THE APRIL budget will outline how the Government plans to deal with the exchequer deficit through tax increases and spending cuts over the next five years, Taoiseach Brian Cowen said yesterday.

He told a conference, hosted by business advisory firm FTI Consulting in Dublin, the strategy had to provide a “credible” plan to show international credit markets, the European Central Bank and the European Commission how the State would reduce its deficit to 3 per cent by 2013.

Meeting this target required “a pathway to recovery both in fiscal terms and in economic terms which provide us with the opportunity to make the necessary changes”.

It was also imperative tax and spending changes introduced over this period took account of the “ability of the economy to bear the burden of the adjustment” in a given year.

The Government would be guided in its budgetary decisions by the principles of “caution, firmness and fairness”.

A new global economic reality would exist after recession and Ireland’s revised tax system would be based on ability to pay.

Mr Cowen said caution was necessary with regard to decisions on capital spending with a balance needed between protecting jobs and increasing capacity while “deferring projects that are not necessary right now and releasing the money for more immediate concerns”.

The Taoiseach said new structures to regulate Irish banks will be introduced with the Government “determined to restore our reputational standing and to ensure our regulatory system is a match for best international practice”.

A centrepiece of the Government’s economic recovery plan was the smart economy strategy, announced before Christmas. This showed where the economy could be in five years time and that the strengths built up over the last 20 years were not illusory, Mr Cowen said.

With talks between the social partners and the Government having resumed yesterday Mr Cowen restated his call for “a collective effort” to confront the problems confronting the economy at this time.

Asked by reporters if the resumption of social partnership talks and indications the Government might exceed the target of 9.5 per cent of GDP or €17.5 billion were evidence that tax increases planned for the April budget were being toned down, Mr Cowen replied: “No.”

He also refused to say what level of borrowing would be required this year.