Ireland should introduce a standard income tax rate of 20 per cent to help grow the knowledge economy and bring the economy out of difficulty, an economist said today.
Trinity College's Dr Constantin Gurdgiev also called for an increase in property tax, warning that the country faced continuing recession and declines in the value of property unless action was taken.
"We have no choice but to develop our higher value added, traded services sectors," he told the conference of the Institute of Certified Public Accountants conference in Kildare.
"This is the real 'knowledge' economy. But our prospects are not guaranteed here. The knowledge economy is human capital intensive and our taxation system creates no incentives to invest in human capital. We need to become more human capital focused."
He dismissed reports that Ireland was facing imminent recovery, and said the asset bubble crash would continue for some time.
"The OECD average is 10 quarters of credit busts for 18 per cent average contraction and 19 quarters of house price falls for a 29 per cent average price decline. Ireland's bubble of a 60 per cent decline in credit supply implies 33 quarters of credit contraction and our 50 per cent house price fall implies 33 quarters of price declines. We are currently roughly 10 quarters into these twin crises," he said.
He said there was some cause for optimism on the issue of competitiveness, but it would still require further "hard choices" on public sector reforms, and restructuring public utilities and semi-state service providers.
He said the country could not rely on export sector, although there were opportunities there, or foreign direct investment, which would see increased competition in the future.
"We used to have a more productive and balanced economy," he said. "We’ve lost it to hype and construction, property, credit and fiscal bubbles. We need a productive knowledge based services economy next."
