The Government should increase planned capital spending under the National Development Plan by one-fifth next year as a counterweight to a slowing economy, employers' group Ibec says in its 2007 budget submission, published yesterday.

"With the slowdown in house building, this is a particularly opportune time to fast-track the construction of roads and other infrastructure priorities," director general of Ibec Turlough O'Sullivan said yesterday.

"It is particularly important that we deliver NDP projects to gateway towns and hubs rapidly so that balanced regional development will become a reality," he added.

Within the existing capital envelope for the NDP over the years 2007 to 2013, Ibec recommends that an additional €1.7 billion of capital spending be brought forward into 2008 to fast-track the delivery of projects already identified as essential.

This would raise total NDP capital spending to some €10.2 billion next year, increasing its share of Gross National Product from 5 per cent to 6 per cent in the process. The Ibec proposal does not involve any overall addition to capital spending during the life of the NDP, merely a reallocation of resources from later years into 2008.

Nonetheless, the speeding up of NDP capital spending in this way would also raise the projected overall Government deficit in 2008 from €500 million to €1.5 billion, according to Ibec's calculations. An expansion of the Government deficit on this scale is likely to be resisted by the Department of Finance at a time of economic uncertainty and turbulence in tax revenues.

In justifying this substantial front-end loading of public capital spending, Ibec's director of policy Dr Danny McCoy said yesterday: "We're calling for a counter-cyclical fiscal policy." But he added that any extra capital spending should be subjected to rigorous evaluation and that "there should not be a rush to spend money".

While advocating additional public capital spending next year, the budget submission also calls for the containment of growth in the Government's day-to-day spending. It recommends that current public spending during 2008 should grow by no more than the increase in nominal GDP - real growth plus inflation.

Within the current public spending arena, Ibec argues that the Government must ensure that future annual growth in public sector pay is limited to low single digits. Its budget submission points out that, over the past five years, the public sector pay and pensions bill has increased by 53 per cent, while the pensions component has doubled.

In recent years, Irish cost and price competitiveness has been eroded by excessive inflation relative to trade rivals. The submission says that the Government can play a part in containing future inflation by restricting any future rises in administered prices - broadly public sector charges and public utility prices - to the rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP).

On the income tax front, Ibec recommends that personal tax credits and tax bands be indexed to the rate of wage inflation, a commitment made by Fianna Fáil before the last general election.