The Minister for Justice, Mr McDowell, yesterday defended the Government's commitment to pay the €2 billion public service benchmarking pay deal, after two high-profile economists attacked the agreement at the Irish Small and Medium-sized Enterprise association (ISME) annual conference. Barry O'Halloran reports.

Mr McDowell told delegates the deal had helped ensure a period of industrial peace in the public service while the unions were negotiating with the Government-appointed benchmarking body over the last two years.

"The agreement enabled the then Government to face down hugely increased claims for remuneration from across the public service, including the 30 per cent pay rise sought by the ASTI [Association of Secondary Teachers of Ireland]," he said.

He pointed out that the Government had begun the process of seeking 5,000 job cuts across all departments of the Civil Service.

Mr McDowell said the Minister for Finance, Mr McCreevy, had asked the departments for their proposals for meeting this target. The jobs will be cut by not filling vacancies, not through redundancies.

In the course of a debate earlier, Economic and Social Research Institute (ESRI) economist, Mr Danny McCoy, criticised the process because it was not transparent and taxpayers effectively did not know what they were getting in return for the €2 billion pay awards.

Mr McCoy said the deal would cost the State €900 million this year. "The impact of benchmarking is going to permeate through the economy for some time," he said.

Trinity College Dublin (TCD) lecturer, Dr Sean Barrett, warned that it would be hugely damaging, and said it represented a "capitalised hit" of €30 to €40 billion.

He told the conference that the medical professions were ripping off the economy.

Dr Barrett said in return for a 125 per cent pay increase for doctors, a 47 per cent increase in staff for the health service, taxpayers had received an increase in bed nights of just 4 per cent.

The Minister also attacked both the opposition and the media in his speech for advocating policies that risked returning the country to the situation it was in during the 1980s, with mass unemployment and emigration and the state finances running out of control.

He said that Labour leader, Mr Pat Rabbitte, had stood up in the Dáil during the week and called for a wealth tax.

"But he did not say if it should be 1 or 2 per cent, or if we should tax capital, homes or real property," he said.