THE ECONOMIC AND Social Research Institute has said that the government should aim for a rapid reduction in the budget deficit, with the aim of cutting it entirely by 2014 in order to return to the markets before the emergency funding from the EU/IMF package runs out.

The ESRI said that this should be done, in part, by imposing more spending cuts and increased taxes.

In its Spring 2011 Quarterly Economic Commentary, the economic think tank called on the government to abandon its original plans to cut Ireland’s deficit (currently 12 per cent of GDP) to 3 per cent by 2015 – and instead wipe it completely within three years.

ESRI Research Professor Joe Durkan said the possibility of  abandoning the Croke Park Agreement needed to be considered as the deal had not delivered its objectives. He said that the proposed reduction of the deficit could be achieved by a further public sector wage cut of 10 per cent; a property tax; higher car taxes; and the introduction of a universal water charge.

Durkan told reporters: “I think pay cuts are key to all of this. Pay levels are still too high”. He said that he would be willing to accept a 20 per cent reduction in his salary, Reuters reports.

The ESRI said that a “European solution” was needed to solve the banking crisis, and called on the European Central Bank to give Ireland an interest-free loan of between €40-€50 billion in order to “overcapitalise” Irish banks. Such a move would give the country’s banks “excess credibility” Durkan said.

The think tank said that Gross National Product (GNP) will increase by 0.5 per cent this year, which will be led by exports.