Taoiseach Enda Kenny said the Government will seek to renegotiate an element of Ireland’s bailout deal in order to honour a commitment not to increase taxes on work in the budget.

Speaking at the Ploughing Championships in Athy today, Mr Kenny said during the last appraisal carried out by the troika they indicated they were "willing to listen to Ireland’s case for alternatives. The Minister for Finance will make our case for no increases in income tax for no increases in income tax or bands,” Mr Kenny said.

“We are not in charge of our economic destiny because the paymaster general is in the office and that is the troika, the money was loaned to us on that basis.

“So we have to have a change of policy and renegotiate the last memorandum of understanding which was signed off on by the previous government and committed the country to that extra €750 million,” he said.

Mr Kenny welcomed the Quarterly National Accounts data published by the CSO today which showed growth in the economy during the second quarter but he said they also highlighted the challenges thaty had to be faced.

“In respect of the budget figures, what we have set out are very clear targets to have the deficit reduced to 8.6 per cent for 2012. The trigger for that is that you have to abstract somewhere in the region of €3.6 billion in 2012.”

“As Michael Noonan has already pointed out, that figure could range from €3.6 to €4 billion and we do not know the exact figure yet until we get revenue statistic as they are not available yet,” he said.

In order to achieve no increase in income tax there would have to be a renegotiation of that element of the memorandum of understanding, he said.

According to the CSO data the economy expanded at a faster rate than expected in the second quarter of the year, putting in its strongest quarterly growth performance since the recession began, according to new data published today.

The seasonally adjusted Quarterly National Accounts from the CSO estimated that gross domestic product - the widest measure of economic activity - rose by 1.6 per cent between the first and second quarters of 2011. Gross national product, which excludes the profits of multinational firms, increased by 1.1 per cent compared with the first quarter of the year.

Domestic demand, which excludes exports and imports, expanded too, growing by 0.8 per cent.

It is the first time since the recession began that GDP, GNP and domestic demand all grew in the same quarter.

However, these figures are volatile and can be subject to significant revision. Nor do they take account of the deepening of the euro area financial crisis since July or the continued signs of weakening in economic activity globally since mid-year.

The slowdown in the world economy in the second quarter of the year was reflected in Irish export figures in today’s statistics. Exports of goods and services grew by 1 per cent quarter on quarter – the second lowest rate of expansion since exports began recovering at the beginning of 2010.

Consumer activity – which is the largest component of domestic demand - also expanded, if only slightly, in the second quarter of the year, by 0.3 per cent. Consumer spending has been on a downward trend since the beginning of 2008 and the growth in the second quarter was likely to be accounted for by the temporary boost provided by the car scrappage scheme.

Investment spending, which includes building activity, grew for the second consecutive quarter in the April-June period suggesting that the collapse of the construction sector may be bottoming out.

Over the year, GDP was 2.3 per cent higher.

Net exports were 23.9 per cent higher than the same period a year earlier, reaching €1.9 billion. However, domestic demand continued to lag, contracting by €714 million or 2.2 per cent.

Agriculture, forestry and fishing, and industry were the only sectors to record an annual rise in output, with the latter growing by 10 per cent and the former increasing by 6.9 per cent.

However, the Central Statistics Office noted the decline in the “other services” sector, which accounts for almost a half of GDP at factor cost, moderated during the three-month period, declining by 0.7 per cent.

"Even allowing for some slowdown in the second half of the year due to the weakening world economy and fall-off in global demand, we still think that Ireland will post positive average GDP growth of between 0.5 per cent and 1 per cent in 2011, which after three consecutive years of contraction, will be a major step in the right direction," said Bloxham chief economist Alan McQuaid.

"The turnaround in the economy should further boost the allure of Irish financial assets for international investors."