The era of major tax reductions is over and the overall level of taxation may have to edge upwards to pay for key spending projects, according to an unpublished report being completed for the social partners.
The report, drawn up by the National Economic and Social Council, says the priority now for the Government must be funding major investment projects and tackling key social problems.
This will be difficult at a time when the Exchequer finances are under pressure, it says, and a "modest" rise in the overall level of tax should not be ruled out. However, it warns that major tax rises would damage competitiveness. The report calls for the abolition or restriction of a range of tax reliefs and shelters as part of the drive to save Exchequer funds.
The recommendations are contained in the final draft of a major National Economic and Social Council report, seen by The Irish Times. The report, due to be published in the next fortnight, is designed to provide the blueprint for talks already under way on a new national agreement to succeed the Programme for Prosperity and Fairness. The NESC comprises all the main social partners - the Government, employers, trade unions, farmers and social and community organisations - so its report carries considerable weight.
The report says infrastructure "must be paid for" and an increased range of user charges should be considered.
It says the Government should retain an open mind about what charges should be levied. But it says with large borrowing becoming "not possible" or "undesirable", alternative means to finance major projects have to be considered. It specifically mentions levies on roads and sanitation projects.
A key priority must be to hold down inflation, it says. For this reason major excise increases should be avoided in the December Budget and the Competition Authority must investigate sectors such as pharmacies, the drinks trade and the professions to root out anti-competitive practices.
Despite the difficult financial situation, the first priority must be maintaining Government investment spending on roads, transport and other key economic and social infrastructure at 5 per cent of national output per annum, according to the council. This is the level required to complete the National Development Plan.
The second priority must be public spending necessary to address "key social deficits", meaning fresh funding in areas of welfare, health, education and other areas.
In all areas of spending the NESC says that the Government must work urgently to secure better planning and value for money. There are "weaknesses in how public expenditure is measured", the council says. "Much clearer information and greater accountability for what has been achieved through public expenditure" is essential.
A key section on the public-sector pay benchmarking report says that the increases recommended for public servants - which average 8.9 per cent - can only be justified by very significant increases in flexibility and productivity. This will be a key issue in the talks now under way and an indication of the Government's approach may come with next Thursday's publication of its spending plans for 2003.
Looking at the short-term outlook, the council says that the Exchequer finances should be allowed to move modestly into deficit next year. The Government will have to borrow next year, it says, but the ratio of debt to Gross National Product should be held steady and the finances should be moved back to balance as the economy improves. The NESC believes GNP will rise by 3 per cent next year and 4.3 per cent on average over the subsequent few years.