TAOISEACH Brian Cowen last night caved in dramatically to public-sector workers, agreeing a deal to protect their pay scales, pensions and permanent job status.
omorrow's disruptive 24-hour strike was called off after jubilant union bosses persuaded the Government to drop plans for a 7pc pay cut.
The Government has embraced a union plan to allow its workers to take two weeks' unpaid leave rather than reduce their pay by 6.85pc -- but the measure may have a dire effect on public services, particularly the health system.
The Health Service Executive -- the biggest public sector employer -- said the proposal would take the equivalent of 5,000 staff out of health alone next year.
Instead of cutting €1.3bn from the public sector pay and pensions bill, the coalition now appears set to shave just €1bn off this area of expenditure.
Unions described the Government's backing for the proposal as a "prize" but it is still unclear what further concessions may be made -- if any.
Government sources said no deal had been done and "the objective all the time was a reduction in the cost of the public sector".
But Fine Gael said Mr Cowen had "bottled it" on public sector reform as its finance spokesman Richard Bruton said the short-term deal was unfair and the worst of all worlds.
Schools will remain open and hospitals will run as normal tomorrow after the basis of a deal was agreed to save state employees from an across-the board pay cut in the Budget.
Today the latest figures showing the deterioration in tax revenues will be revealed. The Exchequer returns for November are important as it is a crucial month for a number of tax categories.
The latest unemployment figures will also be revealed this morning.
Taoiseach Brian Cowen said the Government's decisions would not be influenced by the threat of strike action. And he welcomed the fact that the industrial action planned for tomorrow will not now take place and "hopes that progress can be made in the coming days". The Government said meetings had concluded for the evening and will reconvene in the morning.
Meanwhile, Social Welfare Minister Mary Hanafin reiterated last night that welfare payments will definitely be cut.
"The scale of the savings required from public expenditure as a whole means that some reductions will have to be made in the social welfare area," he said.
But other areas of public spending will suffer even more if the Government fails to secure the €1.3bn in savings.
It is estimated that the compulsory time off option will only save €800m at most, if it is applied to all employees.
This leaves a gap of €500m that still has to be negotiated to meet the Government's target.
Following marathon talks, unions said the Government had acknowledged that enough progress had been made to defer a second national day of protest. There is still no agreement on how the unpaid leave measure will apply in key sectors like health or education or on the Government's key objective to "transform" the public sector, including the introduction of a longer working week.
It is understood that proposals are being examined that may allow workers in essential services to stagger their unpaid leave over a number of years.
But major public sector employers and senior government officials were still seriously concerned last night about the potential impact on vital services.
Sources said Mr Cowen had essentially overruled Health Minister Mary Harney, who was believed to be dead set against the unpaid leave option.