Jim Power

Economist, Jim Power Economics
Interviewed by AECOM's John O'Regan, regional leader, ROI

As one of ROI’s leading and best-known economic analysts, Jim has a wealth of experience in delivering insightful economic forecasts, commentary and analysis to both ROI and international audiences. He writes regularly for national newspapers and contributes to radio and TV discussions.

Where is ROI in the economic cycle and can we take a ‘long view’ of how it could evolve by 2040?

ROI is the textbook example of a small open economy and, as we discovered in 2007–2008, our vulnerability to negative external developments is incredibly strong. Over the past couple of years we have seen the flipside to this in that we have benefitted enormously from very positive global economic developments, not least the European Central Bank interest rate policy and the synchronised recovery in most of the world’s major economies.

Looking forward to 2040, we must recognise where we have come from. A key challenge is our massive dependence on FDI and the fact that our corporate tax structure is getting increasingly unwelcome attention internationally. Demographics represent a key challenge for the global economy, particularly in Western Europe, a fact that will have significant implications for health and pensions expenditure, and which will also threaten the tax base as populations age. This will increase the impetus to maximise tax revenues and countries deemed to be using tax policy to steal taxes from other countries will not be viewed favourably. I think we will hold onto the 12.5 per cent corporate tax rate — although it will become more difficult, but there will be an undoubted momentum to ensure that business pays tax where the economic activity actually occurs and not where the balance sheet resides. This is a challenge for ROI.

In a nutshell, out to 2040, FDI will have to remain a key part of ROI’s economic model but we will need to ensure we have a sufficiently strong indigenous economy. I think developing the regions should be a particular focus.

What do you see as the most exciting elements of the Ireland 2040 Plan?

To me the most exciting parts — they are not rocket science so maybe only an economist can get excited by them — are: the plan to stem urban sprawl; moving towards a low carbon sustainable economy; and the focus on regional economic development. I like that Ireland 2040 is not promising investment in industry and jobs in every village and town across ROI — I believe that is a pipe dream. Creating hubs of economic activity around the larger towns and cities that people can travel to for work purposes is key.

In a nutshell, out to 2040, FDI will have to remain a key part of ROI’s economic model but we will need to ensure we have a sufficiently strong indigenous economy. Jim Power Economist
Which sectors have the most potential to contribute to economic growth?

It is essential that we create a counter balance to Dublin. That is not to suggest for one moment that we stop investing in Dublin; the Metro should be delivered. I believe we need serious investment in city transport infrastructure in Dublin, Cork, Limerick, Galway and Waterford.

 Secondly, I believe investment in ports and airports is very important, particularly in the context of Brexit. The reduction in the importance of the UK land bridge has to be a part of our long-term strategy. Developing ports, particularly outside of Dublin, which is up against capacity constraints, is key to achieving this. Thirdly, I would like to see significant investment in all areas of education across the economy, particularly third level education.

What differentiates ROI and will determine its success or failure out to 2040 is the quality of its labour force. So to me, investment in education is absolutely paramount.

What are the biggest challenges to delivering Ireland 2040?

The challenges to delivery include the capacity of the construction sector — which is definitely not an unsurmountable challenge; the planning system; and the political will, which worries me most. It is a long road and after every election the focus seems to go astray. We must ensure that the focus remains clearly on delivering Ireland 2040, although some flexibility may be required as circumstances change.

How will the maturity of the ROI construction sector affect our capacity to deliver the National Development Plan?

Ten years ago, the ROI construction sector was hit with a catastrophic shock. In terms of commercial development delivery over the past two to three years, the ROI construction sector has shown its capabilities and is responding really positively.

I don’t for one moment criticise the ROI construction sector for failing to deliver on the housing side, the problems are very much due to poor policy and weak policy makers. It should not be rocket science to deliver sufficient housing, but we lack the institutional capacity to do so.

The housing crisis has received much warranted commentary in the past year, with calls for reduced VAT to stimulate supply. What are your thoughts on this and our current policy?

Housing delivery problems include economics and viability. As I see it, the margins are way too narrow to justify significant investment in residential. Obviously, the site cost is a key input but also of consideration is the fact approximately 40 per cent of the price of building a house goes to the State on developer levies, VAT etc. There’s a need to address these, either through reducing the VAT rate or relaxing developer levies. I believe that if you tax something less, you get more from it and vice versa. So I would, on balance, be in favour of reducing the VAT rate. It is too easy to say that cutting the VAT rate will just increase profitability, adding to developers’ margins, but we need ways of guarding against that. Obviously, this is one of the biggest challenges politically because anything that is deemed to be helping developers is politically toxic. Sometimes politics is the enemy to implementing plans.

Do you believe ROI has the resilience to withstand international market changes and shocks, such as Brexit?

The secret to economic sustainability is to manage your economy as prudently as possible. When we are hit with an external shock, our ability to deal with it determines success or failure. In 2007–2008, for a variety of reasons, we had very little resilience to deal with the shock of the global financial crisis. Today, the most immediate potential shock is Brexit. As an economy, I think Dublin will benefit from a hard or soft Brexit. With a hard Brexit, the regions will become more of a concern, which is why I think Ireland 2040 is really important. While Ireland 2040 stretches well beyond the immediate Brexit crisis, as we gradually move towards its targets, the regional economies will become more resilient to deal with shocks like Brexit.