The Government will use yesterday's upbeat report on the economy to bolster its case against cutbacks in its negotiations with EU finance ministers.
The report is likely to be used by officials from the Department of Finance, who are asking EU finance ministers not to call on the Government to take action this year to offset the inflationary impact of the last Budget.
The request is to be incorporated in the European Commission's Broad Economic Policy Guidelines, which are expected to be issued in July.
The OECD report, which says Ireland's economy is not at serious risk of overheating and can continue to grow strongly, is at odds with the views of the EU Commission and EU finance ministers, who censured the Government's last Budget for being inflationary.
In an upbeat assessment of prospects, the OECD says that growth can remain close to 8 per cent this year and next and that living standards can continue to rise if policy is properly managed.
A spokeswoman for the Minister for Finance, Mr McCreevy, said that the OECD report would be "helpful", but it would not form part of its armoury in the discussions at EU level.
Mr McCreevy welcomed the OECD's findings, saying that wage moderation and tax reform had been a fundamental part of Ireland's economic success. "The best way for this economy to remain competitive and seek wage moderation is through social partnership," he said.
The Paris-based organisation said that economic growth in the Republic would slow from "spectacular" rates of more than 10 per cent to a more sustainable level of 7.75 per cent. It noted that, despite rising wages and prices, "competitiveness actually improved due to extraordinary productivity growth".
The OECD noted that the rate of inflation in the Republic was falling, but was likely to remain above the euro-zone average. This was because Ireland was a small open economy which was disproportionately affected by currency fluctuations.
It said that the forces driving economic growth in the Irish economy were firmly underpinned by favourable demographics and a high rate of technology-oriented investment. "The authorities have created a favourable business climate for growth and this policy will need to be refined as Ireland moves up the value-added chain."
The OECD suggests that the priorities in terms of policy adjustments should be to improve the efficiency of the public sector and quality of regulation and to develop competitive markets more fully, particularly in telecommunications and energy.
The public sector, especially at local government level, will have to be streamlined and focused on the efficient delivery of public services, it says.
The OECD warns that current environmental policy would not ensure that Ireland complied with international agreements, including Kyoto and EU regulations.
It also advises the Government to continue to maintain a significant Exchequer surplus to "smooth tax pressures", citing the decision to set aside funding for future pension provision as a good example of what should be done.
It believes that the social partnership agreements will need to evolve towards setting general principles guiding pay bargaining while imposing fewer constraints on budgetary decisions.