Breaking strict EU fiscal rules to spend more on capital investment could lead to financial penalties and potentially bar Ireland from getting structural funds, Finance Minister Michael Noonan has said.
The minister said fines could amount to up to 0.2pc of the value of the economy.
He was responding to an argument from Ibec chief economist Fergal O'Brien in the Irish Independent yesterday that if Ireland can't get extra leeway from Europe for vital spending in areas like social housing, the Government should consider defying the rules and ask for forgiveness later.
But Mr Noonan said this was not the way to go.
"It's not good advice to break the rules. Spain and Portugal are in breach of rules this week and they're opening themselves to sanctions that could be as much as 0.2pc of GDP, which is a big chunk of money," the minister said.
"As well as that, the tap on structural funds can be turned off."
Ibec said the rules, which are laid down by the European Commission to ensure prudent and stable public finances, should be adhered to for day-to-day government spending and taxation. But the organisation claimed they don't make sense in the Irish case in terms of capital investment, describing them as "unnecessary" and "inappropriate".
Fergal O'Brien, Ibec chief economist, said the Government needs to take a renewed case to Brussels for flexibility.
But he said if that fails, we should defy EU spending rules, particularly in dealing with the deficit in social housing. He said €1bn should be spent outside the fiscal rules for social housing next year.