The Government must tighten its grip on public spending, the employers' organisation IBEC has warned.

In its latest quarterly review of economic trends, IBEC has warned that spending growth of 20 per cent is simply not compatible with tax revenue growth of just 5 per cent, particularly at a time when growth in the economy is set to half.

"Those who are pressurising the Government to continue the excessive rate of spending increases endanger the extraordinary social and economic progress we have made," the report says. "Social programmes can only be sustained on the back of a competitive and dynamic economy."

IBEC predicts growth in the economy this year will run at around 6.5 per cent, at the top end of most forecasters' expectations but well below last year's 11.5 per cent.

"This type of deceleration needs proper management, particularly of Government spending," said chief economist Mr David Croughan, "or it could quickly show up in deteriorating public finance figures."

He added that further job losses in the high-tech sector as well as traditional manufacturing and support services as well as engineering are expected over the rest of this year. Indeed, in recent weeks industrial production and exports have fallen back as has lending. According to the latest data released yesterday by the Central Bank, private-sector credit growth was running at 18.9 per cent in June, from 18.7 per cent in May. Over the first six months of 2001, it averaged 18.6 per cent, well below the 2000 average of over 25 per cent.

Mortgage lending also fell back for the ninth consecutive month to 20.7 per cent in June from 21.3 per cent in May. That is its slowest rate of growth in three years, reflecting the slowdown in the housing market.

According to IBEC director of economic affairs Mr Brian Geogheghan the slowdown has to have implications for pay. "We have already lost competitiveness versus the EU with pay rising at twice the average. That cannot continue without consequences for jobs. Ongoing wage growth of 10 per cent and above will have severe employment consequences." He added that a sharp appreciation of the euro would accelerate the process.

IBEC also believes the upcoming Budget can deliver further tax reductions, particularly in the rate of employers' PRSI to make up for the removal of the ceiling in the top rate of tax and the rate at which the lowest paid enter the tax net. The Budget should also look at incentives for emigrants to return home, and for married women and older people who may want more flexible work, Mr Geogheghan said.

He added that IBEC was in favour of strongly targeted programmes to address specific issues such as homelessness but they would have to be results based. Health needs to be targeted as does education, "but you do not deal with literacy by doubling the salaries of teachers".