European Union finance ministers have urged one another to avoid give-away budgets and to balance tax cuts with reductions in public spending.

In a paper to be presented to EU leaders in Stockholm next week, the finance ministers said that governments should think twice before they offer tax cuts in their budgets for 2002.

"An appropriate balance and sequencing have to be drawn between running down public debt, cutting taxes and financing public investment in key areas. Possible tax cuts should be designed to maximise their contribution to growth and employment and to ensure their sustainability over time, implying that they would have to be accompanied by firm control of public expenditure," the paper said.

The Minister for Finance, Mr McCreevy, objected to some passages in the paper but he did not attempt to block it.

"We had recorded in the minutes that every state is entitled to set its own tax policies and we said there was too great an emphasis on pro-cyclical issues," he said.

The EU finance ministers' recent reprimand of Ireland over last December's budget singled out the pro-cyclical effect of its measures for criticism. Last week, the EU Economic Affairs Commissioner, Mr Pedro Solbes, suggested that the Government should postpone some less urgent parts of the National Development Plan to avoid overheating in the economy.

Mr McCreevy said that some projects could be postponed because of planning problems but he hoped that the capacity shortage in the construction industry could be overcome by attracting foreign firms.

"We are trying to have projects that are big enough to attract foreign contractors. We want to make the projects big enough that foreign firms will bring their own workers with them," he said.

The Minister dismissed a suggestion by his Belgian counterpart, Mr Didier Reynders, that there was a consensus among EU finance ministers in favour of closer harmonisation of economic policies.

"There was no agreement on that issue. I am sure the process of the Broad Economic Policy Guidelines will evolve over time," he said.

The Commission will propose this year's broad economic policy guidelines next month and they are expected to be adopted by EU leaders in June.

The finance ministers failed to agree on proposals to improve regulation of securities markets in response to growing consolidation among stock exchanges. They will discuss the issue again during next week's EU summit in Stockholm.