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The luck of the Irish or just good economic management?

By Chris Bowen - posted Wednesday, 18 May 2005

In economic matters the Irish are now having the last laugh on the rest of the world. The economy of the Emerald Isle was once the ultimate Irish joke. It now makes Australia’s record of economic growth look a bit average. Whereas Australia has enjoyed 14 years of uninterrupted economic growth the Irish are now celebrating their 19th year of expansion. Their growth rate hit 10 per cent per annum in the heady days of the late 1990s and while it has now reduced to more sustainable levels, it is well above the European average.

And while Australia reduced its unemployment level from over 10 per cent to 5 per cent, the land of the Blarney Stone has seen its rate fall from a disastrous 17 per cent in 1987 to its current level of 4 per cent. At a time when Australia’s current account deficit sits dangerously high at more than 7 per cent of GDP, Ireland is very close to being in trade balance. The story of Ireland’s success is remarkably similar to Australia’s but recent years have seen the stories diverge as Ireland continues to reform and innovate while Australia is more content to rest on its achievements.

The late 1980s and 1990s saw a similar ethos of micro-economic reform from the national governments of Australia and Ireland. Both Bob Hawke and Charles Haughey moved their governments’ budgets into surplus for the first time in generations, and both oversaw radical reductions in the corporate tax rate. The Accord in Australia and the Social Partnership in Ireland saw both governments achieve wage restraint through a partnership with trade unions and increases in what we Australians called the “social wage” through targeted tax cuts and other measures. And just as the Hawke-Keating Government tore up the Two Airline Agreement, the Irish deregulated international air travel, seeing fares between Ireland and Britain plummet and a 60 per cent increase in travel to Eire. Even the 1990s story of telecommunications is eerily similar, with the transformation of a moribund and inefficient government department into the corporatised Telecom Eireaan.


But while both countries can point to similar reform agendas as the drivers of their growth through the 1990s, the stories in the 21st century start to diverge strongly. The first area of difference is labour force participation. Both Ireland and Australia had participation rates of around 60 per cent in the early 1980s. Australia’s has now edged up to 63.5 per cent in 2003-4. Ireland’s has surpassed 70 per cent. Reserve Bank Governor Ian MacFarlane recently identified increasing labour force participation as one of the key challenges to a more sustainable, robust economy. Yet the Federal Government has proven stubbornly unwilling to tackle the disincentives to moving from welfare to work that almost everyone agrees is one of the biggest hurdles to getting more people into the workforce.

But perhaps most depressing is the story of research and development, and science. In one of the nations in question, government, business and academia have forged a spirit of co-operation to engender a culture valuing research and the links between universities and industry. Ireland is now producing more science graduates than any other European nation. And Eire is blessed with more than one respected national institution charged with promoting valuable research and innovation. Enterprise Ireland, Science Foundation Ireland and the National Microelectronics Research Centre have all developed international reputations for the quality of their work and the benefits they bring the Irish economy. Enterprise Ireland, formed just five years ago, is playing an active role in promoting biotech companies in innovative projects.

The Australian Government’s most notable contribution to research and development has been to abolish the 150 per cent tax concession, a move that perhaps provides a new definition for “backward step”.

It is not too late for the Australian Government to take the high technology road that has been so often talked about. If we don’t, our Irish friends may be laughing at us for many years to come.

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About the Author

Chris Bowen is the Federal Assistant Treasurer and Member for Prospect.

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