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Sustainable wage growth key to protecting Ireland’s competitiveness – Paschal Donohue

A sustainable and affordable pace of wage growth will protect Ireland’s competitiveness as the country faces stern outside challenges, the Finance Minister has said.

Paschal Donohoe said the labour share – the proportion of the national income paid to workers – is now “broadly back” in line with its share during the Celtic Tiger years, adding that it is likely to increase over the coming years.

Speaking at the Economic and Social Research and Institute (ESRI) on Tuesday, Mr Donohoe said average annual earnings grew by 2% last year, compared to 1.3% in 2016.

“We expect this upward trend to continue as the labour market reaches full employment,” he said.

“Given low inflation, real wage growth is at a similar level.”

He added that everyone has a shared responsibility to ensure the pace of wage growth is “sustainable and affordable”.

He continued: “The other area where progress is imperative is in housing.

“From a very low base and after a lost decade of starved investment, there are signs of progress.”

New research by ESRI shows that income growth in Ireland is evenly distributed with income inequality broadly stable.

Professor Tim Callan said: “The welfare and tax systems have played a key role in shaping these outcomes.

“Welfare payment rates have risen at least in line with wage growth over the 1987 to 2014 period, ensuring that growth in low incomes keeps pace with broader income growth.”

Mr Donohoe also stated that Ireland’s economic performance has been “less consistent” than that of other small open economies in the European Union.

He also referred to the government’s plans to reform tax and tax reductions but on a “gradual” basis.

The Finance Minister said that many have claimed that the government’s approach is a reason for “not doing anything at all”.

“An alternative to gradualism or to doing nothing at all is to do a huge amount at once. We’ve been there before. Look how that turned out for us.

“So gradualism, in terms of public expenditure and in terms of tax reform and reduction, I believe, is good and the most sensible approach to take to build a resilient future.”

- Press Association