The abolition of the 2 per cent insurance levy has been called for by the Small Firms Association.

In its winter economic statement the association says the levy is costing business in the region of €60 million per year at time when businesses are closing or letting people go because of spiralling insurance costs.

"It is our view that the forthcoming budget should abolish the stamp duty to help alleviate the burden on individual small companies with regard to insurance costs," said Mr Pat Delaney, director of the association.

The abolition of the levy is among the recommendations in the action plan on the insurance sector published by the Tánaiste, Ms Harney, last week.

However at the press briefing for the publication of the plan, Ms Harney indicated that dropping the levy was unlikely given the state of the public finances.

Mr Delaney called for Government spending and receipts to be brought into line and said an inflation target of 2 per cent was required.

He also said the Government should seek to implement competition policy in the sheltered sectors.

"The economic position for 2003 shows that Irish business is under increasing pressure to maintain its competitiveness. There is a significant decline in investment as corporate spending is at a 10- year low, placing further pressure on employment retention and creation."

He said the current pressure on public finances should not detract from the programme for national development.

"Difficult choices must be made in the allocation of scarce resources between current and capital expenditure."

The association believes inflation will improve over the coming year due to the appreciation of the euro but that the Republic will continue to have the highest inflation rate in the EU.

It expects the unemployment rate to rise over the coming months.

Mr Delaney said the association had repeatedly expressed its concern about the level of increase in Government spending and did so again.

"Expenditure growth of 20.3 per cent against revenue growth of 2.6 per cent will lead to financial disaster if allowed to continue. The problem is rooted in excessive Government spending and that is where the solution lies."

On employment, Mr Delaney said the recent increase in the national minimum wage, which, he said, placed the Republic "far ahead" of competitor economies, would severely affect the creation of part-time work.