IRELAND'S overly generous social welfare system is acting as a barrier to unemployed people going back to work, a leading international think tank has warned.
The Organisation for Economic Co-operation and Development (OECD) says that the retention of payments, which cost the taxpayer €3.8bn in 2012, must be made conditional on people taking up training places.
It warned the Government to severely tighten up the grounds upon which welfare benefits are awarded.
Young people and the long-term unemployed are at risk of being left behind in Ireland's economic recovery and they must be encouraged to reskill, OECD officials said at its review of the Government's Action Plan for Jobs.
The OECD comments echo warnings from the International Monetary Fund (IMF) about welfare benefits being too high in Ireland and linking payments to the "low exit rates" from the Live Register.
Social Protection Minister Joan Burton has acknowledged the problem of some people getting too many different benefits and has spoken of the need to streamline the number of allowances people can receive.
A spokesman for Ms Burton last night said there had been a huge transformation of how welfare was paid.
On the issue of welfare traps, the problem was repeatedly overstated, Ms Burton's spokesman insisted.
"Minister Burton has focused on transforming the department from the passive benefits provider of old to an active and engaged public employment service."
He added: "Jobseekers are required to engage with our services. This is the mutual contract of responsibility.
"Department staff have been given powers to reduce or temporarily suspend payments for jobseekers who consistently refuse to engage with Intreo services," he added.
In 2013, a total of 3,085 penalty rates were applied, the department states.
Ms Burton's spokesman did acknowledge that in some cases rent supplement can act as a disincentive to work because you are generally not entitled to receive the payment if in full-time employment. Work is under way on a new Housing Assistance Payment (HAP), subsidising rent for people on welfare and in low income, to replace rent supplement.
Privately, several Fine Gael ministers say they share the concerns of the OECD and the IMF, but protection of welfare rates has so far been a red-line issue for the Labour Party in Government.
"We in Fine Gael would have liked to have cut it sooner. Of course welfare is a disincentive to work. But such is the price of coalition," said one senior Fine Gael minister last night.
The battle to cut welfare rates is set to dominate discussions ahead of October's Budget, which requires cuts and tax increases of €2bn.
Asked by the Irish Independent about the barrier to jobs created by overly high welfare rates, Yves Leterme, Deputy Secretary-General of the OECD, said: "The right approach is to work on the conditionality and try and put in training programmes and skills as a condition to still have the right to continue to earn the benefits."
Responding to the warnings, Jobs Minister Richard Bruton accepted that "we need to develop more tools" to engage people with various government job activation schemes like Job Plus and Momentum.
"What the OECD is rightly saying is that we need to drill down and develop more and more tools to make that activation process effective," he said.
"Unless more is done to help the long-term unemployed find jobs, there is a risk that some of the cyclical increase in unemployment may become structural," the report stated.
In a stark finding, despite a host of government initiatives, short-term lending to small and medium Irish businesses is among the worst in the OECD area – dropping from €19.4bn in 2007 to €3.6bn in 2012.Only Greece and Portugal are worse performers than Ireland.
"It is essential to create and grow as a small company that access to loans is improved," Mr Leterme said.
At present, the number of people out of work for longer than a year stands at 155,500, a rate of 7.2pc. This compares with the 27,000 people who were deemed to be long-term unemployed back in late 2005, when the economy was surging.
According to the latest CSO figures, 60,000 jobs were created in Ireland last year, which was the fastest employment growth rate among OECD countries.
The report, while praising the cross-government focus to pursuing the job creation agenda, warned that some regions had very different needs to the Dublin area and more must be done in this area.