The Government should consider a range of new charges to consumers, according to a report from the Organisation for Economic Co-operation and Development, writes Cliff Taylor, Economics Editor.
The Paris-based policy advisory organisation says the Government needs to broaden the tax base and improve its management of spending, and warns that public pay increases mean that room for manoeuvre is already "severely restricted" for next year's Budget.
The report, published yesterday, says consumers should be charged for use of water, and recommends a property tax to fund local authorities. The OECD, which has begun a review of the third-level sector, also supports the return of third-level fees, which has been ruled out by the Government for the foreseeable future.
The report says tough decisions lie ahead for the Government as tax revenue growth slows but that pressure remains for improved public services and investment in infrastructure. It says the Government must look at broadening the tax base through new charges and levies, but concedes that this may be politically difficult.
It says the Republic is the only OECD country not to charge for water and this is one of a range of environmental fees which it feels should be examined. Meanwhile, it believes that property tax could be a way of broadening the tax base and funding local government.
Last night the Minister for Finance, Mr McCreevy, said he had "noted" the OECD's comments in this area.
The report is also critical of spending management in some areas, citing a perceived lack of an overall framework for setting budget priorities and "remarkably slow" progress in reforming personnel practices in the public service. In this context, it says it is essential that the improved productivity promised in return from the public pay benchmarking payments is delivered.
New figures from the Central Statistics Office yesterday show that public sector numbers continued to increase strongly into the early months of this year, a trend which the Government is promising to reverse.
The OECD calls for a much clearer system of setting spending priorities and ensuring they are met.
On the health service, the report says the case for reducing the number of health boards should be closely examined. It also points to weaknesses in the management and organisation of the health sector, particularly poor information and spending monitoring systems.
The OECD highlights the proliferation of "semi-autonomous"public bodies operating separately from local authorities at local or regional level in areas such as fisheries, tourism and industrial development. It sees " considerable scope for streamlining these bodies" or transferring their roles to local government.
The report led to a renewed attack by the Opposition parties on the Government's record. The Fine Gael spokesman on finance, Mr Richard Bruton, called it "a damning indictment of the Government's inability to manage the country's finances" and said it painted a grim picture of the fall-out from the years when "get out and party" was the constant refrain from ministers who should have known better.
The OECD is forecasting Gross Domestic Product growth of 3.25 per cent this year and 4.25 per cent next year, based on an international recovery. However, these forecasts were completed before the recent rise in the value of the euro, which threatens to slow growth further.
It believes the longer-term prospects remain reasonably good, provided competitiveness can be protected and the structural problems facing the economy addressed.
Expectations for wages and for Government spending must adjust to this slower growth environment, it says, a recommendation endorsed last night by Mr McCreevy.
Slowing wage growth is necessary to underpin competitiveness, according to the OECD, while control of Government spending is essential to maintain healthy public finances.
The Minister said he accepted cost competitiveness had deteriorated, but that the Government was determined to tackle it, as shown by the anti-inflation initiative in the new national programme, Sustaining Progress.
He also supported the OECD view that it was essential that the Republic get "maximum mileage" from spending under the National Development Programme.
One way to do this would be to encourage overseas contractors to bid to participate in major projects, it said.