The National Competitiveness Council has warned that rising rents, the increasing cost of labour, and a high marginal tax rate pose possible threats to the competitiveness of businesses in Ireland.

Its Cost of Doing Business in Ireland report, also cautions that above European Union average interest rates, the cost of business services, and the price of credit all pose a risk to the Irish business environment.

The council says that despite being a small open economy exposed to slowing global growth, the Irish economy continues to perform well and the overall cost picture is positive.

Consumer prices are increasing at the slowest rate in the eurozone, it says, which means Ireland is becoming more cost competitive relative to the rest of the euro area.

But the council warns that Ireland is the fifth most expensive country in the EU, further cost risks are on the horizon and businesses face many price pressures.

Labour costs rose by 2.9% last year after years of moderate growth, the report finds, and are increasing four times faster than inflation.

If this is not matched by growth in productivity, then prices here will come under pressure, the research claims.

Businesses also face interest rates that are on average 65% higher than competitors elsewhere in the euro area, the study says.

The NCC warns that while personal taxes on those who are earning average incomes are low, those with higher incomes have one of the highest marginal tax rates in the Organisation for Economic Co-operation and Development (OECD) – something which could discourage highly skilled workers from working.

Other pressure points according to the council include the steadily rising cost of renting commercial property, construction and business services.

While the prices paid for business services like those in the areas of human resources, law and accountancy, are increasing at the second fastest rate in the EU.

"With the current international economic backdrop, especially with what is happening in the UK, we must do what we can to maintain the competitiveness of the Irish economy," said NCC Chairman, Peter Clinch.

"To secure our prosperity, we must not price ourselves out of international markets." 

The report uses the latest international data to compare a wide range of costs that Irish businesses face relative to costs in key competitor jurisdictions. 

It points out areas where costs are out of line with competitors and makes recommendations for policy changes to the Government.