The Minister for Finance has denied he is planning huge cuts in public expenditure but has conceded investment in services will have to be curtailed.
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Speaking at the final plenary session of the Programme for Prosperity and Fairness at Dublin Castle this morning, Mr McCreevy said there is a need for a "disciplined approach" to spending to maintain the strength of the Irish economy.
Mr McCreevy admitted there were significant pressures on such areas as education, health, transport and public service pay. He hinted increases in spending on these services would have to be cut back on previous years' figures.
"What has happened is part of the normal expenditure management procedure and does not reflect some radical reduction in public spending," Mr McCreevy explained. "The measures now being taken are essential to long-term sustainability of the Irish economy and I make no apologies for taking remedial action in this regard.
He insisted he was confident of keeping public spending growth below 14 per cent for the year, despite the fact that spending has increased by 21 per cent in the first six months of 2002.
"Throwing additional resources at issues is not of course the only or right way to deliver improved public services," the Minister added, saying it was now vital to ensure value for money in providing them. "I believe the best way forward is to focus resources on a limited number of key areas which will have most impact in terms of addressing public service needs."
The Taoiseach, Mr Bertie Ahern, also warned this morning that the estimated potential cost of Benchmarking of €1.1 billion would have to be considered in deciding the scale of public services the Government can provide.
He said Ireland now faces a "very difficult" economic situation, and called on the Social Partners to continue their support for his Programme for Government.
Mr Ahern added that he will be writing in early Autumn to formally initiate a successor to the current PPF.
Mr McCreevy also made reference to the impact of the Benchmarking Report, speculating that inflation this year looks likely to level out at around 4.5 per cent. He was concerned, however, that service sector inflation was currently double this rate. "We must be wary of trying to compensate for this with pay increases," he said.
The Department of Finance says current government spending was €21.1 billion ahead of target between January and June. However, tax receipts, which amounted to €13.3 billion, were 7.1 per cent lower than the same period last year. Total revenues are now expected to be around €500 million less than predicted.
In her address to the session, the Tánaiste, Ms Harney, encouraged the full implementation of the Public Service Benchmarking Body's report. She said successful implementation would help close the pay gap between workers in the public and private sectors and "lead to a single employment market in which the efforts of all are appropriately assessed and adequately rewarded".
