The Irish Small and Medium Enterprises Association (ISME) has warned that we're heading for a "free-for-all in the public service" if the "noises" from trade unions in recent weeks hold true.

Speaking to Newstalk Breakfast, chief executive Neil McDonnell said he wanted to avoid a "'small business versus unions' narrative" but argued that our lack of fiscal space following Budget 2017 means hikes in public sector pay are "not going to be bearable".

McDonnell said:

"If we're going to incur large increases in public sector pay-cost. That's going to have to be at the expense of either more tax or at the expense of either more or a reduction in public spending... I don't hear anyone looking for a reduction in public spending at the moment. But I certainly hear no one asking to be taxed more.

"So we're going to need another Budget. And I don't believe there's a mandate to either tax more or reduce spending, and that's the concern."

By way of comparison with the public sector, McDonnell turned to the statistics around wage increases in small and medium businesses.

"Just under half of small businesses next year will pay between half of a percent and 5% of a pay increase. About 8% of businesses are in the lucky position [that] they can pay more than 5%.

"40% of businesses won't pay any increase next year, and just under 7% will decrease their wages next year. And about two-thirds of small business owners won't take any more money out of their businesses next year."

McDonnell continued:

"We are not going to get into a barney with any or all unions at the same time, we're just saying that, right now, there's a big premium paid for working in the public service.

"And if this gets any worse, all it's going to do is transfer more wealth from the wealth-creating sector of the economy – which is mostly businesses like ours employing a million people in the country and not at high wages. And we can not afford this. All we're doing is passing debt on to our kids."

He also poured cold water on SIPTU president Jack O'Connor's suggestion that doing away with the tourism and hospitality sector's special 9% VAT rate would save the taxpayers €600m per year. 

"It sounds great," McDonnell said, "But you don't know what effect that would have on that business. That sector is now hunkered down, waiting for the problems in 2017 that have been caused by a huge depreciation in sterling against the euro. So there are a lot of small hotels, B&Bs and bars that are not going to see the stag parties and the tourists that they saw this year. So frankly I don't see the sense in doing that."

Instead, McDonnell is calling for "solidarity" with unions to appeal to the Government to "straighten out the cost base".

"Instead of trying to meet the cost of living by unrealistic pay increases, get the cost of living down.  And that is doable."