Budget 2008 will need to focus on introducing higher taxes, on spending less, and borrowing more if Ireland is to maintain its economic growth, according to the ESRI.
The Economic and Social Research Institute is to present its report to the Budget Perspectives Conference today.
Slower economic growth is predicted for next year because of a lower number of houses being built, a moderating employment growth and lower consumption, which has been forecast to fall from 7.5% this year to 4% in 2008.
The ESRI's Dr Alan Barrett said Finance Minister Brian Cowen's options for 2008 were limited by commitments such as public service pay increases.
He said the Minister Cowen needed to curb spending 'quite dramatically' and may need to borrow a little or even raise taxes.
He said marginal increases in taxes in a range of areas are options which could be considered and that it would not be a problem to borrow for a short period.
He also said there would be very little scope for additional spending but cutbacks were not necessary.
Professor Philip Lane of Trinity College says spending on investment and infrastructure should be kept up to help competitiveness, but restrictions are needed on current spending, particularly the public service pay bill.
He agreed that a deficit was acceptable as long as it was used to invest in infrastructure.
Professor Lane said the political question facing Minister Cowen is how to persuade people that a lower rate of current spending growth is acceptable.
