Competitiveness:Tánaiste Brian Cowen last night warned that it is "absolutely vital" that workers do not push for higher-than-agreed pay rises, or else Ireland's international competitiveness will be damaged.
In a major economic speech to the Patrick MacGill Summer School in Glenties, Co Donegal, the Minister for Finance said job numbers will be threatened by such wage inflation. "It is important that we do not price ourselves out of the international marketplace.
"For that reason, it is absolutely vital that we do not respond to the current increase in headline inflation, an increase which is largely caused by external factors such as energy prices and interest rates, by pushing wage rates higher.
"The damage to our competitiveness of higher energy and interest costs would be compounded if we pushed wage growth higher too.
"Cool-headedness and restraint are what are required in wage-setting expectations and behaviours at all levels of both the private and public sectors," he told the summer school.
Meanwhile, Mr Cowen made it clear to State workers that future benchmarking pay increases will only be given in return for significant work changes.
"There is a particular responsibility on the public sector to work to improve Ireland's competitiveness.
"This requires a real, active commitment to the modernisation agenda."
Such pay rises could only "be sustained in return for real enhancements in productivity".
Mr Cowen, speaking during a debate on the priorities for the next five years, said: "Any other settlement would not be acceptable."
In a wide-ranging speech, he said the Government had the responsibility to provide proper infrastructure, low taxation, sustainable State finances and improve workers' skills.
Refusing to offer a hint about his upcoming budget tax decisions, Mr Cowen said low taxes have helped to create Ireland's economic success.
Subject to keeping the State's finances sound, the Fianna Fáil-Green programme for government had promised, first, to increase tax credits and bands to keep low and middle-income earners out of the top tax rate.
PRSI cuts are next on the list, along with abolishing the €48,800 threshold that benefits higher earners, while cuts in the standard tax rate from 20 to 18 per cent, and the higher rate to 40 per cent are promised if economic resources allow.
Mr Cowen said "the rates and levels at which we levy tax must be credible not just today but in the future", and to ensure that the State's finances are healthy.
"The best guarantee that low taxation can be delivered over the long term is the maintenance of a prudent budgetary policy which aims to deliver broadly balanced budgets year in, year out.
"Budgetary prudence is not some sort of economic preoccupation. It is central to our competitiveness strategy and its continued pursuit is vital to our economic success," he said.
He rejected "the common belief" that improving the State's competitiveness is "solely and exclusively within the bailiwick of government". Business must invest and innovate, while workers must accept change faster.
The Government, he said, had an ambitious five-year plan.
"I hope that the other partners, private business, trade unions and the public sector, deliver on their potential and their responsibilities.
"That is the real opportunity before us, and how we respond to the competitive challenge will determine how successful we are in realising our country's ambition," he added.