The Nevin Economic Research Institute (NERI) has warned that the Irish economy is on the cusp of overheating.

But the economic think tank says Brexit is the main risk facing the Irish economy right now.

In its Summer 2019 Quarterly Economic Observer published this morning, it predicts economic growth in the Republic of Ireland will be higher than previously forecast this year, assuming there is a soft Brexit.

NERI estimates that in that event, GDP will rise 4.6% in 2019 on the back of strong employment growth, as the cyclical upswing continues.

But the trade union backed organisation suggests that growth should start to slow after that, slipping to 3.3% next year and between 2.5-3% thereafter.

Minister for Finance Paschal Donohoe, meanwhile, said signs of the economy overheating are not there at present, but he is monitoring the situation carefully.

Speaking to RTÉ's Morning Ireland, Mr Donohoe said the economy is being well run and there are strong levels of employment.

However, he warned this situation could change. 

"The signs that we normally use to look at whether overheating is occurring are not there at the moment. Wages are growing sustainably, prices are not growing as quickly as they have in the past and we don't have the kind of rapid increases in lending that we have had, when we have had overheating in our economy.

"But that could change, we need to monitor it carefully." 

NERI predicts Labour market conditions should continue to improve in 2019 and 2020, with total employment rising by about 70,000 this year and 45,000 next.

As a result, the unemployment rate will slowly decline to average out at 4.3% next year.

Because the public finances are experiencing a surplus, the Government can use "automatic stabilisers" in the event of a no-deal Brexit, without compromising the medium-term budgetary position, it says.

If the UK were to leave the EU without a deal in October, NERI estimates it would only very marginally affect economic growth this year, as significant stock piling ahead of the deadline would cancel out lower growth in November and December.

But after that, in 2020 and 2021, it agrees with Department of Finance and Central Bank forecasts that say economic growth could be anywhere between one and four percentage points lower.

Such an impact could push the country marginally into recession at that point, it says.

On the question of overheating, NERI says there are a number of indicators available that suggest the economy is close to or at the cusp of such a position.

It also says that current trends suggest it may tip over that cusp soon.

While it sees Brexit as the main risk, the organisation also points to other economic challenges that could have an impact on performance of the Irish economy, including protectionism, concerns about the Italian economy and potential changes to international corporation tax policies.

In a separate paper published today, the organisation also calls for a reorienting of the tax base towards property and away from consumption.

The think tank says Irish property taxes are very low by European standards and changing that would represent an important structural reform that could yield significant additional revenue.

Overall, Ireland collects more than €1.5 billion less than it could if it taxed property at the same levels as the EU norm, the institute claims.

The paper, which was written by NERI Senior Economist Dr Tom McDonnell, claims this additional money could be used for reducing debt, increasing spending or lowering taxes.

The institute says there are a range of strong arguments in favour of having recurrent taxes on immovable property such as land taxes and residential homes, similar to the existing Local Property Tax (LPT).

These include that such taxes have a minimal effect on dampening economic growth, they are difficult to avoid or evade, they are stable through the economic cycle, they do not generally penalise productive activity and they can be progressive if designed correctly.

It recommends that the basic rate of the LPT be increased by 0.01-0.02% every year over the next ten years and for property values to be rebased to current levels.

However, it does also recognise there are some issues with property taxes, including that they can lead to hardship, although this can be resolved by deferment, it says.

It also states that arguments that a home does not represent wealth is not accurate, as houses can be bought and sold and used to transfer wealth to other generations.

NERI also suggests that proposals to increase the complexity of the tax by applying different rates in different local authorities have little merit.