OECD urges more tax and welfare reforms

THE Irish authorities need to instigate greater tax and social welfare reforming to the latest report from the Organisation for Economic Co-Operation and Development.

In a report showing that Ireland remains top of the league for economic growth, the OECD predicts a pick up in European economies and stresses the need to cut unemployment across the region.

It forecasts 7.7 per cent growth for Ireland last year, falling to 6 per cent this year and 5 per cent in 1997. This would keep Ireland as the fastest growing OECD economy for all three years.

Last year's forecast is significantly below recent predictions from economists here who have even mentioned double digit growth. The main reason for the fall will be a slower growth in exports reflecting weaker demand in Europe in 1996, according to the report.

In Ireland, the OECD identifies the key risk as the revival of inflation and upward pressure on wage rates. Yesterday's figures showing inflation in the year to mid May at 1.4 per cent should go some way to allaying these fears.

But the organisation identifies the demise of the PCW at the end of this year as a potential source of trouble, with inflationary potential. The OECD figures estimate that unemployment would fall to 12 per cent by the end of next year from 13 per cent last year. This is still well above the international average of between 8 and to per cent and below nearly all other states.

It also points out that the "design and generosity" of social welfare, as well as the taxes needed to pay for it, have undermined economic incentives. This includes the incentive to work, to hire workers and to acquire skills, it says. It also calls for a reduction in barriers to employment, employment costs and overall disincentives.

It adds that a "judicious use of monetary easing" or interest rate cuts, could help to raise output and employment without generating inflationary pressure.

However, the report also stresses that those most in need must be protected to prevent the emergence or exacerbation of poverty and social exclusion.

Overall, The OECD predicts that Ireland is well on target to meet key Maastricht criteria. It sees a rise in the general government deficit this year, but adds it should remain comfortably below" the Maastricht ceiling of 3 per cent of GDP this year and next. As a result, the debt to GDP ratio is projected to fall to less than 80 per cent in 1997 from 91 per cent in 1994, it says.

Looking at the rest of the world, the organisation predicts that world economic activity will remain slow, but the outlook still points to growth in most countries. It expects growth in OECD countries to come in at 2 per cent for the first half of 1996, rising to 2.5 per cent for the second half.