Day-to-day spending exceeds our revenue coming in by over €1,000 for every man, woman and child.

“Ten percent of the cost of every teacher, doctor and nurse is paid for from borrowing.

“We cannot simply borrow our way out of trouble or return to the days of punitive tax rates that stifled economic growth and resulted in high unemployment,” Cowen said.

Stressing the need for cutbacks, the Taoiseach said 10% of total current spending in the 2009 budget amounted to €4.75 billion borrowed.

“Those are the realities that have to be confronted,” said Cowen.

Speaking after his address, the Taoiseach said one of the most difficult problems for the Government was trying to communicate the seriousness of the situation to the people.

He said the change in circumstances “is very sudden and the downturn has been made worse by international developments and the hard landing the construction industry has taken as well”.

“The issue is the Government has to discharge its responsibility... a wider responsibility to the community, and obviously to protect the vulnerable to the greatest extent we possibly can,” he said.

“Now is the time for us to pull together.”

The Taoiseach rejected the “portrayal” of the economy by some as just a large building site, pointing out that Ireland has attracted some of the “best companies in the world” which was no accident, he said.

It was important also we protect the “great achievements we have had” which was the broad thrust of the recent budget, he said.

It is imperative “we find a sustainable way forward, that is affordable”, he said.

The Irish Independent reports today that "the Government was forced into its third major Budget climbdown last night -- just one hour after Taoiseach Brian Cowen said tough spending cuts could not be avoided."

The newspaper said that "Mr Cowen's attempts to talk tough on the economy were immediately undermined by his Government's latest embarrassing U-turn."

Statement by Turlough O'Sullivan, Director General, IBEC

Responding to comments by the Taoiseach this afternoon, IBEC Director General, Turlough O'Sullivan stated that it was right that the Government should be supported by the public in taking difficult decisions to address the weakness in the public finances.

O'Sullivan stated that it was clear that after many years of record economic growth based on a competitive productive sector, all have benefited very significantly.

"Business has thrived as a result of low corporate tax and a broadly business-friendly environment. We have attracted impressive levels of Foreign Direct Investment. Increased profits have resulted in investment which has created tens of thousands of new jobs. Living standards of our citizens are now well above EU averages. Irish take-home pay is among the highest in the developed world and taxes among the lowest. Unlike the 1980s our young people have been able to secure employment at home rather than having to emigrate. Our economic success has allowed government the resources to substantially increase spending on health, education and public services generally.

Now, due to a variety of factors including the global slowdown, it is necessary for this small, open, export oriented economy to adjust. Firms in the private sector are losing jobs at the fastest rate in decades. Reduced competitiveness and increased costs are making it extremely difficult for firms to survive.

It is indeed a time for all of us to work together as we did in the late 1980s. Not all of the government's decisions in the recent Budget have been as well thought-out as they might have been. However, at a time of crisis it behoves all of us to support the general thrust of the Budget strategy. IBEC stated on Budget Day that it would have strongly preferred the emphasis to have been more focused on reducing public spending than on increasing taxation. Most reasonable people feel that the public service needs urgent reform. A serious beginning should be made to reduce numbers in line with the overall economic downturn and introduce urgent improvements in efficiency and value for money for taxpayers.

It is not edifying to see protests by sectional interests at a time when we need to be sending out a signal to the international community that we are a mature society capable of managing in the good times and the bad. The government deserves credit and support for what it has done so far including taking some firm actions in the Budget, its own voluntary pay cuts and initiatives to address the credit crunch. IBEC, representing the business community is prepared to work with government and other social partners in the interests of protecting the maximum number of jobs and addressing the difficulties in the economy.