The Government will tell the EU this week that rising prices threaten the economy's competitiveness and will pledge to take a firm line in the upcoming national partnership talks.

It is also considering a range of initiatives, including tightening the conditions for early retirement to boost the number of older people in the workforce, according to a new strategy plan to be sent to the European Commission.

The National Reform Plan sets out a strategy to enable the economy to the "most dynamic and competitive knowledge-based economy in the world by 2010" - the key goal of the Lisbon Agenda plan agreed by EU leaders in March 2000.

It also assesses a number of risk factors that threaten to derail Ireland's efforts to reach the ambitious targets set out in the Lisbon Strategy, which is currently being reviewed by the commission in an effort to boost growth and jobs in the EU.

The Irish plan notes that developments in relation to competitiveness remain a cause for concern as price levels in the Republic are now among the highest in the euro zone.

"Real unit labour costs increased in 2003-04, following a long period in which they had declined," says the strategy. "Part of the increase in unit labour costs since 2003 reflects the slowdown in labour productivity during these years."

It says the Government will have as one of its key objectives in the talks on a new national partnership agreement the need for pay increases that are not out of line with those in our major competitors. It also pledges to remain committed to the control of public service employment numbers, given the size of the public service pay and pensions bill as a component of overall Government expenditure.

The strategy warns about the economy's overreliance on the construction sector and says the Government will monitor this closely to avoid a sharp shock to the system.

"The pace at which new housing output adjusts downwards to more sustainable levels, and the extent to which activity and employment transfer to other parts of the construction sector, will have short-to medium-term implications for the economy," it warns.

Meanwhile, the strategy reveals that the Government is considering a number of measures to boost the number of older workers in the economy in an effort to meet changes in the demographics of the population. These include controversial initiatives such as tightening the conditions for early retirement and increasing the contributions required for full pensions

"The challenge of an ageing society will need to be met by ensuring that older workers are encouraged to remain in employment and pension systems are both adequate and sustainable," says the document, which will be forwarded to EU leaders later this week and debated in the Dáil.

The strategy document also puts a focus on boosting research and development and maintaining high spending on infrastructure projects, particularly in transportation.

It also notes that Ireland's job creation performance over the past 10 years has been exceptional with unemployment falling to 4.4 per cent last year from 14.7 per cent in 1994.