A major new report on Ireland's economy from the Organisation for Economic Cooperation and Development (OECD) has said major cuts in wages are still needed in order to stabilise the public finances.
In its Economic Survey of Ireland published today, the OECD said Ireland was in "severe recession" and indicated said that the adjustments required for recovery would take a long time, resulting in a permanent lowering of living standards.
"An economic recovery is likely to begin next year but a protracted period of adjustment will be needed to resolve economic imbalances built up during the expansion," the survey said.
The document said that the banking crisis needs to be resolved as a matter of priority, the public sector pay bill has to be cut and that welfare payments must be slashed by at least the same as the deflation evident in the economy.
"A return to normal functioning of the financial system is needed and a range of policies is in place to restore the banking system to good health," the report said.
More people need to pay income tax, a property tax should be introduced and everyone should expect lower wages, the reported advised.
Overall the OECD recommends a more streamlined welfare system, cuts in the minimum wage and efforts to train and upskill the population to avoid long-term unemployment.
Launching the report in Dublin this morning, OECD Secretary General Angel Gurria told Finance Minister Brian Lenihan to stick to the budgetary plans and make the hard choices.
"This level of spending cannot be sustained and now must be adjusted" he said.
"This is a delicate manoeuvre. Adjustment must be carefully planned and targeted to preserve services to the public - and ensure the most vulnerable in society are supported".
"The required reductions in government spending are an opportunity to reform and modernise public services to make them more efficient and responsive to citizens" he added.