The Republic’s economic crisis is one of the worst seen anywhere in the past 60 years and will require a long period of correction, the International Monetary Fund (IMF) has said in a new analysis.
The IMF says Ireland's policies are on the right track, but warns the country still faces huge risks.
Among the measures it recommends are:
l More reductions in the public pay bill and government employment levels
l Broadening the tax base, including the introduction of a “long overdue” property tax
l Better targeted social welfare payments and a move away from benefits which are paid to everyone, with possible taxing or means-testing of child benefit, and tax credits for low-income families.
The IMF says: “The economy is in the midst of an unprecedented correction. The stress exceeds that being faced by any other advanced economy and matches episodes of the most severe economic distress in post-World War II history.”
The report also warns that Ireland is the most expensive place to do business in the eurozone.
It says Irish earnings of around €22,000 a year in 1997 were broadly in line with the eurozone average, but a gap of €12,000 has since opened up as Irish wages soared to €35,000 a year by 2007.
The IMF published its report on the same day that a review of the world economy by the Paris-based Organisation for Economic Co-Operation and Development (OECD) forecast the Irish economy may contract by 10% this year.
“Substantial spending cuts and increases in taxation are required in the coming year,” the OECD said.
Finance Minister Brian Lenihan welcomed the IMF's view that, on the two issues that matter most, the government has moved in the right direction.