TANAISTE Eamon Gilmore and Finance Minister Michael Noonan are this weekend at loggerheads over the size of the Budget adjustment on October 15.
Labour's hopes of an easier budget adjustment appear to have been dashed with several senior government sources saying this weekend that the level of cuts and tax increases will have to be the full €3.1bn.
News of the fresh rift comes amid fierce criticism of James Reilly's handling of the Department of Health, which will have to get a supplementary estimate of €200m given the spending overruns in the HSE, sources said.
But news that the Government will have to get the full €3.1bn deals a killer blow to Labour's demands that the adjustment would be between €2.4bn and €2.8bn and could have major implications for Mr Gilmore's leadership.
One senior Labour source warned: "The problem for Gilmore is that anything over €2.5bn in cuts and taxes will put him right into the political danger zone."
Several government sources have confirmed that despite the country's recession having ended during the second quarter of this year, the level of growth is far lower than previously hoped.
The low growth of just 0.4 per cent, as published by the Central Statistics Office (CSO) last Thursday, has reaffirmed Mr Noonan's belief that the full adjustment be made, in order to make the primary budget surplus (a surplus excluding debt interest payments) he desires.
Mr Noonan's position was echoed by Junior Finance Minister Brian Hayes, who told the Sunday Independent: "If anything we should aim to be ahead of the 5.1 per cent budgetary target."
Mr Hayes said: "The most important objective of the Budget is market access, we've got to stay in the markets. It's got to be remembered we are still borrowing €1bn a month.''
Mr Hayes also stressed that "20 per cent of the tax we take in is now being spent on interest payments, this position is not sustainable".
Mr Noonan's strong desire for a primary surplus has made the calls for a lower budget adjustment "virtually impossible".
Another top-level Labour source warned "the battle in the EMC will be between Noonan's exit [of] the bailout strategy and Gilmore's political necessities".
Separately, Social Protection Minister Joan Burton has said ongoing Fine Gael attempts to impose a cap on welfare payments "is most likely to hit children with a disability since more often than not these are in large families".
Ms Burton expressed puzzlement over the apparent determination of Fine Gael "to target disability payments for the third year in a row".
She said: "Given the level of representations I receive from Fine Gael TDs on disability issues, the party should start to think with both sides of their head."
But, for the third year running, anger is mounting within the Coalition at the behaviour of Dr Reilly, who admitted to the Sunday Independent last week that his department will run over budget.
A major stand-off has emerged between Dr Reilly's Department and the Department of Public Expenditure and Reform over Health's failure to deliver €150m in Haddington Road Agreement savings as outlined.
As we reported two weeks ago, the Department of Health said it can only deliver €100m.
Several official sources, familiar with the Budget process, have said that Public Expenditure and Reform is holding firm that it wants the savings but Health "isn't playing ball".
Mr Noonan also appears to be heading for a collision course with Transport Minister Leo Varadkar over the proposed ending of the temporary reduction of the VAT rate to nine per cent for the hospitality industry.
Mr Noonan's department insists that ending this relief would bring €350m into the Exchequer. However, a report commissioned by Failte Ireland would be as low as €100m.
Mr Varadkar told the Sunday Independent: "The nine per cent VAT rate has been one of the Government's most successful jobs stimulus policies. I would not like to see it withdrawn too quickly or too soon."
But Mr Varadkar added: "I know the Budget is going to be tough and Michael Noonan will find it hard to find the money to retain it."