Minister for Public Expenditure and Reform Brendan Howlin has said Public Service staff numbers will be reduced to around 287,000 in 2013.
He said he is providing €500m to promote more new jobs - among these will be 10,000 new activation scheme placements under the Department of Social Protection.
Delivering his Expenditure Statement, Mr Howlin said the challenge ahead was daunting and that difficult decisions had to be made.
He told the Dáil that the Government is acting on the governance crisis it inherited.
He said: "Ours is a banking, fiscal and political crisis. It will not be resolved unless all three issues are addressed".
Mr Howlin said his department represents the Government's commitment to more effective and open government.
He said he has gone through the legislation, which he is introducing, to improve confidence in the public sector such as whistle blowing and lobbying.
The minister also said spending must be cut while the pressure on public services is greater than ever.
Compared to 2008, there are over 565,000 more medical card holders, over 80,000 more students in schools and third-level institutions and almost 80,000 more people in receipt of the State Pension.
In addition, nearly 200,000 more people are receiving jobseekers' allowances each week.
He said it was against this background that Ireland must continue to meet its fiscal targets and reach a deficit of below 3% by 2015.
Among the expenditure changes announced today include those to the medical card system.
The current 50 cent per item prescription charge for medical card holders is being increased to €1.50.
People over 70 years of age with a medical card will have it replaced with a GP only card, if their weekly income is €600 to €700 for a single person or €1,200-€1,400 for a couple.
The health budget for next year will be €13.6 billion, which the Government says represents an extra €150 million compared with this year.
The minister also proposed that the unvouched system of expenses for Oireachtas members will be abolished and a reduction of 10% would be applied to spending limits.
He said a 10% reduction would apply to the Party Leaders Allowance, which will affect Independent TDs who are entitled to claim €41,152 on top of their salary and expenses.
Mr Howlin also said he would introduce legislation to abolish the two years of severance payments to ministers after they leave office.
He said the economy the Government inherited had experienced a catastrophic shock and what people have endured has been almost without precedent in the developed world.
However, the minister sounded a note of optimism when he said: "There remain difficult challenges ahead of us, but Ireland and her people will prosper again".