The Government should introduce a tax on senior bankers’ pay and bank profits to help reduce the risks the financial sector poses to the economy, according to the International Monetary Fund (IMF).
These measures would also have the effect of ensuring the banking sector made a "fair contribution to general revenues" and provide resources to pay for any future financial crises.
It notes, however, that implementation of such measures may need to be deferred until more normal financial conditions apply.
Asked by The Irish Times whether the IMF had recommended that other countries shrink their financial sector, a spokesman said that it "was apparently the first and, so far, the only one to discuss such a step with the authorities as part of a bilateral consultation".
The IMF also lends its support to granting aid to struggling mortgage-holders, an issue currently being considered by the Government's mortgage arrears and personal debt expert group.
In a sign that the Government may not wish to pursue this approach, the report states: "The [Irish] authorities noted that further support measures raise the risk of moral hazard and, hence, of strategic default, and create a perception of unfairness."
The term "strategic default" refers to a mortgage-holder choosing to default even when retaining the financial capacity to service a debt.
The report also says legislation to establish mechanisms for the orderly winding down of failed banks requires "immediate attention". The IMF is implicitly critical of the Government's delay in following other European governments in moving towards the introduction of such mechanisms.
While the IMF continues to back strongly the establishment of Nama as a means of cleansing banks' balance sheets, it says "implementing the provisions for the oversight of Nama's operations is vital" given the sheer size of the agency as a player in the commercial property sector.
Citing experience of Nama-like mechanisms in Sweden and the US in the past, it believes that Nama should move quickly to start disposing of the assets in its portfolio and not necessarily wait for an upturn in the market.
IMF staff were strongly supportive of ongoing changes to the regulatory and supervisory system but stressed that implementation would be the "key challenge".
The fund also praises the Government's budgetary adjustments. However, it suggests that greater detail on future measures be set out to add to the credibility of the programme.
It also warns that the Government needs to be prepared to implement additional measures above and beyond those scheduled in the event of slippage from targets.
The IMF's forecasts for the size of the budget deficit, which are considerably more pessimistic than the Government's to 2015, suggest that the fund believes such additional measures will be needed.
It also repeats its advocacy of the establishment of an independent fiscal council, something that the authorities now agree with "in principle".
The fund's staff view the outlook for jobs bleakly over the next half decade. Only in five years time do they believe that the rate of jobless will fall below 10 per cent.
The staff note that the authorities in Dublin are more optimistic, believing the flexibility of the labour market would bring joblessness down more rapidly.
The report which is prepared on a yearly basis was written by IMF staff members after a fact-finding trip to Dublin in late May.
Minister for Finance Brian Lenihan said the report "will be an important contribution to the ongoing policy debate".
He said that, as he had recently stated, he was open to considering additional enhancements to the process of budget reform.
Fine Gael's enterprise spokesman Richard Bruton said: "This report should serve as a wake-up call for the Government. The main lesson to be learned from the IMF's report is that it's time for the Government to complement its fiscal austerity plan with new measures to stimulate growth and job creation, and tackle competitiveness."