OECD calls for public service cuts

The Organisation for Economic Co-operation and Development (OECD) has suggested cuts to unemployment benefits and a new tax on property as part of the solution to the Irish economic crisis.

In its latest report, the OECD also said spending cuts were needed in social welfare, health and education.

The Paris-based economic think-tank has forecast that the Irish economy will shrink by 2.4% in 2010.

These figures are worse than expected, with the OECD previously predicting a 1.5% contraction.

'The economy is experiencing a severe contraction as large domestic imbalances are unwound in an environment of global recession and financial crisis,' the OECD said in an annual report on the Irish economy.

Elsewhere in the report, the OECD calls for cuts both in public service staff numbers and in the wages they earn.

This latest report on Ireland, released in the run up to the Budget, points to falling prices and falling private sector wages.

The OECD says unemployment benefits should be cut and calls for much better measures to prevent people becoming long-term unemployed.

It also says Ireland's minimum wage of €8.65 an hour is high, and should be reviewed annually.

The agency says there is scope for reducing health spending by cutting costs and redeploying man power and it says there is a need to look again at the Medical Card scheme.

It says class sizes at secondary level could be increased without reducing the quality of education received. And it says the Government should bring back third level tuition fees.

On banking, it calls for haste in establishing NAMA on a work footing and says nationalisation of any banks should only happen with the utmost reluctance.

For consumers, it wants portability of mortgages for borrowers who want to change lender, and it says more needs to be done to help people who are unemployed meet their mortgage repayments.

Launching the OECD survey of the Irish economy, the Secretary General Angel Gurria commended the proposals in the McCarthy Bord Snip report and the Committee on Taxation.

Minister for Finance Brian Lenihan said the Government had made no decisions on unemployment rates for next year but he said all areas of spending were being reviewed, including social welfare.

He said last year unemployment benefits rose 3.5%, while the cost of living fell by 4.5%, which is an 8% rise in the value of benefits in real terms.

Fitch downgrades Ireland's credit rating

Credit rating agency Fitch has lowered its rating for Ireland, due to the severe downturn in the Irish economy and what it called an 'exceptional' rise in the Government's debt levels.

Agencies such as Fitch assess the credit risks of countries and companies, and a lower credit rating can make borrowing more expensive for a country.

Fitch said it was cutting its rating from AA+ to AA-, having stripped Ireland of its top AAA rating in April.

Fitch said it expected pressures on the Irish economy to be more severe than in other big economies, because of falling wages, higher unemployment, high household debt levels and further falls in house prices.

It also said banks' willingness to lend was likely to remain subdued.

The agency said the scale of the banking crisis in Ireland had 'substantially increased' Ireland's economic risks, saying Government debt, including NAMA, would rise to 110% of economic output by the end of 2010.

But Fitch said the outlook was stable, indicating that it did not expect to lower Ireland's rating again.

Analyst Douglas Renwick described the Government's response to the problems in the public finances so far as 'impressive'.