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'Shortage of housing and tax changes may hit FDI'


Valdis Dombrovskis

Valdis Dombrovskis

Valdis Dombrovskis

Housing shortages and changing tax rules could threaten Ireland's ability to attract foreign direct investment, the EU has warned.

Ireland also faces problems in housing, water infrastructure and healthcare, and corporate tax receipts remain "volatile", the Commission has said, pointing to the need for tax and infrastructure reforms.

That assessment comes as Ireland bids to host the EU's banking and medicines agencies post-Brexit, which have a combined workforce of over 1000 people.

"Economically speaking, the situation is certainly heading in the right direction," said Valdis Dombrovskis, the European Commission's vice-president for the euro.

"We are now living in the times of uncertainty, and one of the factors of uncertainty is Brexit," he said.

"Ireland is one of the countries which is more affected, so that's why we believe it's important to stay vigilant, to continue with the reform agenda, to ensure that Ireland's economy is resilient enough to withstand external economic shocks," he said.

He made the comments following the publication of the Commission's annual staff report on the Irish economy, which also warned that new corporate tax laws could affect multinationals' decisions to set up in Ireland.

"Ireland could be subject to external shocks linked to the referendum on UK's membership of the EU and the international tax environment, through its impact on multinational location decision," said the report, which was published on Wednesday.

Housing supply is "insufficient", the report said, which not only worsens homelessness but could hamper foreign investment, "as firms have difficulties finding suitable accommodation for employees". Ireland also faces "severe challenges" in providing water services, the report says, and may not have set aside enough money to cover the suspension of charges.

That suspension has created "uncertainty" about Irish Water's funding and "it remains to be seen" whether the €123m set aside in the budget to deal with the shortfall will be enough, the report adds.

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It also points to a "poor level of expenditure control" in healthcare and a shortage of medical staff which, along with "queue-jumping" by privately insured patients, is adding to pressure on waiting lists.

Ireland is one of 12 countries the EU says is experiencing economic "imbalances", a list that also includes Italy, France and Germany.

Germany was told that it is running a too-high export surplus, which the Commission says impedes investment in Germany with knock-on effects on inflation and debt across the rest of the 19-member eurozone.

Brussels warned Italy to make more budget cuts or face a dressing down that could eventually lead to fines.

France was also called out by the EU this week for its high public debt and sclerotic labour market, just two months ahead of a general election where the far-right National Front is expected to make gains. Spain and Portugal barely escaped deficit fines last year.