Union leaders yesterday dismissed suggestions by the Minister for Finance, Mr McCreevy, and the employers' body, IBEC, that a pay freeze may be necessary as part of a new national partnership agreement.
Mr McCreevy strongly hinted that a pay pause for public servants will be required if the Government is to pay the terms of the benchmarking report.
He told the social partners at a meeting in Dublin Castle, called to open talks formally on a new agreement, that the economic boom was over.
He indicated that if the Government is even to start paying out on benchmarking next year, then public servants might have to accept a delay in general pay increases.
IBEC, the employers' body, went further by demanding a six-month pay pause for all workers as part of any new agreement to succeed the Programme for Prosperity and Fairness. A spokesman for the Irish Congress of Trade Unions said the call was "a poor way to start negotiations on a new partnership agreement".
IBEC, he added, needed to "get real".
Response to Mr McCreevy's comments was more restrained.
Mr Peter McLoone, chairman of ICTU's public services committee, said the Minister appeared to be saying that benchmarking and general pay increases would be part of a composite package.
However, benchmarking and cost-of-living increases for both public and private sector unions would have to be paid, he said.
"There will come a point of engagement but our priority is to get the balance of benchmarking addressed by the end of 2003."
Mr Joe O'Toole, the ICTU president, regarded the Minister's remarks as an opening negotiating stance.
Mr McCreevy, he said, had delivered his "gloom and doom" speech "with great aplomb".
"The first thing the Department of Finance says, in my 25 years dealing with them, is 'we'll pay you nothing'. The second thing they say is, 'we want a pay pause'. The third thing is, 'we'll pay you a minus quantity' - and then you get into the talks. So we're one step forward at this stage. This is part of the normal engagement."
Mr McCreevy had said the cost of paying the backdated element of benchmarking alone would be €595 million next year.
"The relationship between a new general round and benchmarking must be considered in the context of the budgetary pressures facing us," he said. "We have to be willing to contemplate all options, including the commencement date of any new general pay round."
Calling for a "realistic" approach to the pay issue, he said employee earnings had risen by 42 per cent in the Republic over the past five years.
This compared to 16 per cent across the EU and 13 per cent in the euro area.
"We need to take account of pay levels in competitor countries and consequently set our level of pay increases below the level of increases applying in our partner countries in the euro area," he said.
The net Exchequer pay and pensions bill for the public service next year, without any increases, would be €12 billion. This meant that every 1 per cent increase would cost €120 million.
"Money spent on higher wages means less money available for increasing or expanding public services.
"We need to accept that there is a trade-off between increases in pay and the provision of services if we are to keep public finances on an even keel."
The Taoiseach, Mr Ahern, who also addressed the meeting, warned of the dangers of taking social partnership for granted.
The partnership process, begun in 1987, had played "a very significant role" in the transformation of Ireland's economic and social fortunes, he said.
"Hard choices" had been made in 1987 and, while nobody wished to return to "the bad old days", we would have to moderate our expectations.
