Tens of thousands of jobs will be lost and untold damage done to the economy if the Republic's "crippling" inflation rate is not urgently reduced, business lobby IBEC has warned.
Addressing the organisation's biennial lunch, IBEC president Mr Maurice Pratt said inflation had to be brought into line with wider European levels.
"It is in all our interests to achieve the Taoiseach's target of 2 per cent," he said.
Mr Pratt, managing director of C&C, admitted that the Republic's rising inflation rate could be partly attributed to "a lack of real competition in many elements of the non-traded sector".
He added, however, that public sector charges were also to blame for excessive price growth.
Mr Pratt said the Government needed to examine the inflationary impact that was flowing from its own decisions.
"Figures recently obtained by IBEC from the Central Statistics Office indicate that of our current rate of 4.9 per cent, over 1.8 per cent can be attributed to recently increased Government charges, taxes and duties," he said.
Mr Pratt warned that the Republic was on the point of losing jobs to economies with lower costs.
He said the new social partnership agreement, Sustaining Progress, would be critically important because of the anti-inflation mechanism it contains.
IBEC would be working to ensure that wage settlements did not exceed the terms of the agreement, according to Mr Pratt.
Calling for reductions in day-to-day Government spending, he advised that the development of public infrastructure should be prioritised with "pragmatism and discernment".
"I don't want to sound pessimistic, but I do feel we need a strong dose of reality to ensure that we manage effectively those areas of policy over which we retain control," Mr Pratt said.
He called for the quality of public services to be improved in return for the "generous increases recommended by the benchmarking body".
Mr Pratt also attacked the State's planning laws on the basis that they do not "adequately address our infrastructure deficit".
"I believe the next two years will be critical for the Irish economy," he concluded.
The Minister for Foreign Affairs, Mr Cowen, who presented a keynote address at the event, acknowledged that competitiveness was central to economic success but said the Government was "acutely aware" of the challenges on the horizon.
He attempted to assuage fears that Irish business could suffer in EU enlargement and underlined the Government's opposition to harmonisation of direct taxes across the Union.
Mr Pratt had earlier said that while IBEC was fully supportive of EU enlargement, it was "seriously concerned" at the EU's poor economic growth and weak competitive position.
He called on the Government to reinvigorate the Lisbon Strategy, which was designed to make the EU the most dynamic economy in the world, when it takes up the EU Presidency next year.
The EU, Mr Pratt advised, must deliver an enterprise-friendly environment "without unnecessary regulation and red tape".
