Further tax reductions for average income earners should be made to reduce the labour force's growing skills gap, the National Competitiveness Council has stated.

It also recommends in its report, Statement on Skills, that the Local Employment Service (LES) operations should be integrated with FAS, that a business-led approach to upgrade skills levels is needed and that primary school investment should be increased.

The Cabinet considered the report at its meeting yesterday and a Government spokesman said that it would put additional resources into tackling the problem of long-term unemployment.

In the next phase of the Employment Action Plan - the £29 million jobs and training package implemented from September 1st last - those aged between 25 and 32 are to become the main focus of attention.

Following yesterday's meeting, the spokesman said Ministers agreed that the Action Plan should be extended in order to "chip away" at the stubborn problem of long-term unemployment. No figure has been announced for additional investment in the Plan.

According to the report, levels of personal taxation compare unfavourable with Britain and the US which are competing labour markets. "Differential tax levels, together with rising house prices and rents, are a major disincentive for returning emigrants to enter the labour force in Ireland," the report states. The council emphasises the need for vocational training for the construction, tourism and retail sectors, the development of employee skills in the workplace and the promotion of links between the education and enterprise sectors. Among the council members are the Forfas chief executive, Mr John Travers, the ICTU's deputy general secretary, Ms Patricia O'Donovan, and Mr Donal Byrne, the managing director of Cadbury Ireland. It was set up last year as part of the Partnership 2000 agreement to report to the Government on competitive issues. It states the need "to ensure that the tax and social welfare system encourages unemployed people to re-enter the labour force and that they have access to the required training and placement service".

Encouragement of emigrants to return home and of women to re-enter the labour force is recommended. Vacancies are increasingly difficult to fill in the construction, tourism and retail sectors because the skills required for these jobs have increased. "More qualified trainees should be provided to meet these new needs through vocational courses combined with work experience for those entering the labour market from second-level education. Such work-based training, which is practised widely in Europe, is inadequately developed in Ireland," the report says.

The report adds that the worldwide shortage of information skills represents an opportunity for the State and additional approaches to the provision of third level institutions should be developed "such as software conversion courses and the release of staff from companies for part-time courses".