At their final meeting before the summer break this week, Cabinet Ministers were briefed by the Minister for Finance on the budgetary position. They will not have liked what they heard, even if it came as no surprise.
The weakness in the economy is depressing tax revenues and there will be little room for manoeuvre in framing next year's Budget. Difficult discussions await Ministers in the autumn as they first try to finalise spending plans for next year and then complete the Budget package.
It is important to keep the budgetary situation in perspective. The level of the Irish national debt is now the lowest in the EU (with the exception of tiny Luxembourg) and the borrowing level this year will be low by international standards. Also, what money is borrowed is for capital investment purposes and the day-to-day Exchequer balance remains in strong surplus.
That said, conditions are difficult. The Coalition spent lavishly in the 2000 - 2002 period and a painful period of adjustment has been required to get the spending growth rate down to more sustainable levels. There will be a gap between potential spending next year and what is likely to be raised in revenue.
Borrowing will rise from this year's level, unless the Minister gets a surprise bonus from a source such as the Central Bank reserves. On current projections, which see some economic recovery moving into next year, this gap is manageable. However if the hoped-for international pick-up does not emerge, then the budgetary outlook will worsen and the Government will face some difficult choices.
Even if the world economy does gradually recover, Ministers will have to get used to more frugal economic times. As Mr McCreevy said this week, the days of 9 to 10 per cent economic growth each year are gone. For the foreseeable future the focus must be on prudent management and the kind of structural reforms and efficiency improvements necessary to get maximum value for Government spending.
In this regard a key issue is the public pay benchmarking deal. It is essential that the productivity improvements promised in return for these payments - which will deliver hefty average increases of 8.9 per cent - are delivered. If the improvements are not in train - or if the clause promising industrial peace is broken - then the Government must have the courage to stop the payments to the relevant groups. The Exchequer simply cannot afford to pay extra money when it does not get a return for it.
The impact of the benchmarking bill will be to leave little extra money to spend elsewhere. The challenge for Mr McCreevy and his colleagues will be to put forward a strategic approach, offering a way to improve public services and undertake essential investment over the next few years. For a Government which struggled to get things done with money to spare, it will be no easy task.