Cowen said combining such services would "provide the potential for very significant savings both in personnel and in expenditure".

'Financial stress'

High government expenditure, which soared during Ireland's boom years of 1994 to 2007, is hitting a raw nerve now that the country's economy has started to decline.

Cowen, who came into office in May, took up his position just as the economy was falling into recession. 

The prime minister faces a near-doubling of unemployment to seven per cent and unpopular decisions to raise income and sales taxes.

Bertie Ahern, his predecessor, discounted economists' calls to control the growth of government-funded employment and agencies during his 11 years in power. 

The runaway property market, which at the time provided the government with record tax revenues, has now fallen away and Cowen's government is searching for ways to increase efficiency.

Cowen said: "While the need for reform of our public services has become increasingly clear in recent times, it is all the more essential in the unprecedented economic times in which we live.

"The sharp deterioration in our own public finances here means it is absolutely imperative that we extract maximum performance from a sector entirely financed by a society experiencing real financial stress."

Spending scandal

Wednesday's reforms were announced a day after a government spending scandal forced the resignation of Rody Molloy, the chief executive of Fas, a government training and employment agency.

Media and government probes uncovered how Molloy, as well as other senior Fas executives and their wives, had spent more than $800,000 on flights to the United States, particularly Florida, on official business since 2003.

The bills included first-class air fares costing more than $12,000 per person, golf rounds and at least one hair-and-nails appointment costing $410.

Molloy went live on Irish national radio on Tuesday morning to explain the bills, including how he exchanged first-class air fares for two business-class tickets so that his wife could accompany him to Florida too, and then resigned his post later that evening.