A difference of more than €1 billion has emerged between the Government and the Economic and Social Research Institute in their assessments of the state of the public finances by the end of the year.
Predicting a €947 million General Government Balance deficit by December in its quarterly bulletin published today, the ESRI has urged the Government to rein in unrealistic demands for higher wages and better services.
However, the ESRI figure stands in stark contrast to the Department of Finance's prediction - repeated as recently as July 2nd - that the Exchequer will have a surplus of €170 million this year.
Today, the Minister for Finance, Mr McCreevy, will be told that most of his Cabinet colleagues have already made €160 million worth of savings, or are within sight of doing so in coming weeks. Promising a "rigorous" approach to spending yesterday, Mr McCreevy insisted that current spending growth would rise by no more than the 14 per cent promised on Budget day.
In an effort to meet his total, the Minister for Defence, Mr Smith, has decided to abolish with immediate effect a scheme that dealt with Army deafness claims outside the courts.
Urging the Government to rein in exaggerated expectations on wage and public finance fronts, ESRI senior research officer Mr Danny McCoy said that public expenditure growth was "clearly unsustainable".
However, the Government might be able to temper trades unions' wage demands if it agreed to provide better public services in return for moderate rises, he said. "We can no longer have high expenditure and low taxes," said Mr McCoy, adding that the time had arrived to make "hard choices".
The ESRI's deficit prediction is based on a stable international economic and financial climate over coming months, and particularly upon the euro staying at or near parity with the dollar.
A sudden "spike" in the euro's value would create an unwanted "disinflationary surprise", according to Mr McCoy, though the ESRI commentary raised concern about the markets' current volatility.
"The uncertainty about an international recovery, as reflected in the sharp fall in world equity markets, presents considerable downsides for our forecasts," said the institute in a statement.
Ruling out speedy pay rises for public sector workers under the Benchmarking Report, the Taoiseach, Mr Ahern, told union leaders attending the Programme for Prosperity and Fairness review that a "structure" would have to worked out. Under an agreement with unions, special pay awards granted by the report are supposed to be paid by the end of next year at the latest - subject to the negotiation of a productivity deal.
However, Mr Ahern said: "The cost of benchmarking is €1.1 billion . Implementing it this year or next would be a great idea if there was a spare billion around. In fact, we are overspending by about a billion."
Mr Charlie Lennon, the general secretary of the Association of Secondary Teachers Ireland, quickly warned that any deferment would be "unacceptable".
"It is outrageous for the Taoiseach to expect workers and unions to accept a deferral of the benchmarking payments.
"These pay increases are overdue and are based on detailed information and comparisons," he said.
However, Mr Peter McLoone, the general secretary of another leading public service union, IMPACT, pointed out that benchmarking payments beginning in late 2003 would not appear in the Government's budget until 2004.
As things stand, the ESRI is predicting that Irish growth rates will pick up towards the end of the year while the annual growth rate for the year will settle at 3.4 per cent.
However, the Minister for Finance, speaking to the social partners at the PPF review meeting in Dublin Castle, said he expected growth for the year as a whole to average in the region of 4.5 per cent - more than 1 per cent higher than the ESRI's estimates.
Urging wage restraint, Mr McCreevy said Ireland was now less competitive than previously.
• The Executive Summary of the ESRI's Quarterly Economic Commentary is available at http://www.ireland.com/newspaper/special/