The Minister for Finance, Mr McCreevy, has indicated he will not take account of proposed changes to the interpretation of the Stability and Growth Pact in framing next week's Budget.

A spokesman for the Minister said that it would be "very premature" to give consideration to those proposals in the Budget or in the Stability Programme update that must accompany it.

"That assumes that the proposals would be given effect to in their current manifestation. It is premature to make that assumption," he said.

Ms Joan Burton, the Labour party spokeswoman on finance, called on the Minister to act immediately.

"Mr McCreevy must now take advantage of these changes by reversing his foolish and dangerous cuts in public investment."

The proposals, if implemented, would allow states with sound overall finances to borrow to fund major investment projects.

This would, in theory, allow Mr McCreevy to increase borrowing levels in order to pay for initiatives such as the National Development Plan.

It could also impact on the role of the National Development Finance Agency, a body established to provide advice to the State on the financial risks and costs of public investment projects.

The Minister's spokesman said the proposals would have to be considered in their entirety before the Government could establish an opinion on them.

He pointed out that yesterday's initiative had emanated from the European Commission, which had not invited input from national governments.

"It will be March at the earliest before there will be a definite decision made on this at heads-of-government level," the spokesman said.

In the meantime, he said that there were "pressing domestic matters" to attend to. It is likely however that European Union finance ministers will discuss the proposed changes when they meet early next week.

The proposals allow for a more flexible application of the Stability and Growth Pact that governs budget policy in the euro zone. Under the proposals, which require the approval of EU finance ministers, countries with low public debt - such as the Republic - could borrow more to finance investment or reforms.

But the EU would have new powers to discipline countries that fail to reduce public debt fast enough, introducing the threat of fines.

The Commission stressed yesterday that its proposals do not involve a loosening of the pact and the 3 per cent limit on budget deficits will remain in place.

Commission President Mr Romano Prodi, who has described the pact as "stupid", said the proposals would mean applying the rules more intelligently.

"The pact stands unaltered. But it will be interpreted in a more open way so as to strengthen the economic rationale - the 'intelligence' - underpinning budget policy decisions," he said.

At present, all euro-zone member-states are required to bring their budgets to balance or close to balance by 2006.

Under the Commission's proposals, this requirement would be judged over the entire economic cycle.

The Economic Affairs Commissioner, Mr Pedro Solbes, said a more flexible approach would allow countries with low public debt to borrow for investment.

"The close to balance or in-surplus requirement will be interpreted in a way that is consistent with the need to introduce large structural reforms that raise employment or growth potential in line with the Lisbon strategy," he said.

"Member-states with sound public finances could be allowed to deviate from the close to balance position temporarily, provided always that in no time the 3 per cent limit is endangered.

"Member-states will not be able to hide behind the pact in order to postpone indefinitely much-needed structural reforms and productive investment that are crucial in raising Europe's growth potential," Mr Solbes said.