There should be no tax increases of any kind in the Budget, according to IBEC, the business lobby group. It is calling for a "holding Budget" which further reins in growth in current spending and maintains investment spending at a high level.

The IBEC pe-Budget submission, published yesterday, said that the Government must adjust to less buoyant tax revenues by curtailing current spending growth. This would involve a 10,000 cut in public sector numbers and a renegotiation of benchmarking increases to take account of the changed economic climate.

The "easy option" of pushing up taxes or PRSI must be avoided at all costs, according to Mr Brian Geoghegan, IBEC's director of economic affairs, as this would further damage competitiveness .

IBEC says there must be no repeat of the inflationary indirect tax increases in last December's Budget. This year, indirect taxes must not change, it says, and income tax credits and bands should be indexed, to keep the income tax burden constant. IBEC also opposes the proposed carbon energy tax.

IBEC's prescription, drawn up by a group of business leaders and senior executives from the organisation, is that spending must be held tightly in check, with a renewed focus on value for money in all areas including public pay benchmarking.

It also renewed a call, first made during the summer, that the Government double its existing target for reducing public sector numbers to 10,000 by 2006. This does not represent a "slash and burn" approach, IBEC says, pointing out that numbers have increased by 58,000 over the past five years. This would save €550 million, it says, and be achieved through non-replacement, retirement and redeployment.

There should also be a renewed focus on the strategic management initiative programme to improve the public sector and a new focus on cutting costs through outsourcing.

"The private sector has already adjusted sharply to its vastly different trading conditions," the submission says. "The public sector must bear its share of the adjustment."

IBEC's director general, Mr Turlough O'Sullivan, said that business wanted a "steady as she goes Budget" which does not undermine competitiveness. IBEC had pushed in negotiations on the national agreement for a target of reducing inflation to 2 per cent, he said and while headline inflation has fallen from 5.8 per cent to 3.1 per cent, "much more needs to be done".

This is particularly important with negotiations due next year on the second phase of the basic pay increases under the national programme. The latest Irish Times TNS mrbi opinion poll, published in yesterday's newspaper, showed that the majority of people agreed with IBEC's approach that it was preferable to control spending rather than increase taxes, he said.

IBEC believes that current spending growth should be held to the rate of nominal (including inflation) GNP growth - likely to be around 5 to 6 per cent next year. Current spending growth is already slowing towards this level, but IBEC has expressed concern about the sharp fall-off in capital spending, running almost 20 per cent down on 2002 levels .

Maintaining capital investment at 5 per cent of GDP is a key priority, according to Mr Geoghegan, while IBEC is also pressing for a more determined approach to using public private partnership schemes to build big projects. The National Pension Reserve Fund could be one source of funds for such projects, it says, in areas where there would be a clear long-term commercial return to the fund from the investment.

Borrowing could also be used to fund productive investment, up to an exchequer borrowing limit of about 2 per cent of national output, IBEC says.