Secret government memos have shown how the economy was mismanaged at the start of the economic crash.
The documents, obtained by the Sunday Independent, reveal how the coalition of Brian Cowen kept spending and failed to heed warnings.
The memos show the late Finance Minister, Brian Lenihan, was made aware of how quickly the budgetary situation was worsening in June 2008, "particularly in terms of tax revenue".
This was brought to his attention by then Secretary-General of his department, David Doyle, who urged him to discuss the matter with then-Taoiseach Cowen and the Cabinet.
Mr Lenihan warned the Cabinet the substantial increase in public spending was unsustainable.
However, Mr Lenihan still proposed €500m of additional social welfare payments, a 2.5% pay increase for 300,000 public servants under the Social Partnership and €365m of tax breaks, the memos reveal.
Just two weeks after his appointment as Finance Minister, Mr Lenihan presented a 'top secret' memo for Cabinet, prepared at the request of Mr Doyle.
Because of the slowing economy, he estimated a €3bn shortfall in tax revenue was emerging.
The memo says: "Conditions in the Irish economy have deteriorated sharply in the last six months...The budgetary position has deteriorated considerably particularly in terms of tax revenue yield."
After imposing €440m of spending cuts in July 2008, the Cabinet took a six-week break.
When the Cabinet returned from the break in early September, Mr Lenihan brought a new 'secret' memo to Cabinet - which warned the economic slowdown had not just continued but had "become more pronounced over the summer".
Two weeks later it was clear the economy had spiralled out of control. Mr Lenihan was forced to bring another memo, informing the Cabinet that the projected shortfall was now €6.5bn.
For the first time, Mr Lenihan raised the prospect of "recession", the memo stated.
Daniel McConnell is group political correspondent with Independent Newspapers. He says members of government tried desperately to bury their heads in the sand.
