The Government's decision to use the proceeds of a planned 25% sale of its stake in AIB to pay down the national debt has been heavily criticised by both unions and opposition political parties.

Yesterday in the Dáil, the Government lost a vote on an amendment to a Labour Party motion calling for the sale of 25% of the State's stake in AIB to be postponed until the European Union fiscal rules are relaxed.

However, the Department of Finance said the vote was not legally binding and said it intends to continue with its planned timetable for the sale of shares in the lender.

The State owns more than 99% of AIB.

SIPTU President Jack O'Connor described the Government's decision as "absolutely indefensible".

Mr O'Connor added that the proposal to use the proceeds of the sale to pay off part of the national debt is "scandalous and a waste of precious financial resources that could be used to resolve the dire housing crisis.

"Before any shares are sold, there should be a national debate as to whether it is right to sell them off at all, in any circumstances, because of their strategic potential in the context of an uncertain future." 

The Irish Congress of Trade Unions is also opposed to the move, with the organisation's President Patricia King saying the decision is "unacceptable given the urgent social and economic needs facing working people, not least the housing crisis".

Ms King added: "There is something seriously wrong when the Government can divert massive financial resources from the sale of 25% of its AIB holding to make a marginal impact on the national debt burden while almost 100,000 people languish on public housing lists across the country. 

"The decision is also in direct conflict with a vote of the Oireachtas which directed that any sale of the Government's shares in AIB should be delayed until the euro zone fiscal rules are altered in order to allow revenues from any such disposal to be used to resolve emergencies such as the one we face in relation to chronic lack of social and affordable housing for our people," she added.

Meanwhile, the Financial Services Union said there needs to be further engagement between the union, AIB and the Government before any sale to address potential agreements over job security and terms and conditions, future pension provision, and retention of the branch network. 

Minister for Finance Michael Noonan is keen to start the process of selling the State's stake in the bank, but he indicated yesterday his intention to leave office in the coming weeks.

Mr Noonan had been expected to trigger the sale of a 25% stake in AIB by July, but that is now expected to be brought forward to before he leaves office next month.

Fianna Fáil's spokesperson on Finance Michael McGrath has said that the Government should make a case to the European Union that the proceeds from the sale of AIB can be spent on services to improve economic conditions in Ireland. 

Speaking on RTÉ's Six One, Mr McGrath said Ireland is facing in to a period of economic uncertainty due to Brexit, serious regional imbalances, and the need to improve the economic competitiveness of the country. 

Mr McGrath said it is not unreasonable that Ireland should be granted special dispensation to spend the proceeds on other services, as there is a strong argument that these "one-off" receipts are spent in a one-off manner on viable capital projects.

Yesterday, Labour leader Brendan Howlin said the planned use of the proceeds from the sale of AIB to pay down debt would reduce Irish debt levels by little more than 1% of GDP.

He said: "Labour's motion rejected that idea, and instead said that the sale of AIB shares must be postponed until the proceeds can be invested in building homes and hospitals, and schools and public transport."

Sinn Féin Finance spokesperson Pearse Doherty described the passing of the motion yesterday as "bizarre" and that it "seems to be a result of distraction about the leadership race meaning Fine Gael forgot to call a vote.

"It is also bizarre that the Labour motion seeks changes to the very rules they championed."

In a statement yesterday, the department said: "Private Members Motions are not legally binding on the Government and the Government’s position was set out by the Minister in the Dáil debate on these motions last week.

"The Government position remains unchanged. The Programme for a Partnership Government clearly allows the Minister to sell up to 25% of Allied Irish Banks up to the end of 2018.

"The Minister has consistently stated that any sale of Allied Irish Banks will be based on advice from his officials and advisers based on market conditions and maximising value for the taxpayer."