The Central Bank has backed cuts in public expenditure.
In its latest quarterly economic bulletin, the Bank said social welfare payments increased by 100%, child benefits quadrupled and public sector pay doubled from 2001 to 2007.
Despite calls from unions for more tax hikes on the wealthy instead of public sector cuts, the bank said marginal tax rates had effectively risen to 52% due to recent tax increases.
The bank backed recommendations in An Bord Snip's cost cutting report and said the document provided a ‘valuable framework’.
In an interview with RTÉ News, the Bank’s assistant director general Tom O'Connell said that house prices had reached ‘ridiculous levels’ during the boom.
The bank broadly backed measures in the Commission of Taxation and said proposals for carbon and water taxes ‘appeared reasonable’.
The bank also attacked professional fees for doctors, lawyers and hospital consultants and said they were too high.
It said there also needed to be more competition for sheltered sectors such as education, utilities and public transport.
Economic forecast
The Bank has also revised upwards its forecast on how the economy will fare this year.
In its latest quarterly economic bulletin, it says the economy will shrink by 7.8% this year - an improvement on the 8.3% decline forecast by the bank in July.
It said that after an annual rate of decline of 8.4% in the first six months of 2009, the pace of deterioration is set to ease in the second half of the year due to a gradual improvement in the world economy.
‘While the economy is continuing to contract, the pace of decline has moderated from the rapid pace evident between last Autumn and this Spring,’ the Central Bank said in today’s report.
The fall in economic growth is mainly due to a severe contraction in domestic demand, with both consumption and investment expenditure falling sharply.
For 2010, the bank says the Irish economy is again likely to record negative growth of about 2.3% with a return to modest, sustainable, growth by 2011.
The Central Bank says employment is likely to continue to decline at a moderating pace in the second half of the year and for much of 2010 with a ‘reasonable’ prospect of some stability by the end of the year.
It predicts that joblessness will average 12% in 2009 - an improvement on its previous prediction of 12.8%.
It adds that unemployment will rise to an average of 14% next year, but this is still less that its predication of 15% in its previous economic bulletin.
