The Irish economy is in a crisis situation, according to a new report.
In his quarterly economic report, Friends First economist Jim Power said consumer spending was set to remain weak as disposable incomes dropped, and construction output would continue to decline. But the economist said growth in the Irish economy could return towards the end of next year.
He said there was no alternative to public sector pay cuts, as the Irish tax base was too small and the spending base too high. He said such cuts would require 'huge single-minded commitment' from the Finance Minister Brian Lenihan.
Listen to Jim Power's interview with Emma McNamara
Read about today's public sector strike
Mr Power said delaying moves to stabilise the public finances was not an option and 'would lead to eventual bankruptcy'.
The economist said some tax rises would have to be considered, though increasing personal taxes would be counter-productive.
He suggested a carbon tax and increases on taxes on motor fuel, alcohol and tobacco. Mr Power also urged a further 'significant' increase in the employee PRSI ceiling and a broadening of the tax base to include contributions from tax exiles and lower-paid workers.
On spending, he suggested that a basic cut of 20% in child benefit would save €500m a year and pay reductions for 'higher earning' public sector workers.
Mr Power also urged the introduction of a car scrappage scheme and a reduction in employers' PRSI.
The economist warned that Ireland was being affected by unfavourable exchange rates, and that this would continue. He also warned that a recovery in the euro zone could hit the Irish economy with higher interest rates late in 2010 and into 2011.
Speaking on RTE radio this morning, the economist also said recent flooding had caused 'devastation' for farmers, with farmers having already had a dreadful summer. Mr Power said fodder had been destroyed and slurry facilities flooded. He said many farmers were in a crisis situation.
The economist said that many farmers would go out of business without immediate financial assistance, and he called for the single farm payments to be brought forward.
