THE Government should use tax cuts to stem the mass exodus of young people from Ireland, business body IBEC has urged.
Its 2014 Consumer Monitor, while portraying an economy firmly in recovery mode, said the flood of 20 to 35-year-olds risks bringing progress to a grinding halt.
And the Government can afford income tax cuts of €300m in the upcoming budget.
This age group is the only one in which emigration and joblessness is still rising.
The Government must prioritise cutting income taxes to entice these people back to Ireland, the country's biggest business group said.
Its annual snapshot of consumer finances, while lamenting the loss of young people, still painted a highly positive picture of an economy firmly in recovery.
The report found that:
Household savings are falling as we start spending once again.
Disposable income will increase by 3pc this year and 4pc in 2015.
Inflation will remain low though rising health insurance is a major burden.
The "fear factor" which gripped consumers for so long has eased.
The spectacular rise in overall employment has been one of the biggest indicators of the country's recovery, IBEC said.
Some 65,000 more people are employed than they were two years ago. The biggest winners have been workers aged between 35 and 54.
But among those aged 20 to 34, employment is actually down by 34,000. This is mainly driven by emigration - 46,000 in this age category have left Ireland since 2012.
"While the economy is clearly recovering, we desperately need policies that are going to bring people home," said Fergal O'Brien, IBEC's chief economist.
"The more people we can get back, the more tax revenues the state enjoys," he said.
"If this population group continues to hollow, we have a major problem on our hands."
Lowering taxes is the most effective thing the Government can do to entice young people back to Ireland, he said. IBEC believes there is scope to lower income taxes by €300m.
It wants the marginal tax rate of 52pc reduced, and an increase to the level at which the marginal rate applies.
"A salary of €32,800 is far too low for the marginal rate to apply. Employers are avoiding hiring people because of it, and workers are rejecting promotions because it is not in their interest to be taxed at the higher rate," he said .
The level of this marginal tax rate, at 52pc, is also too high, he added. "Fifty percent is a psychological barrier - we have to bring it below that. When the majority of your pay cheque goes to the taxman, you are just not being incentivised to work."
Investment in infrastructure, housing and schools is also essential, Mr O'Brien added.
Young people will not return unless Ireland has something to offer them, he said.
IBEC is also calling for a €100m cut to consumer taxes such as VAT and excise duty.
Reducing tax could lead to a 4pc rise in disposable income next year, it predicted.
It wants to keep the 9pc special VAT rate for the hospitality sector, which the Government has indicated will not be retained in the next Budget.
The next Budget should not be one of austerity, Mr O'Brien said.
"The recovery is there - we need to stop talking about recession. There absolutely does not need to be another austerity budget - Government does not need the money".
Ireland is one of the best countries in the world at attracting foreign direct investment.
We were ahead of the curve at realising the value of FDI, identifying it as something that could supercharge the economy if only we could get it to Irish shores.
With a fiercely guarded corporation tax rate of 12.5pc, we managed to do just that. The resulting investment brought the country out of the stagnation of the 80s and helped us weather the recession of the noughties.
Why then is Ireland so slow to recognise youth as a commodity of equal, if not more, economic value?
So many of Ireland's most pressing financial and social problems could be addressed if we brought back our young people.
The return of the 43,000 20 to 35-year-olds who have left over the last two years, to a market that once again has the jobs to employ them, would generate huge tax revenues.
It could solve succession planning issues in our ageing civil service, mitigate the impending pensions crisis and shore up the troubled private health insurance market in one fell swoop.
So we've got to entice them, as we enticed Google and Apple. Cuts to income tax are the first step.