PUBLIC SERVANTS face a pay cut of around 6pc in next week's Budget, after talks to slash the state payroll by €1.3bn dramatically collapsed.
Taoiseach Brian Cowen confirmed that the Government will reduce the public service pay and pensions bill -- after rejecting alternative proposals put forward by unions to avoid a pay cut.
He also confirmed that the controversial centrepiece of the failed discussions -- compulsory unpaid leave -- will not be part of the budgetary cuts.
Unions must now decide whether to step up a campaign of industrial action that was deferred last week when they believed they had the "basis of agreement".
Emerging from Government Buildings, chief negotiator Peter McLoone accused the government of "changing its mind" due to controversy over the compulsory unpaid leave plan.
The government turned its back on the proposal after coming under severe criticism from backbenchers over the impact of taking an estimated 250 million hours out of the public service.
There was also intense debate about how much the measure would raise.
Mr Cowen said the unions' proposals did not make up the amount needed.
"Unfortunately, the proposals put to Government do not provide an acceptable alternative to pay cuts," he said.
"What we now have to proceed with is reductions, by way of a pay cut, to the public service pay and pensions bill."
Despite agreement on a broad reform of the public service, Mr Cowen decided against proceeding with the deal as it didn't make up the necessary savings and the cuts would not be permanent.
"The Government considers that the proposals do not constitute a basis for agreement," he said.
He said this was because the pay savings next year would mean a reduction in the days worked, even if that was over an extended period.
The Taoiseach also said there was no agreement because of a lack of certainty about the basis on which savings would be achieved beyond next year.
But the trade-union movement said the Government had confirmed that it would "do a deal based primarily on temporary unpaid leave once unions and management agreed to implement it in ways that avoided reductions in services".
This statement was flatly denied as "not true" by a government spokesman.
Chairman of the Irish Congress of Trade Unions Public Services Committee, Peter McLoone, said he was "deeply disappointed and astonished that an opportunity like this has been lost".
General Secretary of the Public Service Executive Union, Tom Geraghty, said the government had "got cold feet".
The unpaid-leave option was the key measure tabled by unions at talks to reduce the state payroll. They estimated that the measure would bring in an amount in the region of €800m, but some government officials said the saving would be as low as €300m.
However, last night unions denied that their proposals would have fallen short of the full €1.3bn saving. They said they were prepared to negotiate additional measures, believed to include overtime at standard rates, and deferring increments.
It is also understood that union leaders would have proposed that the €800m raised by unpaid leave could have been increased by hitting staff on higher wages.
Those on less than €50,000 would have seen a 4.6pc reduction in their income, while those on higher wages would have suffered a 7pc drop.
Unions were also prepared to extend the unpaid leave measure by up to six years to lessen the impact on services, particularly in the health and education sectors.
Unions claimed the Government missed a "once-off" opportunity for transformation of the delivery of public service.
Among the key measures it passed upon was wiping out overtime payments for work carried out between 8am and 8pm from next year.