Tuesday, 28 June 2011

Comparative prices for the EU

Rory O'Farrell: Eurostat has brought out an interesting publication today on comparative prices.

This index is based on consumer expenditure, so one should look at the detail. Ireland is still relatively expensive, the 5th most expensive in Europe for consumers.

There are some puzzling figures that often occur in these comparisons. Ireland imports clothing and electronics, but these are relatively cheaper in Ireland. We export food and non-alcoholic beverages, which are relatively more expensive. Its unclear quality is adjusted for, though they do their best. For example, I certainly consider Irish butter (and dairy products in general) to be of a higher quality to that available in Belgium. However, electronic goods can probably be easily compared across countries.

What I find most interesting is that restaurants and hotels are 29% above average (Italy is 7% above the average). This is interesting as in 2008 labour costs for Italy and Ireland were identical for this sector, and in Italy they have relatively increased. So the cause of higher prices must lie elsewhere (such as food prices, excise duty on alcohol, or rent).

Ireland is the most expensive for cigarettes and alcohol. But this needn't worry us to much from a structural competitiveness standpoint, as the high excise duty is part of our social policy which aims to curtail the consumption of such items.

Its also interesting to make a comparison to 'comparative price levels' which is an index based on the whole economy (including government and business expenditure). Here, in 2010 the Irish level is only 12.1% above the EU average, and 6.3% above the EU15 (the lowest for about 10 years). This shows that consumer prices are more out of line than prices faced by business and government.


Anonymous said...

I don't mean to be disrespectful but this defence of exorbitant tax levels shows lack of contact with real world.

It ignores that electrical goods prices are low because tax regime is similar to EU. It's defence of high excise duty is part of "social policy" is simply untrue. It is designed specifically to victimise lower income groups purchasing price inelastic goods. There is no justification whatsoever for Ireland having the highest excise duty in EU. It is state larceny pure & simple

TASC should stop being apologists for high taxation and should start commenting on scandalous waste, high pay and pensions in public sector, a sector it's activities seem designed to protect from any kind of scrutiny.

Rory O'Farrell said...

I don't think high taxes on cigarettes and alcohol are some cynical attempt to victimise the poor. Food, milk etc are even more price inelastic, but these aren't the old reliables each December.

The harmful effects of cigarettes and alcohol are known. Sure I enjoy a beer myself, but we simply don't have the Italian culture with regard to alcohol, so I wouldn't want to apply Italian tax rates or regulation here.

To promote equality I would far rather use instruments like the minimum wage or remove the universal social charge than cut the price of cigarettes and alcohol.

Since the 1980s Ireland has been one of the most advanced countries with regard to the regulation of tobacco, and this is one area where other countries have followed our lead rather than vice-versa.

Paul Hunt said...

Thanks for highlighting this. The background report gives even more info:

If someone had the time it would be good to pull out the Euro Area data to see where Ireland ranks. Differences in VAT and other consumption taxes skew the results, but it should give some ideas about the targets for competition policy and economic regulation.

Rory O'Farrell said...

@ Paul

If you click on the link in the last paragraph of the OP you can get a more detailed breakdown.

Eg for electricity/gas/other fuels we are about 10% above EU27 and 5% above EU15. To be honest I expected it to be worse.

But Norway is 50% higher. What's going on there?

Paul Hunt said...


Thanks, Rory. Sometimes those links don't work, but it should be fine in this case. On electricity, etc., I can understand why you thought it might be worse, but we tend to have lower VAT and excise, etc than the other players. Wholesale gas in Ireland in Ireland is priced off the UK market which is often priced lower than the long-term contracts supplying much of continental Europe. Our wholesale electricity prices aren't probably too far off the mark - the fixes and fiddles here are not much worse than those employed elsewhere. But we get hammered on the costs of the pipes and the wires. You can also see the impact in, for example, Germany and Denmark of taxing to subsidise renewables.

Norway prices internally on the basis of its export prices. It has little gas penetration (the terrain is very difficult for pipes) and relies to a considerable extent on electricity which is quite expensive. Apparently the voters there are happy with a high cost of living while they accumulate more and more into their huge sovereign wealth fund.

Overall, Ireland has improved considerably over the last year(from 126 to 118 on the index values). But there are plenty of sectors compeletely insulated from any competitive or international effect and are proving stubborn.

We really need some effective statutory advocacy and representation of consumers collective interests.