The Government must continue to encourage people to move from welfare dependence to work because this remains the best way to boost the self-respect of the unemployed, says the report.
The report says those outside the labour force must be provided with "wider and more enriching options" than just receiving "indefinite" welfare payments.
It says the Government should continue a policy of "sensitive activation" - getting people off welfare and into work. It says this policy may come too late for some people and too early for others.
It says nobody of working age - even if they are receiving income support - should be given the impression they have "no talents or skills of sufficient value to society".
The report says some of the lowest-rated welfare payments have increased much faster than the cost of living since 1994. But it says it does not consider €118 per week a sufficient income to live life with dignity in contemporary Ireland.
It recommends that the Government implement, "as soon as resources permit", and earlier than 2007 if possible, its commitment to bring this to €150 (in 2002 terms).
"The Council believes that an adequate money income is a necessary but not a sufficient condition for many people to participate in society," says the report.
It says while people on social welfare will enter the workforce in large numbers in future, other forms of participation can also generate self-respect, such as caring for a dependant, or social or cultural work.
"The ability of people to build up credits within the social insurance system on foot of different types of socially valuable participation made within the home and the community should be actively explored," it says.
It expresses concern that people who have retired on State pensions may fall behind average living standards.