A TOUGH new Croke Park deal is on the cards for thousands of public servants after a bleak forecast warned that our economic growth will fall far short of expectations.
The IMF predicted yesterday that the economy would grow by just 0.5pc this year.
That would mean the Government falling another €1bn short of its budget targets. The shortfall will have to be made up in tax hikes or spending cuts.
But ministers are not going to increase taxes further this year and are more likely to turn to spending cuts from savings in the public sector.
And that means a 'Croke Park II' public sector reform agreement could be needed within the next two months with even tougher targets for savings, according to a senior industrial relations source.
There is growing frustration within government circles at the failure of the current Croke Park Agreement to deliver savings. The pact is due to be reviewed next month. But the signs are that progress is too slow.
Meanwhile, the IMF forecast makes Ireland the slowest-growing economy in the world.
Finance Minister Michael Noonan will have to cut the Government's own growth predictions later this month, after completing the negotiations with the IMF and EU.
Talks with the IMF team in the Department of Finance are expected to heat up over the coming days with ministers due to talk directly with the visiting officials.
The forecast of a slower recovery comes as ministers warned of further public sector pay cuts if savings from reforms are not delivered.
There is a view that the trade unions are not delivering and there have been a number of PR disasters, including the retention of privilege days and the revelation in the Irish Independent of the extent of some county managers' annual leave.
The tough talking from Labour ministers Pat Rabbitte and Ruairi Quinn is aimed at getting a response.
"I think they're trying to convey to the unions -- get the finger out, or else," a source said.
"Whether it's in Croke Park or not doesn't make any difference, until we get to a stage where there's some serious reality. I'm not ruling out that they could all have to be brought back together again in a month or two," a senior source familiar with the process said.
Mr Rabbitte said yesterday that demands from rank-and-file gardai for extra days off in return for their pay being cut were not realistic.
A leading economist said the Government's figures would have to follow the IMF's prediction. Friends First chief economist Jim Power said the halving of the growth rate by the IMF would result in a shortfall of "at least €1bn" on tax and spending.
The continued rise in unemployment will cost more in social welfare payments, while consumer-related taxes, such as VAT and excise duties, will be lower than anticipated.
The IMF also warned the European Central Bank to hold off on interest rate hikes to give the euro-area banking system time to repair itself.
The IMF move comes as the Government prepares to conduct a review of spending by departments.
The Cabinet met last night to discuss where spending could be cut back and examine radical reforms of the budgetary process.
Ministers will have until July to report back to the Department of Finance with ideas on where they can cut spending, how to reduce public sector worker numbers in their area, what quangos can be culled and how they propose to implement the pledges in the Programme for Government.
The findings will go to the Cabinet's Economic Council, made up of the Taoiseach Enda Kenny, Tanaiste Eamon Gilmore, Public Spending Minister Brendan Howlin and Mr Noonan.
It will also feed into the estimates process in September in advance of Budget 2012 in December. Mr Noonan and Mr Howlin will meet with visiting officials from the IMF and EU today to discuss the bailout deal.
The Government last night agreed to conduct a spending review right across every department to be finished by September -- including infrastructure projects already signed off on.
AFTER one month in office, our new Government finds itself confronted with an economic crisis more daunting than any it had anticipated. It is encapsulated in yesterday's report from the IMF, a long report which nevertheless can be summed up briefly in two points.