Commenting on the Exchequer returns for the six months to the end of June, Lenihan said that overall tax revenues were 7% lower than targetted by the government, due largely to lower value-added tax and capital gains tax receipts as the property market continues to weaken.

Worryingly for the government, Lenihan added that tax revenues are likely to remain slow through the remainder of the year, with a tax shortfall of the order of EUR3bn now factored into the government's budgetary calculations. On the expenditure side, rising unemployment has contributed to an 11% rise in spending compared with the same period last year.

But despite the prospect of lower growth and a deteriorating fiscal situation, Lenihan is refusing to panic.

"While the level of economic growth this year is very modest, it must be remembered that the overall level of economic activity remains strong. Output in 2008 will be over 30% higher than in 2002," he claimed.

"Fortunately, we are facing these challenges from a position of strength. In the last ten years, resulting from very strong economic growth, employment has increased from around 1.4 million to 2.1 million with a further modest increase expected this year," he added.

Nonetheless, Lenihan said that the government intends to take immediate "firm action" to ensure that the public finances remain on a sustainable footing in the years ahead. He revealed that a package of measures will be announced to the Irish parliament, the Dail following next week’s government meeting.

"Sound public finances have been critical to Ireland’s success over the last decade and are key to future growth," he noted.