LABOUR TDs are bracing themselves to vote through public sector pay cuts after the shockwave of union rejection of Croke Park II.
In the wake of the devastating blow, the Government was deciding how to find savings of €300m - with the possibility of allowances and overtime in the public service being hardest hit.
At the same time the Coalition is facing the combined threat of industrial action from the unions and mounting pressure from the EU-IMF troika to curb the public payroll.
Senior sources said the Government will take its time as it weighs up the implications of the biggest setback of its two years in power.
The Government now has a range of options to weigh up:
• Going back into negotiations with the unions.
• Enforcing an across-the-board, flat-rate 7pc pay cut.
• A combination of different pay cuts at different salary levels.
Finding the €300m elsewhere isn't regarded as a runner, even if the savings were available, as the troika wouldn't release the Government from its commitment to reduce the public pay bill.
The Cabinet has now to assess why the vote was defeated. It has not ruled out entering negotiations with the unions for a second time.
Across-the-board pay cuts of 7pc are not regarded as the most likely way to bring about the necessary savings.
Instead, to make up the €300m cuts required, the Coalition could return to its original plans and impose a combination of elements:
• Substantially cut premium and overtime payments.
• An increment freeze for all public servants for three years.
• A tiered pay cut for public servants, with higher rates of reduction.
• Starting pay cuts at a lower rate of €60,000, instead of €65,000.
• Abolition of allowances.
• A hike in pension contributions for existing workers.
Government sources insisted last night that the Coalition would not be jumping to any conclusions as it has until July to find the cuts.
"There's more than one way to skin a cat. What we are going to do on our side is create enough space. I don't see the need to rush into it," a senior source said.
The Cabinet will discuss the setback next week but may not decide upon the best option to proceed until the end of the month.
Public Spending Minister Brendan Howlin insisted that the €300m in payroll savings still had to be found.
The country's most powerful union chief urged the Government not to impose 7pc pay cuts on the country's 290,000 public servants after his members scuppered the Croke Park II deal.
SIPTU general president Jack O'Connor warned that those who voted No are "resolved to take industrial action" if the Coalition takes unilateral action to achieve €1bn payroll saving over three years.
He urged it to return to talks to find a way forward after his 63,000 public service members had dramatically voted by 53.7pc against the deal, despite the union's leaders having called for a Yes vote.
The move is a huge blow for the Government but it refused to reveal its next move after SIPTU's dramatic rejection, despite having made numerous threats of across-the-board wage reductions in recent weeks. Mr Howlin said he was disappointed with the result and insisted that the Government must still achieve its aim to slash a total of €1bn from the pay bill by 2015.
But he said the manner in which this is done "still has to be determined by Government".
"The Government will reflect on the outcome of the ballot and the manner in which the required savings can be achieved this year," he said.
Mr Howlin said the rejection of the proposals, which he claimed were fair and balanced, did not change the fact that the targets must be met so it can achieve overall budgetary targets and continue on the path to economic recovery.
The deal, which was due to be rolled out from July, would have meant cuts to premium pay, an increase in working hours, freezes and delays in increments and a pay cut of 5.5pc and above for those earning over €65,000.
It faces official rejection by the Irish Congress of Trade Unions' 20 public unions today when they meet to officially announce the results of their ballots.
Given the ballot results that have already been announced, no combination of votes by the 20 public sector unions can now get the deal over the line.
Taoiseach Enda Kenny also insisted that the €300m target would be achieved.
"While I am disappointed by the result, the fact remains that the Government has to achieve €300m in savings this year and it will now have to reflect on the outcome of the ballot, the nature of that and how it is we must proceed to achieve that figure because that is the bottom line."
Junior Finance Minister Brian Hayes said last night the pay cut "may not just be a percentage cut across the board" but a package of cuts.
Mr O'Connor said the Croke Park II deal was now "dead".
"The proposal is dead," he said. "The proposal is rejected. It cannot be accepted now."
The union leader said people who had rejected the proposals were resolved to take industrial action if the Government opted to proceed unilaterally.
"We actually will fight if needs be, but we want to find another way.
"I want to conclude by urging the Government not to proceed to legislate for pay cuts because it will inevitably precipitate a major confrontation.
"I think that it beholds the Government to find a way of winning the agreement, or at least the acquiescence, of people who work in the public service with the approach going forward."
Mr O'Connor refused to say if a confrontation with the Government was likely to mean work to rules or strikes but he added that the union now had a mandate to oppose cuts of any kind.