Fine Gael and Fianna Fáil have published their historic agreement on how the State will be governed for the next three years, with each party making significant concessions.
The deal clears the way for Fine Gael to form a minority government led by Enda Kenny and implement budgets that adhere to the broad policy aims agreed by the two parties.
Fine Gael is continuing its negotiations with Independent TDs in order to establish a minority coalition and reach the required number of votes to elect Mr Kenny as taoiseach if Fianna Fáil abstains.
Senior Fine Gael sources cast doubt on whether a government could be formed this week, although a special Dáil sitting on Friday is a possibility. Some Independents expressed concern that they are being asked to agree to a deal in which they had no input.
Fianna Fáil has extracted concessions from Fine Gael on the suspension of water charges and on focusing cuts in the universal social charge on middle and lower income earners. The party has, in return, effectively promised Fine Gael it will facilitate the passage of three budgets. The arrangement will be reviewed towards the end of 2018.
Fine Gael has committed to “avoiding policy surprises” and giving a greater hearing to Opposition bills.
Fianna Fáil figures say a similar agreement could apply in future if they are the lead party in such an administration.
Mr Kenny and Mr Martin both received the unanimous backing of their parliamentary parties last night for the deal.
Mr Kenny sought to convince his TDs that Fine Gael extracted a concession from Fianna Fáil by getting it to sign up to a three-year deal. The Fianna Fáil parliamentary party heard that its policy priorities were reflected in the agreement.
Other main measures include a split of available resources – the ‘fiscal space’ – on a 2:1 ratio between public spending increases and tax cuts, and the suspension of water charges within six weeks of a new government taking office. The suspension will initially last nine months but can be extended.
Businessman Denis O’Brien criticised the proposal to suspend water charges and said the plan to set up a commission meant the issue had been “kicked in the air and down the field”.
"The Government was wrong to back down on Irish Water," Mr O'Brien said in an interview with Bloomberg Television. "All the infrastructure is Victorian for the supply of water in Ireland."
The Health Service Executive will implement a five-year service plan rather than the current annual arrangement. Both parties have committed to the implementation of the Lansdowne Road agreement. A public service pay commission will “examine pay levels across the public service”.
There are also broad commitments to increase and speed up the delivery of social housing, make the development of private homes easier and initiate an affordable housing scheme.
Party sources say Fine Gael wants the support of about eight of the 14 non-party deputies currently engaged in talks.
The negotiations will be informed by the Fine Gael-Fianna Fáil deal but some Independents expressed unease about the proposals being put forward in agriculture and health.
Fine Gael sources also expressed concern that Mr Kenny may give as many as five cabinet positions – a third of senior ministerial positions available – to Independent TDs.