Cowen says spending to focus on areas that 'contribute most to our capacity'

GOVERNMENT SPENDING:TAOISEACH BRIAN Cowen has said the Government plans to prioritise areas of spending "which contribute most to our capacity", as it decides how to manage its finances.

In a major speech to the biannual dinner of employer's group Ibec last night, he warned that without prompt and appropriate corrective action, more painful adjustments "with less scope for sensible prioritisation would inevitably follow".

Mr Cowen also said that one stark lesson from recent history was that a rapid and heavy price had to be paid for fiscal irresponsibility.

The Taoiseach said there was a need for care and common sense to apply to "adjustments" in spending that the Government made.

"Done properly, such adjustments will steer us through a temporary period of challenge and enable us to resume quickly a substantial growth rate in line with our strong economic potential and thus resume prudent but significant increases in desirable public spending.

"So that means prioritising those areas of spending which contribute most to our capacity to weather the storm and to respond promptly and strongly to the emergence of more benign international conditions," he said.

He said the Government had to prioritise those who were most vulnerable and most dependent on public spending programmes.

"That means that everything else has to be a lower priority. I believe that sensible Irish people will recognise and support that combination of competitiveness and fairness which current conditions require," he said.

Mr Cowen also said the Government would give greatest priority to implementation of the National Development Plan.

The Taoiseach said there was no doubt that the short-term economic outlook in Ireland had deteriorated and the country now found itself at something of a crossroads, where a number of difficult policy choices lay ahead.

However, he also said that there were grounds for optimism.

"Many of the headwinds into which we are now facing are temporary and, once their effects wane, we can expect a reversion of output growth towards more favourable rates. Moreover, our economy is resilient - our flexible markets, our relatively low tax burden and light regulatory regime give us greater capacity to absorb these shocks in an efficient manner," he said.

Mr Cowen said that the volatile economic environment made it all the more desirable that there was a successful outcome to the talks on a new social partnership deal.

He said that a new agreement on pay and related issues would provide "much needed stability and reassurance at this time".

The Taoiseach said that he had stressed the need for pay restraint in the current talks, but that this had to apply across the board, including at top level in the private sector.