THE Government will cut €500m in spending from its budget this year in the first phase of a two-year plan to bridge the gap caused by falling tax returns.
The cuts from planned expenditure will run into 2009, meaning the full-year saving in 2009 will be €1bn, the Irish Independent understands.
But Finance Minister Brian Lenihan said vital capital projects would not be axed. He said that despite global economic difficulties, Ireland would not repeat the catastrophic mistakes of the 1980s.
However, he warned that Government departments -- including Health, Education, Social Welfare and Environment -- fully realise the financial difficulties facing the economy and would have to achieve agreed savings and enhance value for money.
Government sources say the plan is to cut €500m out of the system this year, which can then be repeated next year.
"That's the rationale behind it. It's going to be across all Government departments.
"A lot of it will come from efficiency reviews announced in the budget," a source said.
Mr Lenihan was speaking 48 hours before a crunch Cabinet meeting at which the Government will set out "difficult decisions".
The minister declined to comment on the savings he is reportedly seeking to make. And he said no decisions had been taken yet, including on calls for a public-sector pay freeze.
Similarly, Mr Lenihan refused to be drawn on whether Ireland now faces the prospect of a mini-Budget because of the revenue challenges facing the Exchequer, saying their funding situation would be clear on Wednesday.
But he vowed the Government would not axe vital capital projects for short-term gain after being specifically questioned about the high-cost Dublin Airport rail link.
"I don't think it is a good idea to delay all projects like road projects, rail projects, school projects, public transport projects or essential water projects. Some of these projects are vital for our future," he said.
"I don't think it is a good idea to do what was done in the 1980s and abandon capital projects and not build up our productive capacity."
"If we face the challenges in a determined, prudent way, we can put our country in a good position to make a good recovery," he said.
He insisted he was not looking for draconian cutbacks.
"I think the word is savings. Of course, if we don't start making savings this year, we won't make progress with the inevitable work that needs to be done next year," he said.
Critically, the minister repeated that social partnership has been a vital ingredient of Ireland's economic success.
Meanwhile, Communications Minister Eamon Ryan said he did not feel public transport or energy efficient 'green' projects would suffer in the cutbacks.
"What the Taoiseach has rightly said is we need to develop our economy and, at the same time, make sure spending is in the limits that we have -- the 3pc limits [on borrowing] and so on that we have set by the European Union. And the Minister for Finance has indicated we have to prioritise our spending within that.
"I think any economic analysis is going to show investment in, particularly new digital economies, new electric economies and in energy efficiency, is going to make economic sense.
"If anything, there is going to be greater emphasis on getting our use of fuel down. The current energy security situation requires us to do that."