Ireland faces lower living standards, warns OECD

IRELAND will have permanently lower living standards, the world’s leading economic authority last night warned in a damning assessment of the state of the nation.

Delivering an even grimmer than feared outlook, the Organisation for Economic Co-operation and Development (OECD) was highly critical of boom-time government policies and insisted only a raft of severe cuts would turn the situation around.

Cuts to the minimum wage, unemployment benefits, health, education and welfare budgets were all called for by the OECD, which also urged the introduction of a property tax and endorsed the €5.3 billion savaging of public spending outlined in the Bord Snip report.

The air of gloom heightened as the Paris-based organisation sharply revised downwards its predictions for the Irish economy, saying it would shrink by another 2.4% next year, while Finance Minister Brian Lenihan said he saw no hope for the country dragging itself out of recession until the second half of 2011.

Asked what were the major mistakes the Irish Government made in the lead-up to the slump, OECD secretary general Angel Gurria cited the property bubble, an unbalanced tax system, excessive spending and the need for stronger bank regulation.

The OECD report pulled few punches and was littered with blunt rebukes, saying the country “plunged into recession after a period of unsustainable growth” as housing investment had slumped due to the “unwinding of large internal economic imbalances” which would lead to “permanently lower living standards”. The situation was compounded by the global situation, but the downturn revealed Ireland’s already “weak fiscal position” and inadequate banking regulation.

The OECD said cuts in public sector pay and numbers were needed and the country ran the risk of long-term mass unemployment unless the Government got a grip on the situation.

Class sizes at secondary level could be increased without reducing the quality of education, cutting medical cards must be looked at again and third-level fees brought back, the OECD said.

It called for a speedy introduction of NAMA, but warned the bank guarantee scheme had added to the risk of “moral hazard” in financial institutions, and said that further recapitalisation of the banks – already standing at €11bn – may be needed.

The OECD defended its rosy assessment of the economy delivered only 18 months ago by saying it had been based on statistics provided by Dublin. The gloom came as Taoiseach Brian Cowen told the Dáil welfare payments are not safe from major cuts in the December 9 budget.


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