The International Monetary Fund (IMF) has issued a strong warning to the Government that high pay levels in the public sector must be addressed, highlighting their premium over private sector workers.
When asked whether pay and increments should be included in the pending negotiations with trade unions, Mr Kenny said Public Expenditure Minister Brendan Howlin will have "full flexibility" to achieve the necessary savings.
Mr Kenny is facing increasing unhappiness within his own party and Cabinet over the rigid limitations contained in the current Croke Park deal.
In its latest report on Ireland, the IMF said that if growth is weaker than projected in 2013, the Government should defer any additional austerity until 2015 to allow the economy to grow.
However, it highlighted significant fragilities through various sectors in the Irish economy, and pointed to the pay premiums in the public sector as an area where costs could be reduced.
"Base estimates suggest a wage premium of 14 per cent for a public sector employee earning the median wage relative to the private sector," the report said.
Conflicting with earlier domestic data, the report said the pay gap is larger at lower salary levels at up to 20 per cent.
But even higher paid earners maintain a premium of at least seven per cent.
"Estimates indicate a public wage premium remains for the majority of public employees, especially at the lower ends," the report said.
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It also recommended tackling the pay bill in Health as a means of addressing the continual budget overruns. "There are options to reduce overtime and premium payments through substantially-improved work practices and rostering arrangements for key groups."
At his Christmas briefing for political correspondents last week, Mr Kenny said he wants to see a more focused and targeted public sector deal in place "as quickly as possible". He said: "I want to see the mandate given the minister for Public Expenditure and Reform to result in a new Croke Park deal. We need this in place as quickly as possible. Clearly we want an extra €1bn in savings by 2015, with €300m of that coming in 2013 in new savings, in addition to what is in the existing Croke Park deal. The sooner this can happen the better."
Mr Kenny was critical of the current Croke Park deal which he said lacked focus.
"Croke Park did not have specific targets set in there. There were no targets for payroll so it is important that be moved on as quickly as possible," he said.
In response to a question from the Sunday Independent as to whether or not everything should be on the table, Mr Kenny said: "The Minister for Public Expenditure and Reform has been mandated by Government to get involved now in the production of a new Croke Park arrangement to bring about extra savings of a billion by 2015, with €300m in extra savings next year.
"So, that allows for 'full flexibility' to make those savings and at the end of the day, Government reserves the right if things are not happening to take legislative action."