Minister for Finance Brian Lenihan has said he intends to bring proposals to Government this week on reforming public expenditure.
Speaking on RTE's This Week programme, Mr Lenihan said 10% of public expenditure is borrowed and we could not continue to borrow for day to day purposes.
He said the essential issue facing the Government is the need to reduce that overhang in public expenditure.
The minister added there was a need for a radical programme of examination of public expenditure and to adjust it to ensure it corresponds to what we can afford.
Mr Lenihan said he was awaiting a report from the tax commission that will outline how the income tax system could be reformed.
He said he believed the income levy was the fairest and most progressive way of raising funds in this particular finance bill.
He also said he believes he can keep party members in line and maintain the focus on leading the country out of the current economic difficulties.
Public investment in banks not ruled out
Mr Lenihan also said the Government had not ruled out public investment in Irish banks, but banks have to demonstrate a capacity to attract private investment.
He said the State putting money into the banking system would be a last resort and it was entirely legitimate that the taxpayer should not be asked to capitalise banks.
The Minister said investment in Ireland was important and the Government would welcome private investment in banks on terms that serve the public interest.
He said he had received a report commissioned by the Government that confirmed there was no threat to the solvency of banks and that they could meet the current regulatory capital requirements as laid down at present.
He said the report analysed the loan quality of banks to see how reliable their estimates were of what they would recover under the bank guarantee scheme.