The Government does not have the "hard cash" to offer public sector workers pay increases, according to Minister for Finance Michael Noonan.

He said, however, that “parts of the private sector can afford pay increases”.

Mr Noonan told Socialist TD Ruth Coppinger that she had started the debate on wage increases but "all we can afford at the moment is the debate".

The Minister said: “We are not in a position to deliver with hard cash yet.”

Based on statistics he had seen, about 40 per cent of private sector firms gave small pay increases last year.

“The test is whether the amount they pay is consistent with not disimproving their competitiveness,” he added.

Market share

If they could increase pay without losing market share, particularly on the export side, “it is good for the economy for them to pay their workers extra”.

Ms Coppinger had asked the Minister about the impact of a 5 per cent or 10 per cent pay increase for low and middle-income workers in terms of tax receipts and a lowering of social welfare.

He agreed an increase in wages would result in more taxes, but an assumption would have to be made about how much would be spent on goods and services of every extra euro and that “is not realistic”.

They had to consider the wider impact on competitiveness and the additional costs to the employer.

Ms Coppinger said, however, that while competitiveness was the argument used, “pay levels in Ireland are still far below the EU average”.