AN Bord Snip Nua, the body charged with identifying major savings in government spending, will submit its final report to finance minister Brian Lenihan later this week, outlining huge potential cutbacks running to several billion euro, the Sunday Tribune has learned.

It is understood the level of cutbacks suggested by the body, chaired by economist Colm McCarthy, would be enough to deliver in full the target of €4bn in savings set by finance minister Brian Lenihan for 2010.

However, the cabinet, which will make the final call on which cutbacks to authorise, is unlikely to go with all of the suggestions. "All of the proposals are unpalatable, some are toxic," one senior government figure said this weekend.

Chief among the "toxic" measures is likely to be An Bord Snip Nua's recommendations on the €21bn social-welfare budget. While the body is unlikely to deal with specific rate cuts, it will make recommendations on certain social-welfare entitlements.

Ministers are bracing themselves for difficult decisions in this area. "The way the discussions seem to be shaping up, social welfare can't be left untouched," one senior political figure said.

The €18bn public-sector pay bill is also facing cuts. An Bord Snip Nua will make recommendations on major reductions in employee numbers across the public sector. And, although its remit does not cover public-sector wage rates, ministers privately say they believe further reductions in pay rates – on top of the recent public-sector pension levy – will have to be considered. "You couldn't exclude that possibility," one minister said, recalling the hugely negative reaction on the doorstep from public servants during the local election campaign and adding: "I can only imagine how that will go down."

The report from An Bord Snip Nua – formally known as the Special Group on Public Service Numbers and Expenditure Programmes – will be brought to cabinet by Lenihan prior to the summer break. The recommendations are not binding on the government, with ministers having the final say on which cutbacks they authorise. However, the submission of the report to cabinet will effectively kickstart the estimates/budgetary process for 2010, which is likely to prove even more challenging for the government than the controversial budgets already introduced by Lenihan.

Hopes that An Bord Snip Nua would be able to uncover relatively painless efficiency savings in the public sector were dismissed by a well-placed source who said: "There isn't any low-hanging fruit."

Ministers have been told by the Department of Finance that savings of €2.5bn in current spending and €1.5bn in capital spending will have to be delivered for 2010.

The vast majority of the €4bn will have to come in straight expenditure cutbacks, as there is little provision for raising additional tax income. While the government remains committed to the introduction of a property tax – certain to be recommended by the Commission on Taxation – the belief in government is that the yield from such a tax will be quite low.

"Talk that it could yield €1bn a year is pie in the sky. It will more likely be in the low hundreds of millions," one source said, adding the government had to be conscious that people had already endured hefty income tax increases in the recent budgets.

Taxation of child benefit would help reduce the social-welfare budget and, although it is likely to provoke a huge backlash from parents, its introduction is regarded as "inevitable" by ministers.

However, it is expected that plans to re-introduce third-level fees may be deferred to allow the issue be discussed as part of the renegotiation of the programme for government between Fianna Fáil and the Greens. The government is understood to be "leaning in the direction" of refundable loans, rather than the straight re-introduction of fees.

Senior government figures say they are under no illusions about the difficult decisions that lie ahead. "I wouldn't underestimate the difficulty in getting this [the €4bn savings] through," one told the Sunday Tribune. Despite calls from some government backbenchers for a change in policy, he said the cabinet had no choice but to continue to with its efforts to plug the hole in the public finances.