THE STATE is living beyond its means, Minister for Finance Brian Lenihan said yesterday, before hinting the national pay deal may have to be re-examined.

While ruling out a mini-budget early in the new year, saying there was no scope for further tax increases, Mr Lenihan said further cuts in spending would be required to deal with the worsening Exchequer deficit.

Exchequer figures released on Tuesday showed a massive shortfall of close to €7.5 billion in the amount of tax revenue collected by the Government during the first 11 months of the year, far worse than predicted in the Budget.

Asked on RTÉ's Morning Ireland programme whether this would include the national pay deal, Mr Lenihan replied that because the payment is not due until next autumn, the Government had an opportunity to engage with the social partners, adding he hoped relevant parties would "reflect" on the difficult conditions facing the economy.

"The Government will give leadership on this early in the new year. We can't wait for ever on this. Nothing can be ruled out. We actually have to consider what our options are in terms of our day-to-day expenditure and how we can ensure it is sustainable for the future. I am saying to people that we are living beyond our means and we have to face up to that. We won't be able to compete if we don't."

He said to become competitive "you do sometimes have to take a reduction in the standard of your current standard of living".

Under the national pay deal, public sector workers are scheduled to receive a 3.5 per cent increase next August as part of a 6 per cent increase phased over 21 months.

Another budget would involve further taxes and there was "a limit to the amount of any taxation an economy can take when it is in the kind of crisis our economy is in", he said.

"If we are to increase taxation it means that we have to increase income tax and that is a tax on work, and we want to keep people at work as much as we can . . . I am saying there isn't great scope for tax increases next year beyond what has been done already in the Budget."

Instead of tax increases, Mr Lenihan indicated the Government would look at further spending cuts to compensate for falling revenues.

After the December exchequer figures were published, the Government would know what cost-containment will have to be introduce next year, he added.