The Cabinet, which is to hold a special budget meeting next Sunday, is to put off plans to cut income tax and social insurance charges as it struggles to rein in State spending next year.
Just four weeks away from the 2008 Budget and intent on keeping day-to-day State spending increases down to 8-9 per cent, Minister for Finance Brian Cowen has taken a tough stand with Cabinet colleagues at recent one-to-one talks.
The decision to hold a special budget meeting comes as a survey warned that consumer confidence in the economy has plunged to a four-year low.
Fewer than one in 10 of the public, troubled by job losses, falling house prices and soaring oil prices, are optimistic about the economy over the next 12 months, the ESRI and IIB Bank found.
Inflation costs will mean that 4.8 per cent of any extra spending will be consumed by the need to fund cost increases in existing levels of services.
The priority, Mr Cowen has made clear, is to maintain existing operations only, and to fund the National Development Plan. "They have been told to fund bright ideas from within their existing budgets," said one source last night.
The one exception will be State pensions, which are to rise to €300 per week over the next five years, though existing social welfare benefits of all types will cost 5.1 per cent more to fund next year, even without improvements.
The budget negotiations with most of the smaller spending departments are nearing completion, but further talks will have to be held after Sunday between Mr Cowen and the biggest spenders, such as education and science and social affairs.
Last month, Mr Cowen forecast that the exchequer will face a €1 billion deficit this year, nearly twice as high as Department of Finance predictions earlier in the year, partly due to the slowdown in house sales and construction.
Though most departments have submitted spending plans that far exceed Mr Cowen's orders, negotiations have been conducted calmly. "Ministers accept the reality of the position," said one source last night.
On taxation, the Government is set to focus resources on increasing tax credits and bands to keep low-income earners out of the standard tax rate, and average earners out of the higher band.
In last year's budget, Mr Cowen promised to cut the top tax rate this year, subject to resources allowing, though the programme for government more conservatively pledged changes over the next five years.
Fianna Fáil and the Greens agreed to abolish the PRSI ceiling for those earning above €48,800, but to reduce the PRSI rate from 4 to 2 per cent "over the lifetime" of the administration.
However, the work to begin cutting the PRSI rates is likely to be left to another day, though the PRSI ceiling is likely to increase, perhaps by significantly more than the rate of inflation.
Commenting on the fall in public confidence in the economy to its lowest level since October 2003, IIB Bank chief economist Austin Hughes said house price fears are the main reason for the drop.
Layoffs announced during the period included those at Intel and Tyco, though these were more than matched by job creation at Mellon Bank, Dunnes Stores, Rigney Dolphin, Enfer, Park Academy, Nortel and Postbank.
The overall consumer sentiment index reading of 71.8 was also dragged down after fewer consumers said they would buy expensive items such as white goods and furniture in October, preferring to wait for the sales.
Though the public is gloomy about the current state of their personal finances, they are, significantly, more optimistic about their own personal fortunes over the next year.
Mr Hughes said this modest but surprising improvement in consumer confidence in their own spending power reflected the growing belief that the worst news on interest rates may have passed after eight successive rises.
The seasonally adjusted live register, which counts recipients of the jobseekers benefit and allowance payments, rose slightly by 500 to 164,700, a three-year high.