The public service will return next year to its "peak" size last seen before the economic crash in 2008, Minister for Public Expenditure Paschal Donohoe told Cabinet colleagues on Tuesday.

In a detailing briefing to Cabinet at its weekly meeting, Mr Donohoe also said the public pay bill would surpass its 2008 levels in 2018.

He said that even without a new public sector pay agreement next year, the pay bill is likely to exceed the pre-bust levels in 2018, 10 years after the economic crash began a sharp drop in public sector pay and numbers.

Total tax receipts, estimated to pass €50 billion next year, significantly exceed 2008 levels largely due to increases in income tax, including the universal social charge (USC).

Mr Donohoe’s warning comes as public sector unions threaten a wave of strikes unless they receive pay increases above those budgeted for next year in the Lansdowne Road Agreement.

Yesterday the Cabinet reaffirmed its commitment to the Lansdowne Road Agreement and to the previously indicated timetable for its replacement.

A Government spokesman said there had been no decision to change that policy.

That would mean no negotiation on a new agreement could take place until next summer, with no acceleration of next year’s pay increases.

However, with unions preparing for strikes, few Government insiders believe it can tough it out that long.

Existing employees

Yet with budgets remaining constrained, the Cabinet may be faced with a choice of hiring more public servants or paying its existing employees more.

Excluding local authorities (which are not directly funded by the Exchequer), public sector numbers peaked in 2008 at 285,000.

Yesterday Mr Donohoe told the Cabinet that by the end of 2018 on current projections the total number of Exchequer-funded public servants would be 294,000, with a total pay bill of €17.2 billion.

This would mean the total number of all public employees, including local authorities, would pass 320,000.

Mr Donohoe said the cost of demographic pressures was now estimated at €500 million every year, further squeezing available resources for public sector pay increases.

Yesterday, pay pressures in the economy intensified when unions representing private sector workers said they would lodge pay claims for 4 per cent in January.

Public service union leaders, who are to meet Wednesday in Belfast to consider the fallout from the €40 million pay package offered to gardaí, are expected to reiterate their demand for early negotiations with the Government which would accelerate pay restoration for State employees.

Extra money

According to a number of highly placed sources, it is unlikely that unions will accept any situation under which gardaí would get extra money next year while their members would have to wait for similar additional payments until the following year.

Most public service staff are scheduled to receive a second and final €1,000 increase in September 2017. The first €1,000 was paid in January of this year.

Union leaders at the meeting in Belfast are also expected to demand an end to unpaid additional hours which formed part of productivity concessions agreed in the earlier Croke Park and Haddington Road accords.

Last night Government officials met representatives of the Irish Congress of Trade Unions (Ictu) at Government Buildings as contacts between the two sides continue.

A spokeswoman said both parties had “reiterated their commitment to a continued collective approach to public service pay issues”, and said that demands for the early restoration of allowances “could more appropriately be dealt with by the parties under the relevant provisions of the Lansdowne Road Agreement”.

She said both parties had agreed to remain in contact over the coming weeks.