THE State is set to say "no" to calls for a €6bn debt forgiveness scheme for struggling mortgage holders.
Instead, the Government will concentrate on delivering on promises to hike mortgage interest relief for the "negative equity generation", rather than writing off some of the debts of at least 40,000 people unable to pay their mortgages.
There were warnings that such a scheme could encourage some of the 746,000 people making "great sacrifices" to pay their loans to start defaulting.
Spending cuts and tax increases over the next three years are to be outlined in October by Finance Minister Michael Noonan in a move intended to give certainty to the markets and to consumers, reports said.
Economist Morgan Kelly had called for a €6bn relief plan for homeowners, with Fine Gael and Labour junior Ministers differing on how to respond to his call.
Minister of State for Housing Willie Penrose said the Government should give serious consideration to the proposals, saying it would be "foolhardy" to ignore the economist's call.
However, Minister of State for Finance Brian Hayes said there were two "huge problems" with the proposal.
"With any debt forgiveness, it will raise questions of fairness for people paying up to 100pc of their mortgages who are not getting any help from the State," he said.
The Government had also put huge store behind the two pillar banks. "To introduce a debt forgiveness totalling €6bn at a time when the Government is bringing in those banks out of the A & E wards, would be very difficult to justify," he said.
The Department of Finance said it would look at any "realistic solution" but a spokesman pointed out that any proposal had to be fair to those requiring assistance and the taxpayer who will have to pay for it.
A Government review is currently examining further measures to help distressed mortgage holders. Its report is due late next month but is not expected to recommend widespread debt forgiveness.
There are currently more than 17,000 households in receipt of mortgage interest supplement from the State, at an annual cost of €70m and this figure is expected to grow.