The Cabinet met today to discuss proposals for cuts to current expenditure in advance of the Budget.
Taoiseach Enda Kenny said nothing was decided yet for the Budget, but said preparations were difficult.
Mr Kenny said: "When you are taking €3.8bn out of the economy, it is unpalatable and difficult."
Minister for Finance Michael Noonan said the challenge with the Budget was judging what measures are most appropriate when all choices are difficult.
"Every measure across all Government expenditure is being discussed," said Mr Noonan.
Asked whether backbenchers will be lost due to the severity of the Budget, Minister Noonan said backbenchers are loyal and know the situation.
Tonight the Minister reiterated that he will be proposing a 2% increase in VAT.
However, Mr Noonan told a Dublin Chamber of Commerce meeting that a final decision had not been made.
There was particular focus at the meeting on savings of about €700m planned for the Department of Social Protection.
Among measures ministers discussed were reducing eligibility for lone parents' allowance.
The payment is currently made for all children under the age of 14, but that limit could be reduced to seven on a phased basis.
The Government also looked at bridging a shortfall in PRSI collected by the State by making income from rents and dividends liable for the levy.
Cutting child benefit was also considered, as was reducing the State rebate to profitable companies that pay redundancy from 60% to 30%, which could raise €50m.
Making employers bear the cost for the first four weeks of sick pay could raise €150m, although the measure is facing resistance from some Fine Gael TDs and business lobby groups.
9% VAT rate will remain
Minister for Transport, Tourism & Sport Leo Varadkar has said the Government would keep the lower 9% VAT rate for tourism products next year.
Speaking before today's meeting, Mr Varadkar said the 9% rate introduced in the jobs initiative earlier this year would continue to apply to hotels, restaurants and leisure businesses.
He said the move had boosted the tourism industry.
Minister Varadkar also admitted there is a risk that some Government backbenchers could "jump ship" after the Budget measures are finalised.
Mr Varadkar said there was a chance the Government "could lose people along the way".
He said everyone in Government, including backbenchers, should understand that politics is not about telling people what they wanted to hear or doing things that are popular.
Mr Varadkar said it was about leading people out of the current "mess" and restoring Ireland's sovereignty in the short-term and its prosperity in the long-term.
Dáil discusses VAT document
Fianna Fáil leader Micheál Martin criticised the Taoiseach for his 'disregard' for the Dáil after 41 members of the German parliament learned about the 2% VAT increase before members of the Dáil.
Mr Martin asked if the document, seen by German parliamentarians, had been lodged in the Dáil library.
He said now is the worst time to introduce a 2% VAT increase, describing it as an attack on jobs and small businesses.
Mr Kenny said the only reason information had to be sent away was because of the mess left by the previous Government.
The Taoiseach said increases in income tax are a direct hit at people who want to have a choice as to what they want to spend their money on.
Mr Martin said he has no difficulty with documents being sent anywhere, as long as they are sent to the Dáil first.
Independent Finian McGrath asked the Taoiseach if he accepts that child benefit is a matter of survival for the most vulnerable families in this country.
The Taoiseach said all of these matters have to be considered and decided by the Government.
Mr Martin later asked the Taoiseach if he would circulate the documentation that was sent to the German parliament.
Mr Kenny said: 'I'll consider that'.
Mr Martin said it was unbelievable that the Taoiseach will not circulate the documentation.
