Recession damage to Ireland is permanent, says OECD
THE global economic crisis has left deep scars that will take years to heal, but the Government must start now to plan for economic growth, said a new report from the Organisation for Economic Co-Operation and Development (OECD).
Highlighting the scale and depth of the recession, the report estimates a permanent loss of 3pc in output (GDP) on average across the 30 countries of the OECD. Unemployment will persist at higher levels than before the crisis.
The report said Ireland has experienced a severe set-back in living standards that is "likely to have permanent effects". But it noted that, despite this, Ireland's per-capita income is now close to the average of the upper half of the 30 OECD countries.
However, the structure of the Irish economy means real income is 15pc less than output -- the second largest such gap in the OECD.
In its review of Ireland's economic policies, the Paris-based thinktank said progress has been made in most key priority areas, "although it has been incremental and incomplete".
It repeated its recommendations for the introduction of university tuition fees, accompanied by a system of means-tested student loans, as a way of funding more spending on education. Pre-primary education should be extended, it adds.
The OECD wants more user charges, such as payment for water, as a way to ensure efficient use of infrastructure and a speeding-up of the planning process.
"Slow progress in increasing competition in the services and utilities sectors has contributed to sub-par productivity performance," the report said.
"The global recession has left deep scars," said OECD secretary-general Angel Gurría.
"The only way to begin healing them is by taking effective action now to help our economies recover their lost potential."
Because the crisis has wreaked havoc with public finances, some taxes which were cut will need to be raised. The report recommended shifting the composition of taxes away from income and toward consumption and land.
It urged governments not to water down current plans for financial sector reform. "Prudential banking regulation can be toughened without undermining competition," it said.
Strong supervision appears to reduce the cost of credit for firms and households, as it helps to level the playing field," the OECD said.
One of the biggest risks is that people with weaker ties to the labour market such as older workers, youths, those on low incomes and single mothers, will stop looking for jobs.
"Governments need to boost spending on training and job-search at this critical time. But they also need to provide the right incentives to the unemployed," it said.
This means resisting pressure to relax eligibility criteria for social welfare.