Small-business leaders have urged the Government to face down a backbench clamour for spending increases in the wake of its disastrous local and European election performance.

The Small Firms Association (SFA) cautioned against increasing spending to "assuage" deputies who feared for their seats.

Mr Pat Delaney, SFA director, said: "The Minister [for Finance, Mr McCreevy,\] must maintain a firm hand on expenditure and prioritise and deliver a service based on necessity, quality and value for money."

With the Republic fast gaining a reputation as a high-cost business location, a tight grip on spending was vital to future prospects, said Mr Delaney.

He said: "From a competitive perspective, Ireland is now in the frame as a high-cost location to do business. Any faltering by the Minister in his stated position to control public spending will be used by business home and abroad as reasons not to invest in Ireland."

Equilibrium between expenditure growth and tax revenue increases was "imperative" he added. What was needed was "focused management" of the Exchequer rather than uninhibited spending.