Ireland must maintain its independence on tax issues to avoid losing its competitive edge, said Ibec President Gary McGann.

Mr McGann said: "Competitiveness remains the key to our future success."

"Ireland's freedom to determine its own tax system has been at the heart of its economic success," he told the employers' lobbby group at its biennial lunch in Dublin yesterday.

"In choosing to lower taxes on employment and enterprise, Ireland has achieved economic growth and employment creation that has made us the star of the European classroom," said Mr McGann, who is also chief executive of Smurfit and chairman of the Dublin Airport Authority.

He said that while other members of the European Union must lower their tax rates to match Ireland's levels, it's up to the State to focus on the performance of public services and ensure that full returns are being achieved on investment projects.

Special attention must be paid to the manufacturing industry, where 7,000 jobs were lost in the past year, and the catering and hotel sector, he said.

Mr McGann also said that in order to continue to expand the Irish economy, which is forecast to grow by about 5 per cent this year, the country must lower its "excessive" business cost base, which makes it one of the most expensive places to live, work and conduct business in the EU.

Also speaking at the lunch, the EU commissioner for internal markets and services Mr Charlie McCreevy said Ireland must work together with other members of the EU to fully exploit the opportunities of the single European market.

While cross-Europe trade is working for many businesses, the service sector, which accounts for about two-thirds of all employment in Ireland, is missing out on the benefits it can bring, according to McCreevy.

"Opening up the services sector is now the major challenge - a challenge that stands to bring major benefits for businesses and consumers," he said. "Open markets spur competition and innovation which is exactly what we need to foster growth and jobs," he said.