The Government is preparing to take decisions that some will see as “lacking compassion” to rein in public spending, the Taoiseach Leo Varadkar has warned.

After the Irish Fiscal Advisory Council (Ifac) this week described the Government’s medium-term spending plans as “not credible”, the Taoiseach said he was heeding the advice in advance of October’s budget.

“We set [Ifac] up for this reason, to be the watchdog - and the watchdog is barking,” he said.

Mr Varadkar said it is “okay” for spending to continue to grow - with investment needed in infrastructure, health, education and housing - but he added that it cannot be allowed to increase too fast.

“We need to make sure the spending increases are more in the range of 4 or 5 per cent rather than 7 or 8 (per cent),” he said.

The exchequer is “doing really well” in terms of corporation tax as “companies who maybe didn’t pay a lot of tax in the past are now paying an awful lot of tax”, the Taoiseach said.

But he cautioned that the government “can’t assume that money will always be there”.

“This particular budget coming will need to be tighter than the last one in terms of spending,” he said.

Mr Varadkar said this will mean having to “say no” to demands for more public funding at times.

“That is why we will have to make some of these decisions which people may find lacking compassion,” he said.

The Government is currently preparing two separate budgets, based on whether Britain will leave the European Union at the end of October with or without a deal.

Mr Varadkar said it will decide in September which budget to go with - to be announced in the first two weeks of October - based on the likely outcome of negotiations between London and Brussels.

“The potential is there - a growing risk, in fact - of a no deal Brexit, so this won’t be a normal budget,” he told The Marian Finucane Show, presented by Brendan O’Connor, on RTÉ Radio 1 on Saturday.

“We are developing two budgets for two different scenarios, one being a hard Brexit no-deal, in which case we won’t have to worry about the economy overheating. We will be in a totally different environment if that happens, the economy will slow down dramatically.

“The other budget is for one where we have a deal and the economy continues to grow and we continue to have these capacity issues around full employment and the risk of inflation and so on.