Pressure on pay restraint is likely to increase significantly following Mr McCreevy's statement in the Dail yesterday that end of year inflation is likely to be 4 per cent, rather than the 3 per cent envisaged when the Programme for Prosperity and Fairness (PPF) was signed.
The Irish Congress of Trade Unions is to meet with the Government in June to discuss inflation. It has already told senior civil servants that, unless the Government brings in measures such as VAT reduction and lower rates of duty on fuel oils, it cannot answer for resulting "instability" on the pay front.
Mr McCreevy told the Dail that he was revising his estimates on inflation upwards. "It is now expected that inflation will average in the order of 4 per cent for the year as a whole, though the rate will be less than this at the end of December," he said.
Despite the higher than expected increase, Mr McCreevy warned that pay increases negotiated under the PPF must be strictly adhered to.
He said he shared the concerns of the EU's Economic and Monetary Affairs Commissioner, Mr Pedro Solbes, that the economy could overheat and nothing must be done to allow inflation to "become entrenched".
This is unlikely to placate unions, which believe the Minister's own Budget was a major contributory factor to inflation.
Nor was there any comfort for them on the issue of reductions in indirect taxes. He said he was not convinced that cutting VAT was the appropriate strategy for combatting inflation.
Mr McCreevy admitted that inflation had risen because of Budget increases in tobacco duty, as well as higher oil prices, a weak euro and high underlying domestic inflation, but he was "confident that the agreed pay increases, combined with promised tax reductions will provide for continued gains in real disposable incomes".
Earlier yesterday the chairman of the public services committee of ICTU, Mr Peter McLoone, confirmed that Congress was to meet the Government in early June on inflation. "Trade union leaders will want to see evidence that the Government is doing something to address the problem," he said. "If it doesn't intervene, the Government will have to take responsibility on the wages front for the instability that will inevitably follow."
Mr McLoone is also general secretary of IMPACT, the State's largest public service union. Its annual conference begins in Tralee today and the first motion on the agenda deals with inflation.
It calls for reductions in VAT and duties on fuel oils and increased subsidies for public transport and housing, action "to stop businesses taking excessive profits" and reductions in prices to be passed on to consumers.
IMPACT strongly backed the PPF and previous agreements. "Like everything else, you don't expect things to fall neatly into place, you have to work for it," Mr McLoone said. But he warned the Government that "it must protect this agreement for it to work".
