If someone receives a hospital pass, they can expect to get hammered not long afterwards. Brian Lenihan received that hospital pass in May when he took over the reins of the Department of Finance.

It was becoming clear then that Ireland was entering uncharted waters and that the minister's actions on the public finances would need to be more Scrooge-like than the Santa Claus era of both Brian Cowen's and Charlie McCreevy's stints in charge.

After two budgets in six months that had those Scrooge-like characteristics in abundance, Lenihan is now being knocked by Opposition and public alike for the unpopular decisions he has made. The reaction is both understandable and expected.

One has to feel a certain sympathy for the minister. Of course he is not responsible for the most severe global recession since the 1930s, which cannot but affect Ireland. He could not have done anything about the international financial crisis or the collapse in the value of sterling, which have affected the liquidity of banks and the viability of domestic exporters.

All of this has made the situation in Ireland much worse than it would have been ordinarily. More than likely, these are the factors that have pushed the economy into a depression, rather than just a recession. But these are the cards the country has been dealt and it has to play with these cards.

Furthermore, Ireland's problems cannot be blamed solely on external influences. It has been known for years that the economy needed to reduce its dependence on construction. By definition this meant that the taxes emanating from that sector were unstable or, more to the point, temporary.

They were not treated as such and, as a result, a significant structural, rather than just cyclical, deficit has emerged.

In the budget last week, government admitted that this deficit – the shortfall that will remain even if the economy returns to growth – could be as high as €14bn. This dramatic shortfall that shows the extent to which the temporary boom in revenues associated with the property market skewed decision-making in other areas of spending and taxes.

To close this gap, spending has to be cut or taxes have to be increased, or both. It is painful, but it is the government's job to balance the two, based on which is most out of kilter and which would put the well-being of citizens in the best shape.

A glance at the trend in spending, particularly on the day-to-day running of the country, tells a lot. In 2009, voted current spending (the portion of spending over which government has direct control) is expected to reach 40% of GNP, which is a record level, and some 11% ahead of its long-term average.

Tax revenues have also fallen steeply, mainly due to the construction-related areas of capital gains tax, stamp duty and VAT. However, tax revenues are expected to fall to 24% of GNP, only 5% below their long-term average.

Using this rather crude arithmetic, one can argue that spending reductions should account for twice as much as tax increases, to close the gap. In practice, they will account for less than this, as spending on unemployment benefit will be naturally higher.

History has shown that the countries that are more successful in restoring order to their public finances are the ones that cut spending rather than raise taxes. It may be a cliché, but the evidence proves that you can't tax your way out of a recession.

The reasons are obvious: taxes act as a disincentive to economic activity. While spending cuts would also have negatively effects in the short term, they have the longer-term benefit of reducing costs in the economy, and so improving competitiveness.

The government must be given credit for detailing plans to reduce the budget deficit over time. However, despite rhetoric that suggested a focus on spending rather than taxes, the opposite happened when it came to the crunch.

Take last October. In announcing the early budget, the minister said it would reflect "the necessary prioritisation of expenditures in the light of expected tax revenues". Most changes, however, came on the tax front.

In the 2009 measures announced last week, two-thirds of the full-year adjustment of €5.4bn is due to tax increases, while most of the changes in 2010 are also slated to come from increased taxes. It is not until 2011 that the focus switches to spending. While the budget measures are not completely ignoring the elephant in the room, they are not taking much notice of it either.

In commissioning a review of the public service by the OECD in 2006, then taoiseach Bertie Ahern recognised the need for change. This in turn triggered the setting up of the board on public sector spending, now dubbed An Bord Snip. By the time it reports it will have been almost three years since the OECD report was commissioned.

It will be extremely difficult politically to push through spending cuts in the public service, but there cannot be any further delay. Colm McCarthy and his team have been handed a hospital pass too, as they will not be thanked by many in the public service for some of the recommendations that will stem from their report.

However, failure to act would mean that the Irish economy would remain the patient for longer than is necessary.

Dermot O'Leary is chief economist with Goodbody Stockbrokers