The Taoiseach Brian Cowen said it may be relatively painful to have to apply cutbacks in public spending across a range of desirable headings as a result of the deteriorating economic position.
However in a major speech to the bi-annual dinner of the employer's group Ibec tonight, he warned that without prompt and appropriate corrective action more painful adjustments "with less scope for sensible prioritisation would inevitably follow".
Mr Cowen said that one stark lesson from recent history was that a rapid and heavy price had to be paid for fiscal irresponsibility.
The Taoiseach said that there was a need for care and common sense to apply to "adjustments" in spending that the Government made.
"Done properly, such adjustments will steer us through a temporary period of challenge and enable us to resume quickly a substantial growth rate in line with our strong economic potential and thus resume prudent but significant increases in desirable public spending."
"So that means prioritising those areas of spending which contribute most to our capacity to weather the storm and to respond promptly and strongly to the emergence of more benign international conditions", he said.
He said that the Government had to prioritise those who were most vulnerable and most dependent on public spending programmes.
"That means that everything else has to be a lower priority. I believe that sensible Irish people will recognise and support that combination of competitiveness and fairness which current conditions require", he said.
Mr Cowen also said that the Government would give greatest priority to implementation of the national development plan.
The Taoiseach said that there was no doubt that the short-term economic outlook in Ireland had deteriorated and the country now found itself at something of a crossroads where a number of difficult policy choices lay ahead.
However he also said that there were grounds for optimism
"Many of the headwinds into which we are now facing are temporary and, once their effects wane, we can expect a reversion of output growth towards more favourable rates. Moreover, our economy is resilient – our flexible markets, our relatively low tax burden and light regulatory regime give us greater capacity to absorb these shocks in an efficient
manner", he said.
Mr Cowen said that the volatile economic environment made it all the more desirable that there was a successful outcome to the talks on a new social partnership deal.
He said that a new agreement on pay and related issues would provide "much needed stability and reassurance at this time".
"It would convey a strong sense of confidence domestically and internationally by showing that we are prepared to work together to safeguard the economy and our competitiveness, as well as the interests of workers and the more vulnerable in society", he said.
The Taoiseach said that he had stressed the need for pay restraint in the current talks but that this had to apply across the board including at top level in the private sector.
"It is clear that the headline rate of pay increases for top level executives in the private sector has not been aligned with this general message and this is a source of concern".
"What is certain is that commitment from all of the parties and a constructive, problem-solving approach will be critical over the coming weeks as we seek to steer these talks to a successful conclusion", he said.