The Government may need to find an additional €400 million in adjustments to meet its 8.6 per cent deficit target for 2012 and should seek a further €400 million to accelerate a reduction in the Government budget deficit, a new report has said.

The newly established Irish Fiscal Advisory Council today recommended the Government introduce a larger than currently planned package of spending cuts and tax increases over each of the next four years by to reduce the deficit at a faster rate.

Minister for Finance Michael Noonan confirmed the budget adjustment for next year will be in the region of €4 billion rather than the €3.6 billion originally planned.

“We are going to meet the 8.6 per cent of gdp target even it takes more than €3.6 billion to do so,” Mr Noonan said.

Instead of a package amounting to €3.6 billion in the December budget, the council's report urged a package of €4.4 billion in its first assessment of the Government’s budgetary policy.

In each of the subsequent years to 2015, the adjustment should be, on average, approximately €1 billion larger than currently planned, the report said.

The Council, which was set up in June, is charged with regularly assessing the quality of the Government’s economic and budgetary projections and determining whether the overall fiscal stance is appropriate, given the wider economic conditions.

The Government’s current plan, which was drawn up in April, is being revised and will be published by the end of the month in a four-year pre-budget outlook.

The council’s recommendations increase the likelihood of larger adjustments, and come a week after the Central Bank urged the Government to go beyond the minimum €3.6 billion adjustment it must implement under the terms of the EU-IMF bailout programme.

Speaking at the launch of the report chairman of the five-person council, Professor John McHale of NUI Galway, acknowledged the political difficulties for the Government of committing to specific tax and spending pledges in the pre-budget outlook.

He said giving households and businesses as much certainty as possible about future budget measures would aid recovery.

Although the council recognised the dampening effect on economic activity of austerity measures, it is firmly of the view that these are limited and that the longer term gains of more rapid stabilisation of the public finances outweigh the small near-term growth-dampening effects.

It did, however, acknowledge there is uncertainty about measuring accurately the growth inhibiting effects of austerity measures.

Roughly half of the additional budgetary adjustments advocated by the council for 2012 will be needed just to meet the targets set down in the EU-IMF bailout programme.

Next year the council believes a package of €4 billion will be needed to bring the budget deficit down to the targeted 8.6 per cent of GDP. It advocates an additional €400 million adjustment on top of that.

The Irish Congress of Trade Unions (Ictu) said council's call for deeper adjustment in the budget was "reckless", and said it would damage jobs and growth prospects.

"The council's obsession with debt reduction ignores the impact of the €21 billion austerity adjustment to date. The deficit in the demand for labour - and not the financial deficit - is what we need to prioritise," said Ictu's chief economist Paul Sweeney.

"The recent small increase in volatile GDP and the small increase in GNP give no comfort to those working in the real economy and even less to those who are out of work."

Under its plan published in April, the Government committed to reducing the budget deficit to 2.8 per cent of GDP by 2015. The council believes this is not ambitious enough, proposing a target of 1 per cent of GDP.

Along with Prof McHale, the other members of the council are Mr Sebastian Barnes, Organisation for Economic Co-operation & Development; Professor Alan Barrett, Trinity College Dublin (on secondment from the Economic & Social Research Institute); Dr Donal Donovan, University of Limerick (formerly International Monetary Fund staff) and Dr Róisín O’Sullivan, Associate Professor, Smith College, Massachusetts.