THE EMPLOYERS' group Ibec has called for the widening of the tax base through property and other taxes, as well as reductions in public-sector pay.
In its latest Quarterly Economic Review, published yesterday, it forecast the Irish economy will continue to contract over the next two years. Commenting on the outlook for the Irish economy, Ibec's director of policy, Danny McCoy, said: "The impact of the downturn on Ireland's public finances will be stark and major adjustments to the level of public expenditure and the tax base will be required.
"Ultimately Ibec remains confident in the ability of the economy to re-emerge from these challenging times more innovative, competitive and prosperous. In order for this to be achieved, however, the correct policy decisions will need to be taken in the coming months and years.
"The public finances must be corrected. Our assessment is that a combination of € 5 billion in expenditure cuts and € 4 billion in revenue-raising measures over the period to 2012 will be required. The tax base must be broadened with new property and user charges introduced.
"Tax revenues, however, can only be sustained through greater economic activity, so raising tax rates on employment and economically productive activities would be counterproductive.
"Efforts to reduce current expenditure must initially focus on reducing the unit cost of services delivered rather than cutting back on the volume of front-line public services," Mr McCoy said.
In order to stimulate economic activity and support employment, Ibec recommended the reprioritising of the National Development Plan so as to focus on employment-intensive and competitiveness-enhancing projects.
A reduction in exchequer-funded capital investment replaced by funding from the National Pensions Reserve Fund in revenue-raising projects such as roads, public buildings and social housing is recommended.
It also believes the Government should provide enhanced social welfare payments through a PRSI rebate scheme for unemployed people who take up training and education and should develop a scheme for employers to encourage part-time working and education initiatives as an alternative to redundancy.
A business viability fund to support enterprises exposed to the currency crisis and new marketing and employment grants for small and medium sized businesses are among other recommendations.