, are considered by business to be a major 
(Box  4.4.1).  Skills 
obstacle 
shortages,  in  particular  digital  and  managerial 
skills (Section 4.3.1 and 4.4.1), and a low level of 
investment in R&D by domestic firms (see above)  
the 
may  hinder 
economy, in particular for the domestic sector, and 
the  productivity  gap  between 
further  widen 
multinationals 
companies. 
Prioritising  investments  and  policies  to  meet 
decarbonisation  needs  in  sectors  accounting  for  a 
high  share  of  emissions  would  also  contribute  to 
environmentally  sustainable  development  and 
reduce the cost of future action. 

the  overall  productivity  of 

domestic 

and 

that 

Irish 

in  particular 

the  significant  drop 

medium-sized  enterprises 
is 
relatively  lukewarm.  The  Credit  Demand  survey 
showed  that  only  one  in  two  SMEs  invested  in 
machinery and equipment and less than one in ten 
in intangible capital in 2016 (Cargan et al., 2018). 
Data  suggest 
in 
investment  by  SMEs  has  not  recovered  yet.  In  a 
firms 
recent  Eurobarometer,  52 %  of 
indicated  that  they  had  no  need  for  further 
investments.  The  reasons  behind  underinvestment 
by  small  and  medium-sized  enterprises  are  not 
well known. This low investment rate will not help 
the  productivity  gap  with 
to 
multinationals  (Central  Statistics  Office,  2018c). 
Debt  overhang  and  risk  aversion  in  times  of 
uncertainty  have  been  proposed  as  plausible 
explanations. Uncertainties stemming from various 
sources  have  been  identified  as  the  main  factor 
holding  back  investment  in  Ireland  according  to 
the  European 
Investment  Bank  Survey  on 
investment (European Investment Bank, 2018). 

cut  down 

Graph 4.4.6:  Net Capital Stock held at the end of the year 

by asset type 

(1) For confidentiality reasons, from 2015 onwards figures for 
the stock of Transport equipment – which includes the 
aircraft – and Research and Development assets are 
suppressed. Starting with 2015, these two components are 
captured therefore by the Others category, which is 
computed as the difference between Total fixed assets and 
the remaining categories for which data is published. 
Source: CSO 

is 

Targeted  and  timely  capital 
infrastructure 
investment  may  enhance  productivity  and 
competitiveness 
Competitiveness 
(National 
Council,  2018a).  After  years  of  low  public  and 
private  capital  investment  following  the  crisis, 
infrastructure 
inadequately  maintained  and 
unable  to  meet  peak  demand  (Engineers  Ireland, 
2018)  reducing  the  competitiveness  of  Irish  firms 
(World  Economic  Forum,  2018).  The  National 
Development  Plan 
(Department  of  Public 
Expenditure and Reform, 2018) addresses some of 
the  infrastructure  gaps  by  increasing  the  capital 
investment  efforts 
to  EUR 116  million  over 
2018-2027. (44)  Although  public  expenditure  is 
being 
increase 
strongly,  time  is  required  for  the  investments  to 
have  sizeable  effects.  Additional  policy  measures 
may be required to incentivise private investments 
in  areas  such  as  clean  energy  and  transport, 
housing and skills. 

front-loaded  and  planned 

to 

(44)  Investments  are  expected  to  be  aligned  with  the  national 
strategic  outcomes  identified  in  the  National  Planning 
Framework  (DPER,  2018a)  as  well  as  with  the  regional 
priorities  specified  in  the  Regional  Spatial  and  Economic 
Strategies to be approved in early 2019. 

49 

02004006008001000OthersResearch and DevelopmentComputer softwareCultivated assetsOther machinery and equipmentTransport equipmentOther buildings and structures including roadsDwellings, excluding landAll fixed assetsEUR billion 
 
                                                           
4.4. Competitiveness reforms and investment 

Box 4.4.1: Investment challenges and reforms in Ireland 

Macroeconomic perspective        

Investment continues to recover after falling significantly during the economic downturn. Headline figures are volatile and inflated by the 
activities of multinationals, but domestic investment is increasing strongly driven largely by construction activity (Section 1). Public capital 
investment  is  on  an  upward  path  and  according  to  the  National  Development  Plan  is  expected  to  reach  4 %  of  modified  gross  national 
income (GNI*) by 2024 (from 2.7 % in 2017) and to remain around this level until 2027 (Section 1 and Section 4.4.1). 

Assessment of barriers to investment and ongoing reforms  

Infrastructure bottlenecks and the lack of skilled labour remain the main barriers holding back investment in Ireland. Around 76 % of firms 
surveyed  by  the  European  Investment  Bank  encountered  difficulties  in  investing  due  to  the  unavailability  of  skilled  labour.  However,  the 
most significant barrier to investment last year was the relatively high level of uncertainty (78 % of firms). A number of factors seem to have 
increased uncertainty, worsening the investment outlook to the point that a significant share of firms is delaying investment decisions. These 
survey results are consistent with the relatively high rate of firms that do not wish to invest at present in Ireland despite the good performance 
of the economy. Business regulations and energy costs also score relatively high as factors hindering investments in Ireland (63 % and 68 % 
of  firms  respectively).  Financial  conditions  have  improved  but  they  are  still  mentioned  by  two  thirds  of  firms  as  a  relevant  barrier  to 
investment. 

Main barriers to investment and priority actions underway: 

1.  The  availability  of  housing  and  infrastructure  remains  the  major  barrier  to  investment.  Although  the  adoption  and  launching  of  the 
National Development Plan have improved the outlook for the provision of some basic infrastructure, it will take time to reduce the current 
infrastructure deficits, in transport (including clean transport solutions) and other public infrastructure. The same applies to the availability 
of housing despite the increase in the annual rate of supply of new housing units. Delays in the delivery of digital infrastructure add to these 
deficits  hampering  plans  to  reduce  congestion  in  the  Dublin  region  and  to  spread  economic  activities  across  regions.  Infrastructure 
investment is also encountering difficulties in areas such as energy, digitisation, environmental infrastructure and the fight  against climate 
change. Infrastructure deficits hinder investment in other sectors in turn.  

2. Current policies and incentive  mechanisms seem to have been insufficient to cope with the pressing needs for skilled labour and firms 
claim that this is a major obstacle to investment. There seems to be a general shortage of skilled labour that the local supply cannot meet. 
The  level of  labour  market  mismatches  is  not sufficient to the shortage of skills across sectors. Some stakeholders  emphasise  the strong 
competition  in the  market  for skilled  labour between  foreign and  local  firms,  it being difficult  for the  latter to  match the  wages paid by 
multinationals. The shortage is particularly important for digital skills. However, other sectors such as construction and infrastructure also 
mention  the  availability  of  staff  at  all  levels,  from  managers  to  intermediate  skills,  as  an  important  long-term  barrier  to  investment  and 
growth.  

3.  Uncertainty  is  holding  back  private  sector  investments.  Despite  strong  economic  growth  in  recent  years,  many  firms  are  reluctant  to 
investment. They remain reluctant to borrow, trying to avoid the potential hardship familiar from the recession. Uncertainty prevails in all 
sectors but  it seems to be particularly  important  in construction (European Investment  Bank, 2018, Cargan et al., 2018).  This  negatively 
affects  negatively  the  rate  of  the  supply-side  response  to  the  demand  for  housing  and  infrastructure.  In  the  case  of  manufacturing  and 
services, this uncertainty may delay the diffusion of innovation. Uncertainty seems to affect both small and micro firms as well as medium 
and large firms, although the two groups of firms may be concerned by different underlying reasons. 

The Strategic Banking Corporation of Ireland, established by the Ministry of Finance, ensures access to flexible and lower cost borrowing 
for  Irish  small  and  medium-sized  enterprises  and  supports  market  access  for  small  and  medium-sized  enterprises  entering  the  lending 
market. Enterprise Ireland is a government organisation responsible for the development of Irish enterprises in world markets (for recent 
measures initiated by Enterprise Ireland, see the 2018 Small Business Act Fact Sheet (European Commission (2018i). The Ireland Strategic 
Investment  Fund  is  a  sovereign  development  fund  of  EUR 8.9  billion  managed  and  controlled  by  the  National  Treasury  Management 
Agency,  which  invests  on  a  commercial  basis  to  support  economic  activity  and  employment  in  Ireland,  with  a  long  investment  time 
horizon. Microfinance Ireland is a not-for-profit lender, established to deliver the Government’s Microenterprise Loan Fund, and provides 
loans of EUR 2 000 to EUR 25 000 to start-ups, newly established and growing micro-enterprises.  

50 

Regulatory/ administrative burdenTaxationPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessCSRJudicial systemFinancing of R&D&ICSRInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomEducation, skills, lifelong learningCSREnergyLegend:TransportNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
to  deliver 

The  weak  capacity  of  the  construction  sector 
may  become  an  obstacle 
the 
infrastructure  and  housing  required.  The  crisis 
has  had  a  devastating  impact  on  the  construction 
sector.  Many  firms  left  the  market  and  the 
workforce occupied in the sector during the boom 
years  was  dispersed.  Since  then,  the  entry  of  new 
firms  has  been  sluggish.  In  2016,  the  number  of 
firms  was  just  6.7 %  higher  than  in  2010.  In  the 
third  quarter  of  2018,  employment  in  the  sector 
was  just  39 %  below  the  level  reached  in  the 
heydays  of  2007.  Labour  productivity 
in 
construction  has  recovered  but  remains  low  in 
comparison 
sectors  and  countries 
(European  Commission,  2018).  The  productivity 
of the sector can be increased by a more intensive 
communications 
use 
technology  and  pre-fabricated  solutions, 
the 
reskilling of the  workforce and the entry of larger 
foreign 
Global 
Institute, 2017).  The  latter  should  be  possible 
unless barriers hamper entry. 

information 

(McKinsey 

producers 

to  other 

and 

of 

Infrastructure links with continental Europe 

Direct  shipping  routes  to  continental  Europe 
may be reinforced. More than 80 % of Irish road 
freight  to  mainland  Europe  currently  transits  the 
United  Kingdom  using  the  so-called  ‘land-bridge 
route’.  Increasing 
logistical 
capacity  at  Irish  ports  as  well  as  their  hinterland 
connectivity  may  help  to  create  alternative  routes 
to handle increasing volumes of traffic after Brexit. 

the  physical  and 

energy 

reducing 

Ireland’s 

Diversification of energy interconnections is key 
to 
import 
dependency  and  supporting  the  integration  of 
renewable  power.  Two  projects  have  been 
identified as EU Projects of Common Interest. The 
700  MW  Celtic  interconnector  is  an  EUR 930 
million  investment  to  be  funded  in  part  by  a 
Connecting  Europe  Facility  (CEF)  grant  and  in 
part  by  electricity  consumers  in  Ireland  and 
France.  It  has  a  strategic  importance  to  ensure 
diversification  of  foreign  supply  as  it  will  be  the 
first  direct  connection  between  Ireland  and  the 
continent.  The  Greenlink  interconnector  to  UK  is 
proposed as a EUR 400 million private investment 
with regulatory guarantees. Gas dependency on the 
UK decreased from 90 to  33% in 2017 as a result 
of  the  exploitation  of  the  Corrib  field.  Predicted 
throughput  for  the  Winter  Period  2018/19  is  that 
gas  supplies  from  Great  Britain  via  the  Moffat 

to  account 

entry  point  are  expected 
for 
approximately  57%  system  demand.  Corrib  gas 
field  is  expected  to  meet  approximately  40%  of 
Gas  Networks  Ireland  system  demand  with  the 
balance of 3% met from Inch (Kinsale) production. 
However,  long-term  strategies  for  replacement 
with non-fossil resources should not be neglected, 
as 50 % of electricity in Ireland comes from gas.  

Housing supply * (45) 

Residential construction is booming but housing 
completions  still  fall  short  of  demand.  Annual 
housing  completions  amounted  to  17 161  in  the 
third  quarter  of  2018,  i.e.  33%  more  than  on  the 
same  period  last  year.  Despite  this  steep  increase, 
housing  supply  is  still  short  of  the  required  level, 
estimated  to  increase  from  23 000  in  2018  to 
32 000 by 2024 (DAFT, 2018)  

Ireland 

A  significant  increase  of  investments  in  deep 
renovation  of  buildings  is  required  to  achieve 
decarbonisation  objectives.  The  Sustainable 
Energy  Agency  of 
that 
investment  of  circa  EUR 35 billion  would  be 
required  to  upgrade  Ireland's  housing  stock  to  a 
minimum  building  energy  rating  of  B3.  Most  of 
this  investment  would  have  to  be  made  by  home-
owners  themselves,  though  there  is  also  room  for 
limited government assistance.  

estimates 

The low level of residential development on sites 
sold by the National Asset Management Agency 
(NAMA) is a concern. In March 2018, only 11% 
of the 55 000 units sold by NAMA (National Asset 
Management Agency, 2017) in the last 7 years had 
been  built  up.  The  development  of  some  of  these 
sites  may  be  inhibited  by  constraints  related  to 
commercial  viability,  infrastructure  or  suitable 
planning  permission.  In  addition,  land  hoarding 
was  also  identified  by  NAMA  as  one  potential 
cause meriting further analysis. 

The  Serviced  Site  Fund  and  the  Regeneration 
Development  Fund  will  support  the  delivery  of 
infrastructure  to  unlock  land  development. 
Around 3.3 billion are planned over 2018-2027 to 
inter  alia  service  land  sites  with  the  necessary 
infrastructures.  By  2021,  the  Serviced  Site  Fund 

(45)  An  asterisk  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
Section 3 for an overall summary of main findings) 

51 

 
 
                                                           
4.4. Competitiveness reforms and investment 

Investments for sustainable development  

is 

falling 

behind 

further 

the  built  environment (47).  The 

Ireland 
in 
decarbonising  its  economy  and  engaging  on  a 
path  of  sustainable  development.  Greenhouse 
gas emissions are steadily rising,  with particularly 
severe  challenges  in  transport,  agriculture,  energy 
and 
lack  of 
progress  will  make  the  challenge  of  meeting 
Ireland’s EU obligations that more difficult,  while 
also  increasing  the  cost  of  future  action (48)  and 
raising  concerns  for  some  key  multinational 
companies. (49) 
action 
increases  the  risk  of  Ireland  having  to  cover  the 
cost of stranded assets. (50) 

addition,  delayed 

In 

There are no signs yet that a reversal in trend is 
to be expected. On the basis of existing measures, 
Ireland  is  projected  to  keep  emissions  stable  in 
sectors outside of the EU emissions trading system 
(non-ETS  sectors)    by  2020  (compared  to  2005 
levels),  while  its  target  is  -20%.  By  2030,  Ireland 
is  still  not  projected  to  reduce  emissions  in  non-
ETS sectors, compared with the target of-30%. 

Compliance with EU commitments will become 
increasingly  challenging  and  could  become 
costly.  The lack of early action means that Ireland 
will need to use all the flexibilities under the Effort 
Sharing Decision and Effort Sharing Regulation to 
comply  with  its  EU  obligations.  Even  so,  Ireland 
will  need  to  purchase  allocations  from  other 
Member  States  for  the  2013-2020  compliance 
period.  In  spite  of  allocations  under  the  Effort 
Sharing  Regulation  being  significantly  higher 
during  2021-2025  than  the  2020  target,  Ireland  is 
also  expected  —  under  current  projections  —  to 
have to buy allocations from other Member States 
on  a  large  scale  during  2021-2030  (Graph  4.4.9). 

(47)  In 2016 GHG  emissions increased by 2.7% in agriculture, 
4.1% in transport and 6% in the energy sector – mostly due 
to an increase of gas use in electricity generation 

in 

support  of 

(48)  In-depth  analysis 

the  Commission 
Communication  COM(2018)  773  or  IPCC  Special  Report 
on global warming of 1.5°C, summary for policymakers: 
(49)  Amazon, Apple, Facebook and Google are for example all 
committed to source 100% of their energy from renewable 
sources.  Access  to  cost-effective  renewable  energy  is  one 
of the primary factors used by Facebook in selecting their 
data  center  locations  (https://sustainability.fb.com/clean-
and-renewable-energy/) . 

(50)  In-depth  analysis 

the  Commission 
Communication  COM(2018)  773  or  IPCC  Special  Report 
on global warming of 1.5°C, summary for policymakers: 

support  of 

in 

expects  to  have  serviced  sites  with  capacity  for 
delivering  6 200  housing  units  for  those  with  the 
greatest affordability challenges. The Regeneration 
Development  Fund  will  have  a  broader  focus  and 
housing 
fund 
to 
development  as  well  as  urban  and 
rural 
regeneration interventions. 

infrastructure 

facilitate 

More  construction  on  publicly-owned 
land 
could  increase  housing  affordability.  Publicly-
owned  land  has  capacity  for  the  development  of 
over 50 000 housing units. This land could be used 
to  provide  social  and  affordable  housing  in  areas 
where  demand  for  housing  is  strong.  The  sale  or 
leasing  of  land  to  private  promoters  may  be 
conditioned to its immediate development to avoid 
land hoarding. 

The  newly-created  Land  Development  Agency 
may help accelerate the construction in publicly 
owned land and reduce the volatility of prices in 
the  housing  market.  The  Agency,  launched  in 
September  2018,  is  expected  to  facilitate  the 
construction  of  150 000  new  homes  over  the  next 
20  years  in  a  mix  of  private  and  public  land, 
including  by 
regeneration 
supporting  urban 
initiatives.  It  will  assemble  strategic  land  banks 
making these available for housing in a controlled 
manner  so  as  to  counter  the  boom-bust  cycle  in 
land  and  house  prices.  The  agency  has  been 
provided  with  compulsory  purchase  powers  that 
may discourage land hoarding. 

taxes  based 

Property 
on  below-market 
valuations result in an implicit subsidy on home 
ownership  and  create  incentives  for  under-
occupation.  House  price  valuations  serving  as  a 
base for property taxes have not been revised since 
2013  when  prices  were  around  42 %  below  the 
current  level.  Regular  updates  combined  with  the 
introduction  of  special  arrangements  for  low-
resource 
income 
allocation (46)  and 
reduce  housing  purchase 
demand as well as increase the progressivity of the 
tax  system  (see  Section  4.1.3).  In  addition,  it 
would  provide  the  government  with  additional 
resources  to  address  housing  and  infrastructure 
challenges. 

groups  would 

optimise 

(46)  In  Ireland,  70.6%  of  people  live  in  under-occupied 

dwellings, the highest share in Europe. 

52 

 
                                                           
                                                           
4.4. Competitiveness reforms and investment 

This  would 
cost.  (51) 

likely  entail  a 

large  budgetary 

Graph 4.4.7:  non-ETS emissions and estimated annual 

allocations under the ESD and ESR. 

Ireland is yet to spell out  a  pathway towards a 
decarbonised  and  sustainable 
future.  The 
National  Mitigation  Plan,  National  Planning 
Framework  and  National  Development  Plan 
(NDP)  have  contributed  to  defining  Ireland’s 
vision  of  a  sustainable  and  low-carbon  economy. 
The NDP identifies investment needs of EUR 21.8 
billion  for  climate  action  for  2018-2027  of  which 
EUR  7.6  billion  would  come  from  the  public 
budget,  as  well  as  EUR  8.6  billion  funding  for 
sustainable public transport. However, the concrete 
actions  programmed  or  budgeted  for  fall  far  short 
of putting Ireland on a path to achieving the 2030 
climate  targets  and  the  government  acknowledges 
that  the  National  Mitigation  Plan  needs  to  be 
revisited. The government is currently working on 
a  “whole-of-government”  plan  to  identify  new 
measures  to  address  the  issue,  with  the  aim  to 
finalise  it  by  year-end.  Such  an  effort  should  be 
underpinned  by  a  detailed  vision  of 
the 
technological 
investment 
pathways 
requirements  (public  and  private)  that  would 
enable  Ireland 
its  2030  and  2050 
objectives  in  key  sectors  such  as  renewables,  the 
phasing  out  of  coal  and  peat,  transport,  buildings, 
agriculture and the circular economy. 

to  reach 

and 

(51)  A  report  from  the  Department  of  Public  Expenditure  and 
Reforms  of  2014  indicated  that  the  cost  could  be  around 
EUR 90  million  for  2013-2020  and  “in  the  billions”  for 
2021-2030.  A  note  from  the  Institute  of  International  and 
European Affairs estimates that the lack of domestic action 
could  generate  compliance  costs  for  the  climate  and 
renewable  energy  targets  of  EUR  3-6 billion  for  both 
compliance periods. 

(1) Annual allocations under the ESR estimated based on 
preliminary or projected emissions for 2016-2018. 
Source: Environmental Protection Agency and European 
Commission. 

the  Energy  Union, 

The  draft  National  Energy  and  Climate  Plan 
builds  on  the  National  Development  Plan 
objectives but does not clarify investment needs 
until  2030.    In  its  final  National  Energy  and 
Climate  Plan  (NECP)  to  be  adopted  by  31 
December 2019 in line with the Regulation on the 
Governance  of  the  Energy  Union  and  Climate 
Action (52), Ireland will provide an overview of its 
investment  needs  until  2030  for  the  different 
dimensions  of 
including 
renewable  energy,  energy  efficiency,  security  of 
supply, and climate mitigation and adaptation. The 
information  provided,  including  in  the  draft  plan 
submitted 
further 
contribute  to  the  identification  and  assessment  of 
energy  and  climate-related  investment  needs  for 
Ireland. The final NECP, to be finalised by the end 
of 2019, should include new national objectives for 
2030  as  well  as  concrete  policies  and  measures 
across the energy and climate areas. The definition 
of 
improve  policy 
coordination  of  national  administrations  and 
enable synergies between different sectors.  

in  December  2018,  will 

the  NECP  should  also 

Ireland  is  likely  to  miss  its  renewable  energy 
target by 2020. The Sustainable Energy Authority 
of  Ireland,  2017  expects  a  gap  of  1.7  to  3.7 

(52)  Regulation  (EU)  2018/1999  of  the  European  Parliament 
and  of  the  Council  of  11  December  2018  on  the 
Governance of the Energy Union and Climate Action 

53 

01020304050200520102015202020252030Mt CO2eTransportBuildingsAgricultureOtherESD allocationsESR allocations 
                                                           
 
                                                           
4.4. Competitiveness reforms and investment 

bus  operators  (Dublin  Bus  and  Bus  Éireann) 
relying on diesel-engine fleets. 

towards 

economy.  Progress 

Although  Ireland  is  not  a  material-  and  waste-
intensive  economy,  it  would  benefit  from  a 
national  strategy  for  the  transition  to  a  more 
circular 
the 
mandatory recycling EU targets has slowed in the 
recent years. However, the projections indicate that 
Ireland  should  be  close  to  meeting  the  2020 
recycling  target  for  municipal  waste  (Eunomia, 
2018).  While  the  recycling  rate  slightly  increased 
from  37 %  in  2013  to  41 %  in  2016  (Eurostat, 
2017),  it  is  noteworthy  that  in  the  same  period 
Ireland substantially reduced the landfill rate from 
38 %  to  26 %  and  increased  waste  incineration 
this  successful 
from  16 % 
reduction  of  landfilling  are  measures  such  as  the 
increasing 
is  required 
regarding  the  increase  in  incineration  capacity. 
Investments should rather focus on projects higher 
up  in  the  waste  hierarchy  to  shift  reusable  and 
recyclable  waste  away  from  incineration  and 
landfilling and thus ensure that the achievement of 
the post-2020 municipal waste recycling targets is 
not  compromised.  Ireland’s  relatively  low  toxic 
waste  rate  suggests  good  potential  for  recycling 
with all the economic and environmental benefits, 
including carbon emission reduction. 

to  29 %.  Behind 

levy.  Caution 

landfill 

Ireland still has significant  investment needs in 
the water and waste water sectors. Over 83 % of 
the  population  is  connected  to  the  drinking  water 
network.  A  further  7%  of  the  population  are 
supplied  by  State  supported  community  group 
water  schemes,  and  10%  from  private  water 
sources  and  supplies  which  is  reflective  of  the 
geographically  dispersed  settlement  patterns  in 
Ireland.  Moreover, Ireland has a very high leakage 
rate  in  its  water  supply  systems  (44 %  leakage) 
(European  Commission,  2017).  Ireland  has  also 
been  encountering  issues  with  the  implementation 
of  the  Urban  Waste  Water  Treatment  Directive 
(Environmental  Protection  Agency,  2018). This  is 
partly due to ageing or outdated infrastructure that 
limited 
has  not  been 
investments  in  the  water  sector.  Water  and  waste 
water infrastructure deficiencies can  have a  major 
impact  not  only  on  health  and  wellbeing  but  also 
food  and 
on  enterprise,  particularly 
the 
biopharma 
(National  Competitiveness 
Council,  2017)  and  on  housing  construction  (see 
above). Further infrastructure investment is needed 

renewed  because  of 

sectors 

in 

percentage  points  from  its  16 %  target.  Despite 
considerable  potential,  especially  in  wind  energy, 
investment 
in  renewable  electricity  has  been 
hindered, inter alia, by  uncertainty concerning the 
future  of  support  schemes  and 
lengthy  and 
complex  consenting,  planning  and  grid  access 
procedures.  These  issues  will  be  partly  tackled 
through  a  new  renewable  electricity  support 
scheme  to  start  in  2019.  Investment  in  heat 
networks  and  clean  transport  infrastructure  would 
also be necessary to promote the use of renewable 
energy  in  these  sectors.  The  introduction  of  a 
in  2018  with  an 
renewable  heat 
allocation of EUR 300  million for the period 2018 
to  2027  is  an  important  step  for  stimulating 
investment in renewable heating and cooling. 

incentive 

Ireland  has  intensified  its  efforts  on  energy 
efficiency  but  its  primary  energy  consumption 
in  2016. (53)  Ireland  has  room  to 
increased 
decouple  energy  use  from  growth  and  exploit  the 
potential  for  energy  efficiency,  in  particular  in 
buildings and transport sectors. Ireland's proposed 
indicative energy efficiency target for 2030 would 
equate to an approximate quadrupling of the  scale 
retrofits. (54)  Attracting 
of  effort  on  home 
investment  and  unlocking  private  financing  into 
energy efficiency on the necessary scale is crucial. 
Market  uptake  of  available  energy  efficiency 
solutions,  technological  innovation,  digitalisation 
and  up-skilling  of  the  workforce  in  the  energy 
renovation  sector  and  promoting  the  multiple 
benefits  of  energy  efficiency  to  further  drive 
demand  have  the  potential  to  drive  the  energy 
efficiency market further. 

Investing  in  public  and  clean  transport  is 
important  in  order  to  reduce  congestion  and 
carbon emissions. The return to economic growth 
and  still-high  dependence  on  car  usage  continues 
to  put  pressure  on  transport  infrastructure,  which 
results  in  higher  commuting  times  and  increased 
CO2 
Competitiveness 
Council,  2018)  In  addition,  public  transport  in 
Ireland is mainly diesel-powered, with only 2.7 % 
of  the  railway  network  being  electrified  in  2015 
(the  lowest  level  in  the  EU)  and  the  main  public 

emissions.(National 

(53)  According  to  the  SEAI,  just  under  12ppts  of  the  national 
target  of  20%  was  achieved  by  the  end  of  2016.  Source: 
2017 
NEEAP 
https://ec.europa.eu/energy/sites/ener/files/documents/ie_n
eeap_2017.pdf 
(54)  Draft NECP, 2018 

54 

 
                                                           
4.4. Competitiveness reforms and investment 

publicly 

public investments. The latter will support the roll 
out  of  broadband  infrastructure  in  mostly  rural 
areas,  where  it  is  not  commercially  viable.  The 
the 
Government 
infrastructure  would  be  future-proof,  capable  of 
delivering  download  speeds  of  over  100  Mbps  to 
residential customers and 1 gigabit and beyond to 
the  EU  2025 
any  businesses, 
broadband targets proposed by the Commission in 
2017 (Gigabit Society Communication, 2017).  

announced 

line  with 

that 

in 

The  National  Broadband  Plan  is  expected  to 
resolve  the  significant  digital  divide  between 
urban  and  rural  areas  in  ultrafast  broadband. 
In  2017  82 %    of  rural  homes  had  access  to  fast 
internet,  which  is  well  above  the  EU  average  of 
47 %.  However,  less  than  5 %  of  rural  premises 
were  covered  by  future-proof  very  high-capacity 
networks able to deliver ultrafast broadband.  This 
is one of the lowest coverages in the EU (22 % on 
average) and far below the overall coverage (53 %) 
for Ireland (which includes urban areas) (European 
Commission,  2019b).  With  many  Irish-owned 
small  and  medium-sized  enterprises  located  in 
rural areas, addressing the rural divide in  ultrafast 
connectivity  will  help  boost  their  competitiveness 
and  productivity.  Pending  rollout  of  the  National 
Broadband  Plan  State  Intervention,  the  Mobile 
Phone  and  Broadband  Taskforce  has,  since  2016, 
delivered a series of targeted measures designed to 
eliminate  deployment  barriers  and  hence 
to 
facilitate mobile and broadband network rollout 

4.4.3.  SINGLE MARKET INTEGRATION AND 

SERVICES SECTOR 

Ireland is an open and competitive economy but 
some  specific  goods  and  services  markets 
require  attention.  The  prices  for  households  of 
goods and services were among the highest in the 
EU at the end of 2017 and producer services prices 
were  equally  high.    Legal  services  and  insurance 
are particularly costly. Other services markets also 
warrant  attention.  The  World  Economic  Forum 
ranks  Ireland  the  84th  country  out  of  140  for 
Competition in Services. The persistence of market 
rigidities  and  barriers  to  entry  in  some  of  these 
sectors can hamper market adjustments to external 
shocks. 

Barriers in the market for legal services remain 
legal  services 
unaddressed.  Competition 

in 

to  treat  waste  water,  reduce  leaks  in  the  networks 
and 
improve  water  supply  and  quality.  The 
National  Development  Plan  estimates  investment 
needs  of  EUR  8.8  billion  over  2018-2027  to 
support 
the  continued  operation,  repair  and 
upgrading  of  Ireland’s  water  and  wastewater 
infrastructure. 

Investments for Regional Cohesion 

Regional  differences  in  competitiveness  remain 
in Ireland. While the Southern and Eastern (S&E) 
region  scored  8  points  above  the  EU  Regional 
Competitiveness  Index (55)    average  (set  at  55  out 
of 100 in 2016), the Border, Midland and Western 
region  scored  8  points  below.  The  indicators 
driving  the  regional  competitiveness  gaps  are 
business sophistication and innovation, market size 
and labour market efficiency. 

In  2016, 

Upgrading the innovation capacity and skills of 
domestic  firms  may  help  narrow  the  regional 
competitiveness and productivity gap across the 
regions.  Differences  in  productivity  levels  across 
the 
in 
regions 
Ireland  are  high. 
productivity 
index  (OECD  Economic  Survey 
Ireland,  March  2018)  of  the  South-East  region 
(226.2)  was  124%  higher  than  in  the  Border, 
Midland and Western region (102.4). The regional 
productivity  gap  is  largely  explained  by  the 
concentration  of  multinationals  in  the  South-East 
region,  which  have  higher  productivity  than  the 
domestic  firms  and  account  for  64%  of  the  total 
innovation  expenditure (OECD,  2018a).  The  low 
research and innovation capacity of domestic firms 
is  partly  due  to  their  weak  managerial  skills.  The 
innovation capacities and skills of the Irish-owned 
small  and  medium-sized  enterprises  could  be 
increased  by  reinforcing  their  cooperation  with 
research  centres  and  multinationals  and  by 
providing them with targeted public R&D support, 
in particular in the lagging regions (the Northern & 
Western; and Midland regions)(see section 4.4.1).  

Ireland  is  implementing  an  ambitious  National 
to  deliver  high-speed 
Broadband  Plan 
broadband  services  to  all  premises  in  Ireland. 
The  Plan  envisages  a  combination  of  private  and 

(55)  The  RCI  measures  the  ability  of  regions  to  offer  an 
attractive  and  sustainable  environment  for  firms  and 
residents 
work. 
(https://ec.europa.eu/regional_policy/en/information/maps/
regional_competitiveness/#3). 

which 

live 

and 

to 

in 

55 

 
                                                           
4.4. Competitiveness reforms and investment 

recent  study  for  the  Department  of  Business, 
Enterprise  and  Innovation  (Thelle  et  al.,  2018) 
indicates  that  changes  to  that  supply  chain  could 
raise  logistics,  import  and  transaction  costs  and 
retail  prices.  In  addition,  in  the  field  of  free 
movement  of  goods,  Irish  legislation  contains 
some  technical  barriers  related  to  fire  safety 
standards  which  restrict  trade  flows  in  the  non-
harmonised  sector  (57)  of  upholstered  furniture, 
leading 
for 
manufacturers  aiming  to  sell  their  products  in 
Ireland.  The  low  number  of  independent  test 
laboratories  can  also  make  the  assessment  of 
conformity  for  all  type  of  products  difficult  and 
costly. 

production 

higher 

costs 

to 

Integrated  Single  Electricity  Market 
The 
between Ireland and Northern Ireland (58) went 
live  in  October  2018.  The  Integrated  Single 
Electricity Market is key to a real all-island market 
in line with EU market rules. By ensuring efficient 
energy  flows,  it  should  lead  to  greater  security  of 
supply  and  affordable  electricity.    So  far,  it  is 
functioning  well,  with  high  volumes  traded  in  the 
day-ahead  market.  The  balancing  market (59)  is 
being  monitored  closely  as  it  has  witnessed  high 
price volatility. 

For  the  first  time  since  electricity  and  gas 
market price deregulation, the market share of 
incumbent  suppliers 
is  below  50 %.  Yet 
electricity  and  gas  prices  remain  high  and  above 
EU  average,  putting  strain  on  consumers.  The 
electricity  smart  metering  roll-out,  scheduled  to 
begin in 2019, will enable consumers to adapt their 
electricity  use  to  price  signals  and  benefit  from 
energy  efficiency  schemes.  New  services  will 
require  a  regulatory  framework  for  new  market 
actors and the management of energy data. 

(57)  Non-harmonised  products  are  products  which  are  not 
subject  to  EU  harmonised  rules  that  protect  consumers, 
public health and the environment. They may come under 
the  national  rules.  Non-harmonised  products  represent 
approximately 20% of the products sold in the EU. 

(58)  See the UK country report. 
(59)  The  balancing  market  is  the  institutional  arrangement  that 
deals  with  the  real-time  balancing  of  electricity  demand 
and supply. 

remains  hampered  by  restrictions,  —introduced 
before  the  Legal Services  Regulation  Act  of 2015 
but still in  force— that increase  litigation costs to 
the detriment of small businesses in particular (see 
section  4.4.4).  The  Legal  Services  Regulatory 
Authority,  established  in  October  2016,  has  been 
conducting  preparatory  work  as  well  as  some 
public  consultations.  Regulatory  work,  according 
to the Strategic Plan 2018-2020*, has only recently 
commenced, and prioritises some of the key issues, 
including  regulation  of  both  legal  and  limited 
liability  partnerships.  However,  the  degree  of 
ambition  in  relation  to  open-ended  provisions  of 
the Act regarding competition and the reduction of 
the  costs  of  legal  services  remains  to  be  seen. 
Those  provisions  could  allow  for  legal  persons 
engaged  in  legal  practice  both  in  Ireland  and 
throughout  the  EU,  to  become  partners.  The 
introduction  of  multidisciplinary  practices,  direct 
professional  access  to  barristers  as  well  as  the 
much-needed easing of advertising restrictions are 
also important steps of the planned reform but they 
have no firm schedule for commencement and are 
likely to face significant delays. 

for 

large-scale 

retail  outlets, 

(European  Commission, 

Barriers to entry into retail markets represent a 
challenge.  Ireland  scores  among  the  top  five 
countries  with  the  greatest  number  of  procedural 
requirements as regards the establishment of retail 
2018f). (56) 
outlets 
Retailers  face  procedural  obstacles  which  delay 
and  increase  the  costs  of  opening  new  shops.  In 
the 
particular, 
regulatory framework forces operators intending to 
build  establishments  above  a  certain  size  to 
consider a city centre location first. Only if this is 
not  possible  can  they  consider  a  location  further 
from  the  city  centre.  Furthermore,  regulatory 
requirements  for information, such as requests  for 
evidence  of  the  need  for  additional  retail  floor 
space  and  specific  retail  impact  assessments,  are 
barriers  adding  to  the  general  length  of  the 
procedure  and  the  cost  before  a  shop  can  open. 
While 
these 
requirement  restrictions  may  have  a  negative 
impact on market structure and dynamics. 

understanding 

rational, 

their 

Many retail chains operate in both the Irish and 
UK  markets  with  integrated  supply  chains.  A 

(56)  However,  conditions  for  retail  operations  in  Ireland  are 
relatively liberal and do not go beyond limiting distribution 
channels for certain products 

56 

 
                                                           
                                                           
4.4. Competitiveness reforms and investment 

impinges  on 

legal  services  also 
insolvency 
procedures.  The  Irish  insolvency  framework  is 
very  efficient  with  a  high  recovery  rate,  short 
restructuring. 
facilities 
proceedings  and 
However,  the  cost  of  legal  services  is  relatively 
high  and  the  number  of  cases  is  relatively  low  as 
indicated above (see Section 3.2).This may lead to 
inefficiencies  resulting  from  the  choice  of  the 
liquidation mechanism in case of insolvency.  

for 

of 

stakeholder 

engagement 

regulatory  policy 

and 
The  quality 
governance, 
in 
developing regulation and ex-post evaluation of 
legislation  has  slightly  improved  since  2015. 
(OECD, 2018e) Despite the positive developments 
more work remains to be done, especially in view 
of  the  rolling  out  of  the  National  Development 
Plan.  The  impact  assessment  of  regulations  on 
small  and  medium-sized  enterprises  is  still  in  a 
pilot phase. 

in 

be 

not 

judicial 

appointments 

The  envisaged  composition  of  a  new  body  for 
proposing 
raises 
concerns regarding the level of participation of 
the  judiciary.  The  proposed  composition  of  the 
Judicial  Appointments  Commission,  which  — 
according  to  the  amended  proposal  —  would 
comprise  only  five  judges  out  of  17  (including  a 
lay  chairperson  ‘accountable  to  the  Oireachtas’) 
would 
line  with  European 
standards (Council  of  Europe,  2010)  and  with  the 
recommendation of the Council of Europe’s Group 
of  States  against  Corruption  (Group  of  States 
against  Corruption,  2018)  which  require  that  an 
independent  and  competent  authority  drawn  in 
substantial part from the judiciary be authorised to 
make recommendations or express opinions which 
in 
the  relevant  appointing  authority  follows 
practice. As to efficiency, the Court of Appeal, set 
up in 2014, has a considerable backlog and appears 
to  be  under-resourced  as  regards  the  number  of 
judges.  A  draft  Bill  providing  for  an  increase  in 
their  number  has  been  approved  by 
the 
government.  In  follow-up  to  the  judgment  of  the 
European Court of Human Rights in McFarlane v. 
scheme  aimed  at 
Ireland,  a  compensation 
awarding damages in the event of protracted court 
proceedings,  and  to  be  based  on  statute,  is  under 
preparation. 

Ireland  ranks  high  for  the  provision  of  digital 
public  services,  especially  for  Open  Data  and 
services  for  businesses.  Despite  commencing  its 

4.4.4.  INSTITUTIONAL QUALITY AND 

GOVERNANCE 

interventions 

The  National  Development  Plan  could  usefully 
be underpinned by a robust monitoring system, 
adequately resourced departments and a sound 
system  of  project  selection.  Translating 
the 
national  strategic  outcomes  into  specific  and 
measurable targets (result indicators) and defining 
the  necessary 
to  be  annually 
delivered  for  their  attainment  (output  indicators) 
will help monitor the progress of the plan towards 
its  intended  outcomes.  It  will  also  enable  easy 
assessment  of  the  capacity  that  the  national, 
regional  and  local  departments  require  for  their 
implementation.  The  implementation  of  the  plan 
may  also  benefit  from  a  project  selection  system 
which  assesses 
for  money  and 
their  value 
contribution to the national strategic outcomes and 
regional and project specific objectives. 

(World  Bank,  2018), 

Although  Ireland  has  fallen  six  notches  to  23rd 
place  in  the  World  Bank’s  classification  of 
Doing  Business 
its 
regulatory  environment  remains  business-
friendly.  The  relative 
improvement  of  other 
upcoming  countries  and  the  2018  increase  in  the 
stamp  duty  on  the  purchase  of  non-residential 
property explain this lower ranking. In comparison 
to  other  Member  States,  planning  charges  and 
property  registration  costs  as  well  as  'commercial 
rates’  levied  by  local  authorities  on  commercial 
property  are  relatively  high  in  Ireland  (OECD, 
2018d).  Although  it  has  been  falling  in  recent 
years,  obtaining  a  planning  permit  from  local 
authorities  costs  2.8  times  more  than  the  OECD 
average  (World  Bank,  2018)  and  registering  a 
property costs 1.5 times the OECD average (on an 
upward trend, back to the levels of 2010-2012). 

The  cost  of  enforcing  contracts  remains  the 
weakest  point  for  doing  business  in  Ireland 
(Doing  Business  rank  102nd).  High  attorney  fees 
are  a  major  factor  explaining  these  high  costs  in 
2017  after  higher  than  average  rises  in  previous 
years.  The  high  price  of  legal  services  shows  the 
importance  of  removing  the  barriers  to  entry  and 
competition  in  the  market  for  legal  services  (see 
Section 4.4.3). It is particularly harmful for SMEs 
which, unlike larger firms, cannot internalise these 
services.  Therefore,  the  high  cost  of  enforcing 
contracts  impairs  their  ability  to  use  the  judiciary 
system  for  dispute  resolution.  The  high  cost  of 

57 

 
4.4. Competitiveness reforms and investment 

Open Data Initiative as recently as 2014, Ireland is 
now best in class in Europe (Digital Economy and 
Society Index, 2018a). In addition, it has an almost 
perfect  score  for  the  evaluation  of  services  for 
businesses  (99  out  of  100  vs  83  EU  average) 
(Digital Economy and Society Index, 2018). When 
it  comes  to  digital  services  aimed  at  and  used  by 
less 
citizens, 
impressive. The eGovernment Strategy 2017-2020 
outlines  concrete  actions  to  make  services  more 
user-friendly,  in  particular  a  one-stop  shop  login 
for  all  services.  It  also  aims  at  high  levels  of 
interoperability, cybersecurity and data protection.  

indicators  are 

somewhat 

the 

The  success  of  the  eGovernment  strategy 
depends  on 
to  address 
Ireland`s  ability 
connectivity and digital skills challenges. Whilst 
embracing  the  ‘digital  by  default’  principle,  the 
Strategy  includes  the  need  to  make  services 
available  in  other  ways  for  users  who  cannot 
access  such  services  online.  Although  some 
assistance  is  included  in  these  cases,  it  is  beyond 
such  specific  assistance  to  address  the  wider 
reasons why people would not be able to make use 
of public services, notably the lack of at least basic 
lack  of  adequate  and 
digital  skills  and/or 
affordable 
two  major 
internet  access.  These 
challenges  need  to  be  addressed  comprehensively 
(see Section 4.4.1). 

58 

 
 
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment (1) 

2018 country-specific recommendations (CSRs)  

CSR 1: Achieve the medium-term budgetary objective 
in 2019. Use windfall gains to accelerate the reduction 
of  the  general  government  debt  ratio.  Limit  the  scope 
and the number of tax expenditures, and broaden the tax 
base.  Address  the  expected  increase  in  age-related 
expenditure  by  increasing  the  cost-effectiveness  of  the 
healthcare  system  and  by  pursuing  the  envisaged 
pension reforms.  

Ireland  has  made  Limited  Progress  in  addressing 
CSR 1  (The  overall  assessment  does  not  include  an 
assessment of compliance with the Stability and Growth 
Pact). 

Achieve the medium-term budgetary objective in 2019. 
Use  windfall  gains  to  accelerate  the  reduction  of  the 
general government debt ratio.  

Limited Progress (The assessment does not include an 
assessment of compliance with the Stability and Growth 
Pact).  Budget  2019  estimates  some  receipts  from  the 
return  of  funds  set  aside  for  the  resolution  of  the 
financial  crisis,  including  the  winding  down  of  the 
National  Asset  Management  Agency.  However,  no 
measures  have  been  adopted  so  far  to  use  these  to 
reduce the debt.  

Limit  the  scope  and  the  number  of  tax  expenditures, 
and broaden the tax base.  

Some  Progress  The  measure  with  the  biggest  positive 
impact is an increase in the lower value-added-tax rate 
on  hospitality,  from  9 %  to  13.5 %.  Furthermore,  the 
vehicle registration tax relief granted for certain leased 
vehicles  will  be  suppressed  and  the  scope  of  the  sugar 
sweetened  drinks  tax  will  be  moderately  widened.  At 
the  same  time,  some  Budget  2019  measures  actually 
increase  tax expenditures and narrow the tax base, e.g. 
personal  income  tax  is  cut  by  changing  bands  and 
increasing  certain  tax  credits,  as  is  the  universal  social 
charge  through  band  and  rate  changes.  Diesel  is  still 
taxed at a lower rate both in terms of carbon and energy 
content, even though it emits more air pollutants.  

the 

expected 

age-related 
Address 
expenditure  by  increasing  the  cost-effectiveness  of  the 
healthcare  system  and  by  pursuing  the  envisaged 
pension reforms.  

increase 

in 

Limited  Progress  Despite  some  measures  to  increase 
the  cost-effectiveness  of  healthcare,  expenditure  has 
continued  to  increase  at  a  fast  rate.  The  ambitious 
Sláintecare  reform  represents  a  credible  vision  for 
making  the  health  system  universally  accessible  and 
sustainable. However, its implementation is endangered 
by  the  health  system’s  difficulties  in  addressing  the 
duplicate  health 
insurance  market  and  effectively 
managing  its  own  budget,  performance  and  workforce 
in  the  short term.  The  Roadmap  for  Pension  Reform, 
published  in  2018,  aims  to  address  the  long  term 
sustainability of the state pension system. However, the 
envisaged reforms have not yet been finalised.  

59 

 
 
  
A. Overview table 

CSR 2: Ensure the timely and effective implementation 
of the National Development Plan, including in terms of 
clean  energy,  transport,  housing,  water  services  and 
affordable quality childcare. Prioritise the upskilling of 
the  adult  working-age  population,  with  a  focus  on 
digital skills.  

Ireland has made Some Progress in addressing CSR 2  

Ensure  the  timely  and  effective  implementation  of  the 
National Development Plan, including in terms of clean 
energy, 
services  and 
affordable quality childcare.  

transport,  housing,  water 

Some  Progress  Some  of  the  governance  structures, 
funds  and  tools  to  deliver  the  National  Development 
Plan  have  already  been  set  up  and  implementation  has 
started. However, the government has not put in place a 
performance  framework  which  translates  the  plan 
objectives  into  specific  and  measurable  targets  (result 
indicators) and defines the necessary interventions to be 
annually  delivered 
(output 
indicators). The absence of this framework will make it 
effective 
the 
difficult 
implementation  of  the  plan  and  to  assess  the  capacity 
that the national, regional and local departments require 
for  their  implementation.  The  implementation  of  the 
plan  may  also  benefit  from  a  robust  project  selection 
system  which  assesses  their  value  for  money  and 
alignment  with  the  output  and  result  indicators  of  the 
plan.  

their  attainment 

ensure 

timely 

and 

for 

to 

Prioritise  the  upskilling  of  the  adult  working-age 
population, with a focus on digital skills.  

launched 

employment  was 

Some  Progress  A  new  policy  framework  for  further 
education and training and skills development of people 
in 
in  September 
2018.Employees,  particularly  those  in  vulnerable  jobs, 
will  be  able 
to  access  upskilling  and  reskilling 
opportunities  directly  at  work,  through  engagement 
with companies,  mainly SMEs, and as part of regional 
economic  development  strategies.  The  Agency  for 
upskilling those in employment (SkillsNet) will also be 
reinforced. The new pilot programme EXPLORE aimed 
at  increasing  lifelong  learning  participation  rates  and 
offering  upskilling  opportunities  for  adults  concerning 
also digital skills, was also launched in 2018  

Ireland has made Some Progress in addressing CSR 3  

CSR  3:  Foster  the  productivity  growth  of  Irish  firms, 
and  of  small  and  medium  enterprises  in  particular,  by 
stimulating  research  and  innovation  with  targeted 
policies,  more  direct  forms  of  funding  and  more 
strategic cooperation with foreign multinationals, public 
research  centres  and  universities.  Promote  faster  and 
durable  reductions  in  long-term  arrears  by  the  use  of 
secondary  markets,  building  on 
for 
vulnerable  households  and,  where  necessary,  using 
write-offs of non-recoverable exposures.  

initiatives 

60 

 
A. Overview table 

Foster  the  productivity  growth  of  Irish  firms,  and  of 
small  and  medium  enterprises 
in  particular,  by 
stimulating  research  and  innovation  with  targeted 
policies,  more  direct  forms  of  funding  and  more 
strategic cooperation with foreign multinationals, public 
research centres and universities.  

Limited  Progress  Some  measures  have  been 
introduced.  A  key  step  is  the  announcement  of  the 
EUR 3.16  billion  capital  funding  under  the  ‘Business, 
Enterprise  and  Innovation  Priority  Investments’  to 
projects  highlighted  in  Project  Ireland  2040  over  the 
five  years  until  2022.  The  third  Innovation  2020 
Progress  Report  outlines  advances  made  in  delivering 
the 140 actions. A Disruptive Technologies Innovation 
Fund has been endowed with EUR 500 million and the 
first call for proposals launched. Yet the R&D efforts of 
most  domestic  firms  continue  to  be  moderate,  tax 
credits  remain  the  main  instrument  of  public  R&D  
support  (accounting  for  80 %  of  total  public  R&D 
spending) and science-business linkages continue to be 
weak.Public  expenditure  in  R&D  has  decreased  from 
EUR 951 m in 2016 to EUR 907 million in 2017.  

Measures  have  been  announced  to  produce  a  new 
‘Future  Jobs’  programme  that  would  enact  measures 
specifically targeted to increase productivity  growth of 
Irish firms and diversify exports. 

Promote  faster  and  durable  reductions  in  long-term 
arrears  by  the  use  of  secondary  markets,  building  on 
for  vulnerable  households  and,  where 
initiatives 
necessary, 
non-recoverable 
exposures.  

using  write-offs  of 

Substantial  Progress  The  pace  of  NPL  reduction  is 
picking  up  pace  as  the  banks  have  sold,  or  agreed  to 
sell,  a  significant  portion  of  their  NPL  stocks.  With 
these, the headline NPL ratio (ECB data) should decline 
to  around  7%  by  mid-2019.  However,  risks  remain. 
Although some of the disposed assets include long-term 
mortgage  arrears,  the  size  of  the  latter  remains  high, 
both in percentage and absolute terms. Also, a potential 
worsening in economic conditions, especially given the 
uncertainty  over  the  UK’s  departure  from  the  EU  in 
2019,,  could  result  in  an  above-average  worsening  of 
credit  quality  for  restructured  loans,  even  those  that 
have transitioned into performing status. Several recent 
policy 
launched  by  opposition 
parties,  may  hamper  the  recent  positive  developments. 
Meanwhile,  the  take  up  of  the  Enhanced  Mortgage-to-
Rent scheme, which was introduced in 2017 to support 
vulnerable  debtors 
is 
improving, although it is too early to tell if the measure 
will  have  a  meaningful  impact.  In  turn,  the  take  up 
insolvency procedures continues to be relatively dismal.  

initiatives,  mostly 

in  deep  distress, 

that  are 

61 

 
A. Overview table 

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 69-71 %. 

R&D target set in the NRP: 2.5 % of GNP 

The  employment  rate  for  women  and  men  aged  20-64 
was 73 % in 2017. This therefore exceeded the rate set 
for  the  2020  target  range  of  employment  rates  of  69-
71 %. 

It will be difficult for Ireland to achieve its 2020 R&D 
target of 2.5 % GNP. In 2017, IE had an overall public 
and  private  R&D  intensity  of  1.05 %  of  GDP  (1.7  of 
GNI*). 

Public  expenditure  in  R&D  grew  from  EUR 836 
million in 2010 to EUR 907 million in 2017. However, 
there  has  been  a  decline  in  2017  in  relation  to  public 
expenditure 
(EUR 951 m).  Public  R&D 
intensity stood at 0.3 % of GDP in 2017. 

in  2016 

Business  R&D  expenditure  increased  from  EUR 1.8 
billion  in  2010  to  EUR 2.2  billion  in  2017.  Business 
R&D intensity stood at 0.7 of GDP in 2017.    

National  greenhouse  gas  (GHG)  emissions  target:  
-  20 %  in  2020  compared  with  2005  (in  sectors  not 
included in the EU emissions trading scheme)  

National  projections  indicate  that  cumulated  emissions 
(on the basis of existing measures) over the 2013-2020 
compliance period will exceed allocations by 16 million 
tons of CO2 equivalent and that emissions in 2020 will 
be  around  their  2005  level,  i.e.  20  pps  short  of  the 
reduction  target.  This  means  that  Ireland  will  need  to 
buy allocations from other Member States in surplus in 
order to comply with the Effort Sharing Decision and it 
will  put  Ireland  in  a  difficult  starting  position  for  the 
2021-2030 compliance period under the Effort Sharing 
Regulation. 

2020 renewable energy target: 16 % 

The  draft  National  Energy  and  Climate  Plan  (NECP) 
suggests that Ireland will miss its 16% target and reach 
a minimum of 12.3% and maximum of 14.3% by 2020 
(which  is  1  pp  below  previous  estimates  by  the 
Sustainable Energy Agency of Ireland). The launch of a 
new  Renewable  Electricity  Support  Scheme  and 
Support Scheme  for Renewable Heat in 2018 have the 
potential to accelerate progress and address some of the 
regulatory  and  investment  barriers.  However  the  Irish 
Government anticipates a shortfall and the need to buy 
renewable  shares  from  Member  States  exceeding  their 
targets to ensure compliance. 

62 

 
 
A. Overview table 

Energy efficiency, 2020 energy consumption targets: 

- Ireland’s 2020 energy efficiency target is 31 925 GWh 
of savings expressed in primary energy consumption 

By  end-2016,  Ireland  had  achieved  12 %  energy 
savings. According to its draft NECP Ireland  will only  
achieve  savings  of  up  to  16.2 %  by  2020  (i.e.  3.8  pps 
below the 20 % target) based on the policy measures in 
place  by  end-2016.  While  the  4th  National  Energy 
Efficiency  Action  Plan  for  Ireland  (2017)  includes 
additional  measures,  their  concrete  scope,  budget  and 
pace  of  implementation,  in  particular  in  the  built 
environment,  do  not  appear  sufficient  to  bridge  the 
expected target gap 

Early school/training leaving target: to 8 % 

Tertiary education target: 60 %. of population aged 30-
34. 

Ireland’s  current  share  of  early  school  leavers  (i.e.  18-
24  year  olds  with  at  most  lower  secondary  education 
and not in further education and training) fell to 5.1 % 
in  2017,  which  is  substantially  below  the  8 %  target.  
However, Ireland has  higher  than average early school 
leaving rates for people with disabilities (27.8 % vs the 
EU  average  of  23.6 %).  Ireland  has  one  of  the  widest 
early  school  leaving  gaps  between  people  with  and 
without  disabilities  in  the  EU  (22.5pps  vs  the  EU 
average of 12.6pps). 

Tertiary  education  attainment  in  Ireland  is  reported  to 
be  at  53.5 %  for  30-34  year  olds,  this  exceeds  the  EU 
average  of  39.9 %.  There  is  a  significant  tertiary 
education  attainment  gap  between  people  with  and 
without  disabilities  (24.6pps.  vs  the  EU  average  of 
13.2pps)  which  aggravates  inequalities  in  terms  of 
access  to  employment  and  participation  in  society  by 
this group. 

Target  for  reducing  the  number  of  people  at  risk  of 
poverty  or  social  exclusion,  expressed  as  an  absolute 
number of people: The Irish contribution to the Europe 
2020  poverty  target  is  to  reduce  by  a  minimum  of 
200 000 the population in ‘combined poverty’ (i.e. at-
risk-of-poverty or basic deprivation) 

The  ‘combined  poverty’  was  29.2 %,  equal  to  1.39 
million people in 2016. Approximately 180 000 people 
will need to be lifted out of combined poverty to meet 
the Europe 2020 target  

The following categories are used to assess progress in implementing the country-specific recommendations (CSRs):  

(1) 
No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a number of 
typical situations to be interpreted on a case by case basis taking into account country-specific conditions. They include the following:  

in the national reform programme, 

no legal, administrative, or budgetary measures have been announced  

in any other official communication to the national Parliament/relevant parliamentary committees or the European 

 
o 
o 
Commission, 
o 
 
 
possible measures to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, it has not proposed any 
clearly-specified measure(s) to address the CSR. 

no non-legislative acts have been presented by the governing or legislative body; 

publicly (e.g. in a press statement or on the government’s website); 

the Member State has taken initial steps in addressing the CSR, such as commissioning a study or setting up a study group to analyse 

63 

 
 
A. Overview table 

Limited progress: The Member State has:  

announced certain measures but these address the CSR only to a limited extent; and/or 

 
 
legislative work is needed before the CSR is implemented; 

presented legislative acts in the governing or legislative body but these have not been adopted yet and substantial further, non-

presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 

 
Some progress: The Member State has adopted measures  

that partly address the CSR; and/or  

 
 
implemented. For instance, a measure or measures have been adopted by the national Parliament or by ministerial decision but no 
implementing decisions are in place.  

that address the CSR, but a fair amount of work is still needed to fully address the CSR fully as only a few of the measures have been 

Substantial progress: The Member State has adopted measures that go a long way towards addressing the CSR and most of them have been 
implemented.  

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

64 

 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

65 

General Government debt projections under baseline, alternative scenarios and sensitivity tests2017201820192020202120222023202420252026202720282029Gross debt ratio68.463.961.156.053.251.049.347.946.946.446.346.446.7Changes in the ratio (-1+2+3)-5.0-4.6-2.7-5.1-2.8-2.2-1.7-1.4-0.9-0.5-0.10.10.3of which(1) Primary balance (1.1+1.2+1.3)1.71.51.31.61.30.90.50.30.0-0.2-0.3-0.3-0.4(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)1.71.40.91.00.90.70.50.30.0-0.2-0.3-0.3-0.4(1.1.1) Structural primary balance (bef. CoA)1.71.40.91.01.01.01.01.01.01.01.01.01.0(1.1.2) Cost of ageing0.10.30.50.71.01.21.31.31.4(1.1.3) Others (taxes and property incomes)0.00.00.00.00.00.00.00.00.0(1.2) Cyclical component0.00.10.40.60.40.20.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.00.00.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-3.2-4.4-2.5-2.1-1.5-1.3-1.2-1.2-0.9-0.7-0.4-0.2-0.1(2.1) Interest expenditure2.01.61.41.31.21.21.21.21.31.31.41.51.6(2.2) Growth effect-4.9-4.9-2.7-2.2-1.6-1.5-1.4-1.4-1.3-1.1-0.9-0.8-0.8(2.3) Inflation effect-0.3-1.1-1.2-1.2-1.1-1.1-1.0-1.0-0.9-0.9-0.9-0.9-0.9(3) Stock-flow adjustments0.01.31.1-1.50.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Fiscal Sustainability Report (FSR) 2018. b. For the medium-term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained thereafter) to bring the debt-to-GDP ratio to 60 % by 2033. The critical values used are 0 and 2.5 pps. of GDP. The DSA classification is based on the results of 5 deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long-term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps. of GDP. The DSA results are used to further qualify the long-term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018.IE - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long-term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 3040506070809010011012020162017201820192020202120222023202420252026202720282029Debt as % of GDP -IEBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario3040506070809010011012020162017201820192020202120222023(% of GDP)Stochastic debt projections 2019-2023 -IEp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline3040506070809010011012020162017201820192020202120222023202420252026202720282029Debt as % of GDP -IEBaselineHistorical SPB scenarioSGP scenario3040506070809010011012020162017201820192020202120222023202420252026202720282029Debt as % of GDP -IEBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryLOWMEDIUMLOWLOWLOWLOWDebt level (2029)46.762.949.349.648.4Debt peak year20182018201820182018Percentile rank39.0%69.0%Probability debt higher14.6%Dif. between percentiles27.9MEDIUMLong termDSALOWDebt sustainability analysis (detail)Medium termLOWLOWShort termLOW(S0 = 0.2)(S1 = -0.9)S2MEDIUM(S2 = 3.3)S1 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

1) Latest data Q3 2018. Includes not only banks but all monetary financial institutions excluding central banks. 
2) Latest data Q2 2018. 
3) Quarterly values are annualised. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

66 

201320142015201620172018Total assets of the banking sector (% of GDP)1)565.2552.8414.1393.6357.9324.4Share of assets of the five largest banks (% of total assets)47.847.645.944.345.5-Foreign ownership of banking system (% of total assets)2)65.148.348.448.348.846.0Financial soundness indicators:2)              - non-performing loans (% of total loans)-21.614.913.19.98.5              - capital adequacy ratio (%)20.522.625.325.025.225.2              - return on equity (%)3)-13.28.56.86.35.06.9Bank loans to the private sector (year-on-year % change)1)-6.8-10.0-6.4-3.52.1-0.4Lending for house purchase (year-on-year % change)1)-1.7-3.9-1.1-4.22.70.1Loan to deposit ratio2)-98.898.793.295.388.5Central Bank liquidity as % of liabilities1)-4.12.41.71.80.8Private debt (% of GDP)267.7278.3306.0283.3243.6-Gross external debt (% of GDP)    - public70.073.254.449.145.3-    - private584.2696.0702.4641.5569.5-Long-term interest rate spread versus Bund (basis points)*222.0120.468.764.648.453.9Credit default swap spreads for sovereign securities (5-year)*120.453.537.045.727.917.5 
 
 
 
 
 
C. Standard tables 

Table C.2: 

Headline Social Scoreboard indicators 

(1) 1 People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Long-term unemployed are people who have been unemployed for at least 12 months.       
(4) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019.       
(5) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(6) Average of first three quarters of 2018 for the employment rate, long-term unemployment rate and gender employment 
gap. Data for unemployment rate is seasonally adjusted (annual series, for EE, EL, HU, IT and UK data based on first three 
quarters of 2018).       
Source: Eurostat 

67 

201320142015201620172018 6Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)8.76.76.86.05.0:Gender employment gap (pps)10.511.812.312.112.112.2Income inequality, measured as quintile share ratio (S80/S20)4.74.94.54.44.6:At-risk-of-poverty or social exclusion rate1 (AROPE)29.927.726.024.222.7:Young people neither in employment nor in education and training (% of population aged 15-24)16.415.314.312.610.9:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)66.568.169.971.473.074.0Unemployment rate2 (15-74 years)13.811.910.08.46.75.7Long-term unemployment rate3 (as % of active population)8.06.65.34.23.02.1Gross disposable income of households in real terms per capita4 (Index 2008=100) 90.189.892.995.898.9:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)24560247262499425510::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)-0.50.10.42.0::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction559.055.855.052.252.6:Children aged less than 3 years in formal childcare28.027.430.628.634.4:Self-reported unmet need for medical care3.33.72.82.62.8:Individuals who have basic or above basic overall digital skills (% of population aged 16-74)::44.044.048.0: 
 
 
 
 
 
C. Standard tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(2) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(3) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science.       
(4) Average of first three quarters of 2018. Data for youth unemployment rate is seasonally adjusted (annual series, for EE, EL, 
HU, IT and UK data based on first three quarters of 2018).       
Source: Eurostat, OECD 

68 

Labour market indicators201320142015201620172018 4Activity rate (15-64)71.871.872.172.772.7:Employment in current job by durationFrom 0 to 11 months13.114.114.615.214.8:From 12 to 23 months8.08.58.69.910.1:From 24 to 59 months14.914.714.515.617.0:60 months or over61.960.259.455.653.0:Employment growth* (% change from previous year)3.02.73.53.82.93.4Employment rate of women(% of female population aged 20-64)61.362.363.865.467.068.0Employment rate of men (% of male population aged 20-64)71.874.176.177.579.180.1Employment rate of older workers* (% of population aged 55-64)51.252.655.456.858.460.1Part-time employment* (% of total employment, aged 15-64)23.723.022.221.920.119.5Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)10.810.39.69.09.110.1Participation in activation labour market policies(per 100 persons wanting to work)21.624.528.227.3::Transition rate from temporary to permanent employment(3-year average)39.538.839.4:::Youth unemployment rate (% active population aged 15-24)26.723.420.216.814.413.5Gender gap in part-time employment20.920.020.219.519.719.2Gender pay gap1 (in undadjusted form)12.913.9::::Education and training indicators201320142015201620172018Adult participation in learning(% of people aged 25-64 participating in education and  training)7.67.06.56.59.0:Underachievement in education2::15.0:::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)53.654.653.854.654.5:Variation in performance explained by students' socio-economic status3::12.7::: 
 
 
 
  
 
C. Standard tables 

Table C.4: 

Social inclusion and health indicators 

* Non-scoreboard indicator       
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.        
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation.       
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59.       
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard.       
Source: Eurostat, OECD 

69 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare8.47.97.45.75.8:Disability1.11.11.10.80.8:Old age and survivors6.96.86.34.95.1:Family/children2.22.11.81.41.3:Unemployment3.22.92.51.81.5:Housing0.70.70.60.50.5:Social exclusion n.e.c.0.30.20.20.10.1:Total22.821.719.815.115.2:of which: means-tested benefits7.16.96.24.54.3:General government expenditure by function (% of GDP, COFOG)Social protection15.915.113.810.49.9:Health7.57.26.85.35.2:Education4.94.74.33.33.3:Out-of-pocket expenditure on healthcare (% of total health expenditure)13.614.114.213.613.0:Children at risk of poverty or social exclusion (% of people aged 0-17)*33.534.430.428.827.325.2At-risk-of-poverty  rate1 (% of total population)16.615.716.416.316.615.6In-work at-risk-of-poverty rate (% of persons employed)5.65.05.44.84.85.1Severe material deprivation rate2  (% of total population)9.89.98.47.56.55.2Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan0.00.40.00.80.00.2Tenant, rent at market price1.22.31.60.63.11.3Proportion of people living in low work intensity households4 (% of people aged 0-59)23.423.921.019.218.216.2Poverty thresholds, expressed in national currency at constant prices*113991125311373121931259712888Healthy life years (at the age of 65)Females12.212.112.312.013.2:Males10.910.911.411.412.0:Aggregate replacement ratio for pensions5 (at the age of 65)0.40.40.40.40.40.3Connectivity dimension of the Digital Economy and Society Index (DESI)6::46.255.560.764.7GINI coefficient before taxes and transfers*57.058.257.555.154.6:GINI coefficient after taxes and transfers*29.930.030.829.829.5: 
 
 
 
 
 
C. Standard tables 

Table C.5: 

Product market performance and policy indicators 

(1) Value added in constant prices divided by the number of persons employed.       
(2) Compensation of employees in current prices divided by value added in constant prices.       
(3) The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.        
(4) Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing 
over the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if 
received 75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the 
application is still pending or don't know.       
(5) Percentage population aged 15-64 having completed tertiary education.       
(6) Percentage population aged 20-24 having attained at least upper secondary education.       
(7) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
(8) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).       
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

70 

Performance indicators201220132014201520162017Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry0.42-7.969.6072.220.245.03Labour productivity growth in construction3.836.23-2.31-8.175.546.51Labour productivity growth in market services-1.82-0.245.5410.322.543.80Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry0.887.43-3.79-40.81-1.68-3.07ULC growth in construction-7.32-5.638.129.431.74-3.73ULC growth in market services5.14-0.78-2.79-4.140.82-1.23Business environment201220132014201520162017Time needed to enforce contracts3 (days)650650650650650650Time needed to start a business3 (days)10.010.06.06.05.05.0Outcome of applications by SMEs for bank loans41.240.791.230.730.260.73Research and innovation201220132014201520162017R&D intensity1.561.571.551.191.191.05General government expenditure on education as % of GDP4.904.704.303.303.30:Employed people with tertiary education and/or people employed in science and technology as % of total employment545555555556Population having completed tertiary education5353736383840Young people with upper secondary education6889093939494Trade balance of high technology products as % of GDP2.231.980.572.342.804.40Product and service markets and competition200320082013OECD product market regulation (PMR)7, overall1.581.351.45OECD PMR7, retail0.871.531.53OECD PMR7, professional services1.601.251.25OECD PMR7, network industries83.322.492.21 
 
 
 
  
C. Standard tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices)  
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)  
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)  
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)  
          Waste intensity: waste (in kg) divided by GDP (in EUR)  
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP    
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP  
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change)  
Real unit energy cost: real energy costs as % of total value added for the economy  
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)   
Real unit energy costs for manufacturing industry excluding refining : real costs as % of value added for  manufacturing 
sectors  
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP  
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT.  
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste  
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP  
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions  
(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency.  
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2010 EUR)  
Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport industry  
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels  
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk.  
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels  
* European Commission and European Environment Agency  
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

71 

Green growth performance201220132014201520162017MacroeconomicEnergy intensity kgoe / €0.080.080.070.060.060.05Carbon intensity kg / €0.330.330.300.250.24-Resource intensity (reciprocal of resource productivity)kg / €0.520.570.500.410.420.43Waste intensity kg / €0.07-0.08---Energy balance of trade % GDP-3.0-3.2-2.7-1.5-1.1-1.2Weighting of energy in HICP%12.7011.6711.1510.628.848.50Difference between energy price change and inflation %7.93.01.0-4.9-4.90.8Real unit of energy cost% of value added4.44.64.44.85.5-Ratio of environmental taxes to labour taxesratio0.180.190.190.190.19-Environmental taxes% GDP2.42.52.41.91.91.8Sectoral Industry energy intensity kgoe / € 0.060.060.050.030.030.03Real unit energy cost for manufacturing industry excl. refining% of value added5.96.76.46.77.0-Share of energy-intensive industries in the economy% GDP3.13.13.12.52.42.3Electricity prices for medium-sized industrial users€ / kWh0.140.140.140.140.130.12Gas prices for medium-sized industrial users€ / kWh0.040.040.040.040.030.03Public R&D for energy % GDP0.000.000.000.000.000.00Public R&D for environmental protection% GDP0.010.000.000.000.010.00Municipal waste recycling rate%36.636.639.8-40.7-Share of GHG emissions covered by ETS*%29.426.827.427.928.8-Transport energy intensitykgoe / €0.740.760.770.740.760.73Transport carbon intensitykg / €1.921.961.931.901.88-Security of energy supplyEnergy import dependency%83.891.786.288.969.167.1Aggregated supplier concentration indexHHI19.915.313.913.46.5-Diversification of energy mixHHI0.320.350.330.330.340.34 
 
 
 
 
ANNEX D: INVESTMENT GUIDANCE ON COHESION POLICY 

FUNDING 2021-2027 FOR IRELAND 

Building  on  the  Commission  proposal  for  the  next  Multi-Annual  Financial  Framework  for  the  period 
2021-2027  of  2  May  2018  (COM  (2018)  321),  this  Annex  D (60)  presents  the  preliminary  Commission 
services views on priority investment areas and framework conditions for effective delivery for the 2021-
2027 Cohesion Policy. These priority investment areas are derived from the broader context of investment 
bottlenecks,  investment  needs  and  regional  disparities  assessed  in  the  report.  This  Annex  provides  the 
basis  for  a  dialogue  between  Ireland  and  the  Commission  services  in  view  of  the  programming  of  the 
cohesion policy funds (European Regional Development Fund, European Social Fund Plus). 

Policy Objective 1: A Smarter Europe - Innovative and smart industrial transformation 

Ireland  is  considered  a  strong  innovator  while  none  of  its  three  regions  are  innovation  leaders.  The 
country  continues  to  lag  behind  in  the  level  of  investment  in  research  and  innovation  that  affects 
leveraging  business  investments  in  research  and  innovation,  the  linkages  between  research  and 
enterprises and the creation of patented intellectual assets and innovation outcomes. Business research 
and  innovation  investment  is  concentrated  on  a  small  number  of  foreign  multinationals  operating  in  a 
few sectors only in Ireland. Innovation capacity, capability, and the ability of Irish-owned firms to fully 
utilise new technologies is weakened in particular by low research and innovation levels.  

To  help  create  a  balance  in  research  and  innovation  between  the  foreign  multinationals  and  domestic 
companies, high priority investment needs (61) have therefore been identified to provide adequate public 
funding  by  new  targeted  forms  of  measures  that  address  Irish  small  and  medium-sized  enterprises 
specific  needs  in  research  and  innovation,  create  a  stronger,  targeted  innovation  capacity  and 
capability in and for Irish domestic small and medium-sized enterprises based on a reinforced link 
with cooperation with research centres and large businesses, and also based on a reinforced link 
with evolving Smart Specialisation areas and a more effective and faster innovation diffusion, and 
in particular to: 

 

 

 

 

 

enhance Research and Innovation capacities and the uptake of advanced technologies; 

enhance Competitiveness and growth of Irish-owned small and medium-sized enterprises; 

strengthen innovation performance in all regions and foster productivity growth by prioritising 
smart specialisation areas on the  basis of national and regional needs and potential,  including 
green innovation; 

encourage cooperation activities on corresponding Smart Specialisation priorities and exchange 
of  experience  (inter-regional  among  the  Irish  regions  and  including  with  neighbouring 
countries,  clusters  and  in  the  context  of  the  EU  Atlantic  Strategy).  This  would  also  help  to 
address  persisting  regional  differences  in  the  research  and  development  intensity.  Stimulate 
interregional cooperation in new value chains, also with other countries; 

strengthen  eco-innovation  and  research,  development  and  innovation  focusing  on  green  and 
blue  innovation,  including  in  the  area  of  water,  innovation  on  clean  energies,  climate  change 
mitigation and low-carbon technologies and on making Ireland a more circular economy. 

This means in practice, in particular, to  

 

create  stronger  linkages  between  multinationals  and  domestic  firms  to  improve  innovation 
diffusion  (technological  spill-overs);  stronger  cooperation  between  firms  and  public  research 
centres to strengthen the innovation capacities of domestic small and medium-sized enterprises 
(improving the relatively weak science-business linkages and capitalise on Ireland’s scientific 

(60)  This Annex is to be considered in conjunction with the EC Proposal for a Regulation of the European Parliament and of the 
Council on the European Regional Development Fund and on the Cohesion Fund COM(2018) 372 and the EC Proposal for a 
Regulation of the European Parliament and of the Council on the European Social Fund Plus COM(2018) 382, in particular as 
regards the requirements for thematic concentration and urban earmarking outlined in these proposals. 

(61)  The intensity of needs is classified in three categories in a descending order - high priority needs, priority needs, needs. 

72 

 
 
                                                           
D. Investment guidance on cohesion policy funding 2021-2027 for Ireland 

excellence);  reinforce  Irish  small  and  medium-sized  enterprises  absorption  capacities  to 
successfully apply new technologies, in particular in low-carbon and clean energy technologies; 
incentivise domestic small and medium-sized enterprises to engage in knowledge investments 
(i.e.  in  research  and  innovation)  and  in  human  capital  investments  (i.e.  lifelong  learning  to 
improve managerial and digital skills); 

 

invest  in  Irish  firms'  capacity  to  internalise  external  knowledge,  spill-overs  in  innovation  and 
new technologies in order to participate at a higher level in global value chains; foster public 
and  business    investment  in  research  and  innovation;  overcome  barriers  to  research  and 
innovation activity; increase the number of innovative  indigenous  firms; enhance cooperation 
and exchange of experience (inter-regional, including with neighbouring countries, clusters, in 
the  EU  Atlantic  Strategy  context);  link  regional  research  and  innovation  actors  to  industrial 
stakeholders from different Member States; 

  Use  innovation  as  a  way  to  reduce  energy  consumption  and  greenhouse  gas  emissions.  This 
could be through promotion of innovative energy efficiency solutions in businesses, including 
in  their  premises,  installations  and  processes.  In  addition,  the  use  of  innovative  renewable 
energy technologies could also contribute to this goal; 

 

create  policies  and  schemes  to  overcome  barriers  to  innovation  take-up;  further  develop 
industrial clusters that include small and medium-sized enterprises, within and outside national 
borders. 

The improvement in economic conditions over the last two years has translated itself into close to full 
employment.  This has led to shortages of  high-skilled labour and a  mismatch between skills available 
and the needs of Irish firms to upgrade their own skills levels and competitiveness. Irish firms continue 
to face challenges/lose workforce to established foreign multinational companies, in particular regarding 
more  highly  skilled  employees.  Ireland  should  look  to  improve  the  match  between  the  supply  of  and 
demand  for  SME-relevant  skills,  in  particular  managerial  and  digital  skills.  High  priority,  targeted 
investment  needs  have  therefore  been  identified  for  the  development  of  skills  for  Smart 
Specialisation, industrial transition and entrepreneurship, in synergy with small and medium-sized 
enterprises-relevant lifelong learning actions and upskilling under Policy Objective 4, and in particular 
to: 

 

 

develop and upgrade skills for smart specialisation, industrial transition and entrepreneurship; 

reap the benefits of digitalisation for companies and citizens via the 2025 EU Gigabit Society 
compatible broadband speeds being delivered from the ERDF 2014-2020 period. 

This means in practice, in particular, to:  

 

 

foster innovation management in Irish SMEs, in particular with regard to upgrading managerial 
skills and the need to address the issue of smart industrial transition; integrate  high education 
and vocational excellence with national, regional and transnational innovation, its diffusion and 
skills development systems;  

create new business models and forms of employment arising from the digital transformation, 
whilst ensuring fair working conditions and social protection; help the small and medium-sized 
enterprises across the country to use superfast and ultrafast broadband being delivered to allow 
such  enterprises  to  increase  their  competitiveness,  to  innovate,  increase  productivity,  and  to 
reach new markets and customers, and grow rapidly; foster the adoption of digital technologies 
in  Irish  small  and  medium-sized  enterprises;  enable  Business-to-business,  Business-to-
customer and Customer-to-customer new business opportunities. 

73 

 
 
 
D. Investment guidance on cohesion policy funding 2021-2027 for Ireland 

Policy Objective 4: A more social Europe – Implementing the European Pillar of Social Rights 

The  female  inactivity rate  is  high due  to caring responsibilities. Investment  needs have therefore been 
identified to promote women’s labour market participation and a better work-life balance, and in 
particular to: 

 

 

strengthen work-life balance policies and support labour market reintegration; 

enhance  access  to  affordable,  sustainable  and  high-quality  childcare  and  long-term  care 
services. 

Ireland has the highest share of people living in households with very low work intensity and the lowest 
employment  rate  of  people  with  disabilities.  High  priority  investment  needs  have  therefore  been 
identified  to  improve  access  to  employment  for  all  jobseekers  including  the  inactive  and  under-
represented groups, and in particular to:  

 

 

 

support  active  labour  market  policies  with  more  targeted  and  tailored  skills  specific  training, 
well-designed wage and recruitment subsidies, as well as basic skills development and lifelong 
learning policies, including digital skills; 

support and develop services to improve the employment situation of persons with disabilities; 

improve  activation  and  integrated  policy  solutions  for  those  furthest  away  from  the  labour 
market. 

Severe  social  housing  shortages  remain  and  homelessness  is  rising.  Although  the  poverty  rate  has 
slightly  decreased  in  recent  years,  there  is  still  a  need  for  food  aid  to  the  most  deprived.  Investment 
needs have therefore been identified to promote the social integration of people at risk of poverty or 
social exclusion and to address material deprivation, and in particular to:  

 

 

 

 

prevent  and  reduce  homelessness  and  housing  exclusion,  including  through  the  provision  of 
social housing, and improved accessibility of products and social services to vulnerable groups; 

promote the social integration of children at risk of poverty and social exclusion; 

ensure that housing actions are part of an integrated policy response; 

provide food and basic material assistance to the most deprived. 

Factors for effective delivery of Cohesion policy 

 

 

 

 

 

ensuring  a  partnership  based  delivery  model  by  strengthening  the  capacity  of  beneficiaries, 
stakeholders, social partners, civil society organisations and other bodies; 

ensure  that  Managing  Authorities  have  sufficient  resources  to  manage  the  Operational 
Programme(s); 

improved public procurement procedures and performance; 

key  elements  to  ensure  an  effective  delivery  of  the  policy  objectives  are  innovative  actions, 
including social innovation; 

broader  use  of  financial  instruments  and/or  contributions  to  an  Irish  compartment  under 
InvestEU for revenue-generating and cost-saving activities. 

74 

 
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