The battle lines have been drawn between Fianna Fail and Labour over the key issue of tax cuts in the run-up to the next general election and subsequent coalition negotiations.
Fianna Fail last night strongly attacked Labour's proposed strategy of less tax cuts and a £3 billion public spending increase, claiming it would fuel inflation and spell "disaster" for middle- to low-income earners.
Labour's radical economic policy shift, unveiled yesterday in a framework document, New Direction, New Priorities, will prove a major stumbling block to any coalition negotiations with Fianna Fail. The Labour Party leader, Mr Ruairi Quinn, said his party's policy would have to drive any government in which Labour participated.
The Labour strategy advocates shifting priority away from tax cuts. Spending would increase by £3 billion over the next three years on health, education, childcare, housing and transport.
The party's Finance spokesman, Mr Derek McDowell, stressed it would honour the tax commitments in the Programme for Prosperity and Fairness, namely to exclude from tax the first u £200 of earnings.
He said a continuation of the Charlie McCreevy-led programme of tax concessions, which is heavily weighted in favour of the well off, will result in the same type of society which existed in Britain and America under Thatcher and Reagan.
Mr McDowell said the Labour strategy involved no tax increases and the maintenance of the current Budget surpluses. He said Ireland was now at the bottom of the EU ladder in government expenditure, at 30 per cent below the average.
He said the proposed additional u £3 billion would be raised in a number of ways, including using some of the surplus in the social insurance fund and dipping into resources earmarked for the Government-proposed new pension fund.
The stabilisation of the tax burden after 2002, the promotion of more public-private partnerships and limited investment-related Exchequer borrowing would also release more funds, he said.
The plan states that further tax reductions would be detrimental to the economy and would result in a decline in our quality of life, and greater social exclusion.
The Labour plan was strongly attacked last night by the Minister for Social, Community and Family Affairs, Mr Ahern, who claimed it was "riddled with errors" and would spell "disastrous news" for low- and middle-income earners if Labour was returned to government.
The strategy, said Mr Ahern, contained 10 flaws. He said it was founded on a policy of fiddling the figures and a belief that being in government was justification for writing blank cheques, which they could not guarantee.
"The absence of a cohesive strategy for their proposed investment of an extra u £3 billion of Exchequer funding is a startling omission and lays the foundations to undermine Ireland's booming economy," he said.
The Minister claimed that flaws in the plan included the fact Labour used inflated GDP figures to fit their arguments; the threat to "raid" the pension reserve and the social insurance fund to meet projections and the threat of an increase in inflation due to extra spending.
Mr Quinn said his party would outline in the coming weeks how the extra £3 billion would be spent. Asked if Labour would be prepared to compromise on its economic policy in future coalition negotiations, he said: "Any government in which we will participate will be driven by the Labour party policy."
Mr Quinn added: "Labour believes that the opportunities and challenges facing us now are such that it is time to change direction.
"We reject the view of those like the Minister for Finance who believes society exists to serve the economy. It is time, in our view, that society, its needs and its ambitions, was served by the wealth we have created together."