Public service union demands for wage increases above those allowed for in the national partnership agreements were threatening Ireland's continued economic and social progress, the Minister for Finance, Mr McCreevy, warned yesterday at the annual Small Firms Association (SFA) lunch. Mr McCreevy said that in the present world climate, budgetary policy had to be focused on securing a low inflation climate and sustainable growth levels.

Some public sector groups were using the Garda pay award to get "a leapfrog approach" to pay increases, he said, but such an approach would "get another cycle going".

"Failure to deliver on pay moderation would undermine the whole basis of national partnership," he said.

He said that Europe seemed to be in a sound economic position despite the crisis in Russia and the Far East.

But pension and health costs for an ageing population in the next century was a long-term challenge for the Irish economy.

"The 1999 Budget will be framed against that background," he said. The SFA chairwoman, Ms Lorraine Sweeney, announced that she was stepping down from the position after five years. Her position is being filled by Mr Kieran Crowley.

Ms Sweeney said that the SFA was looking for the Partnership 2000 document commitment on budgetary provision being made for small business to be honoured. "This year we expect it will," she said.

She added that she had overseen a period when small business had experienced "a golden era". In the past three years 130,000 jobs had been created in the sector, 56,000 of them in 1997. "We are recognised as the backbone of the Irish economy," she said. She called for tax breaks and a housing grant to be provided as an incentive for returning emigrants to tackle the "recruitment crisis", and tax exemption for childcare providers in the workplace.