Research from the Economic and Social Research Institute has blamed a mixture of bad policy mistakes and bad luck for the economic problems facing the country. The think-tank today published a note from four of its experts giving the preliminary findings of its research.
It identified three areas which it says must be addressed if the economy is to return to growth. These are a 'serious' loss of competitiveness, the structural imbalance in the government accounts and the banking system.
The report estimates that 'up to a half' of Ireland's current problems arise from the global financial and economic crisis - and would have happened regardless of budgetary policy over the last decade. But it says the bursting of the property bubble has made things much worse.
The ESRI estimates that the Government deficit is likely to top 10% of output this year, but argues that some of this will be wiped out when the world economy recovers. It says the Government must focus on the 6% to 8% which it describes as 'structural', or due to permanent changes in the economy.
The research says tax levels will have to be raised to compensate for the fall in property-linked taxes. It favours developing new sources of revenue such as taxes on carbon and property.
The report also argues against cutting large numbers of jobs in the health and education sector. 'It seems likely that the public would wish to preserve the existing standard of health care and education in the long run,' the research states, adding that spending cuts should focus on areas where services are inefficient or of low value.
On competitiveness, the ESRI research argues that a 'substantial reduction' in wage rates and other prices is needed, and urges a renegotiation of the national pay deal to reflect the dramatic fall in prices now underway.
In the long-term, the paper says Ireland's potential growth rate up to 2020 will average around 3% a year. This is lower than the 3.6% in its medium-term review of the economy published last year. The report says this is because the financial crisis and recession may have longer-term consequences for growth in the world economy.
'With a rapid restoration of competitiveness in 2009-10 a return to near full employment by the middle of the next decade would be possible,' the ESRI says.
