The Government should reduce jobless benefits the longer a person is out of work and make receipt of jobless benefits dependent on the acceptance of training offers, amongst other measures, a report has recommended.

The new report on Ireland by the influential Organisation for Economic Co-operation and Development also recommends the ending of subsidies for apprentices in early phases of the construction industry and that teachers’ performance be subject to systematic evaluation.

The assessment says Ireland is making good progress in cutting its fiscal deficit but more needs to be done. A modest recovery is underway, driven by gains in competitiveness and increases in exports, the biennial report states, though it warns of significant downside risks related to market concerns about the financial stability of the broader euro zone.

Minister for Finance Michael Noonan said some of the recommendations in the report will feed into preparations for the budget.

Ireland should continue to “comply fully” with the conditions and targets of the EU/IMF programme, the organisation says and, if economic growth allows, should reduce the budget deficit faster than required by the bailout programme “to help regain credibility in financial markets”.

On the composition of the budget adjustments it says the emphasis should be on spending cuts over tax increases.

The OECD has also called on the Government to broaden the tax base by proceeding with a planned property tax.

The report is broadly supportive of the Croke Park agreement, saying it “has contributed to social cohesion by providing a collectively agreed basis for reform in the [public] sector”.

It describes the banking recapitalisation of last March as a “turning point” in addressing the domestic financial crisis, but warns that a recent proposal by Nama to stimulate the residential property market risks exposing the taxpayer to losses. Any such programme by Nama should be “transparent and of a small size”.

The 2011-12 economic forecasts underpinning the analysis differ considerably from those of other international organisations and the main domestic public forecasters.

The OECD expects gross domestic product to grow by 1.2 per cent this year. This is a stronger rate of growth than most other forecasters predict, but in contrast to other forecasters, it expects a deceleration of GDP growth next year, to just 1 per cent.

Despite this slowdown, the OECD forecasts that the Government’s budget deficit will meet the 8.6 per cent of GDP target set out in the EU-IMF bailout.

The report also makes implicit criticisms of some recent Government decisions, including the restructuring of the ESB and the non-introduction of civil fines for breach of competition law.

In a detailed 136-page report on the Irish economy and the policy challenges facing the Government, the Paris-based think tank makes a long list of recommendations across a wide range of areas.

Its three main chapters cover budgetary, banking and employment issues respectively. The longest of the three chapters covers jobs issues, taking in welfare reform, education and training and support measures for small and medium sized businesses.

The agency says that, in order to promote a return to work, unemployment benefits should be related to the length of time someone is out of work. Employment services should engage more actively with job seekers. Those out of work, for their part, should be required to participate in relevant training and job searches.

It also advises that the current reduction in employers’ social security contributions should be extended.

Given the importance of exports to any economic recovery, the OECD calls for a further decline in unit labour costs which, it says, is “essential to support exports”. It also looks for greater competition in energy supply and a focus on cost-efficient renewable energy sources.

The OECD calls again for increased competition in professional services and suggests that the introduction of civil fines in competition law will act as a disincentive to anti-competitive behaviours across the economy.

The report broadly welcomes the Government’s Jobs Initiative, launched in May, but says more needs to be done. It warns that social cohesion could be threatened if high levels of long term unemployment persist and notes that emigration among Irish nationals has tripled.

It advocates a three-pronged approach to the jobs crisis, focusing on welfare reform, better training and job search assistance, and a sustained reduction in unit labour costs.

The report lauds Ireland’s low rate of corporation tax but says that the base should be widened adding that “strict implementation of OECD guidelines on transfer pricing [are necessary] to prevent artificial profit shifting”, a reference to the contentious tax avoidance practice used by some multinationals operating in Ireland.

Compared with its bailout peers in Greece and Portugal, the OECD says Ireland has a number of advantages, pointing to a larger and more sophisticated export sector, a better qualified workforce, a friendlier business environment, a more efficient tax system with a lower tax wedge on labour and lower corporate tax rates.

"Ireland’s structural strengths are reflected in the relatively few structural reform conditions in its financial assistance programme, compared with Greece or Portugal," the report says.

The OECD publishes detailed reports on its member countries every 18-24 months. Its work is highly regarded internationally. As it has greater experience and expertise in analysing structural economic issues than any of the troika institutions, aspects of the report may be adopted by those involved in Ireland’s bailout.

Mr Noonan said the positive report was wide-ranging, timely and relevant.

"The OECD survey acknowledges that, after succumbing to a deep recession and banking crisis, considerable fiscal efforts have been made since then and that a modest recovery is now under way in Ireland," he said.

"Furthermore, the OECD notes that while the Irish economy faces tough challenges its long-term prospects now appear better than many of the other hard hit European countries."

Taoiseach Enda Kenny will next week detail a timeline of announcements for the next two months to set the scene for Budget 2012.

Additional reporting: PA