A cabinet minister has warned that the Government will collapse if the agreement on public sector pay and pensions fails to hold.

Communications Minister Denis Naughten's warning came as Cabinet members this weekend geared up to protect their departments' resources after a successful Garda claim.

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The Labour Court ruling on Garda pay is set to cost the State up to €50m. If the same deal is applied across the public sector, it would cost an additional €1bn.

Yesterday, Naughten said that it would be "very hard to see this particular Government remain in place" if the Lansdowne Road Agreement (LRA) was breached to appease the demands of public sector unions.

The Government has been put on notice by the unions that it will now face a flood of pay claims following the Garda deal.

The move came as two of the main indicators of the economy's health - sales in shops and factory production - respectively showed last week the economy is slowing and effectively stagnating.

Last night, Independent Alliance Minister Finian McGrath insisted he would not accept any cuts to health or disability services to boost pay for public sector workers.

In the Sunday Independent today, one of the country's leading economists Colm McCarthy has warned that if other public sector union members are to receive the same pay increases as the gardai, the cost to the State will be more than €1bn.

McCarthy said this would result in the reversal of €300m in Budget tax reductions, "the cancellation of the €5-a-head payout on pensions and other social transfers, and the withdrawal of extra housing and farmer support".

Alternatively, he said, the basic rate of income tax would have to be raised from 20pc to about 22pc, or the top rate from 40pc to about 44pc.

The warning from Independent minister Naughten came as Justice Minister Frances Fitzgerald prepared to face down Cabinet colleagues over the estimated individual €3,600 a year pay hike for gardai. Fitzgerald is understood to be unwilling to shoulder the entire burden and will insist other ministers contribute to meet the landmark Labour Court ruling.

A senior Department of Justice source said: "It's a whole-of-Government discussion. If it wasn't the guards, it would be someone else."

However, Fitzgerald is set to clash with Public Expenditure and Reform Minister Paschal Donohoe, who is anxious that the majority of the pay increases are taken from the Department of Justice's €2.2bn budget for next year.

A senior Fine Gael minister said yesterday that the Cabinet meeting this week will be "very tough".

Questions have also been raised over whether the Labour Court recommendation is within the terms of the LRA.

However, Donohoe yesterday insisted the ruling was within the framework of the public sector pay deal.

The Government has been badly shaken by the Labour Court ruling and must also contend with the closure of hundred of schools tomorrow because of a dispute with secondary school teachers.

Meanwhile, two of the country's largest public sector unions, Impact and Siptu, along with those representing nurses, soldiers and other civil servants, have indicated that their members will now expect renegotiated pay deals in light of the pay deal for gardai.

However, despite Thursday night's last-minute deal to avert a Garda strike, sources in the force said this weekend there was a strong likelihood that rank-and-file members would still reject the deal. There is a growing concern for the future of the Government among Fine Gael ministers should the public sector pay deal, which is due to expire in September 2018, be renegotiated sooner.

It is expected that negotiations for the next pay deal will be brought forward and the newly established Public Service Pay Commission will be asked to advance discussions with the Irish Congress of Trade Unions.

Adding to the industrial relation tensions is a concern among Fine Gael ministers over a potential breach of the terms of the Government's confidence and supply arrangement with Fianna Fail.

The agreement commits the Government to sticking to the terms of the LRA while also establishing a public sector pay commission to examine the next pay deal.

Naughten said the LRA was central to the confidence and supply arrangement.

He said: "If that goes off the table, the Government will be hostage to fortune in relation to every single pay claim that comes in and we will not be in a position to improve the quality of services across the country in relation to public services.

The fact is the vast majority of us who have been elected were elected on the basis of improving those services."

Naughten's comments were supported by junior minister Finian McGrath, who said he would have "major concerns over any attempt to damage funding for public services".

He said: "The bottom line for me is health. Disability and cystic fibrosis services are red-line issues for me.

"If there is any attempt to cut them it will not be acceptable."

Fianna Fail's public expenditure and reform spokesman Dara Calleary insisted his party had "fought hard" to have services protected in the Budget.

He added the party would be "looking to be kept informed on any changes to budgetary spending".

Fianna Fail leader Micheal Martin said: "We need to step back and acknowledge that Ireland is just coming out of a deep recession and demands for early pay increases would jeopardise the recovery."

"I firmly believe that, as a country, we need to invest more in public services," the FF leader said last night.

Sunday Independent