BBC Wales political correspondent
Funding for key services in Wales will face cuts in real terms in the draft budget from the Welsh Assembly Government, it has been confirmed.
The draft budget does not take account of the 2.7% inflation rate
Finance Minister Andrew Davies said any rises over the three years were in "cash" terms - before the 2.7% inflation rate was taken into account.
Public services spending in Wales is set to rise from £14.1bn in 2008/2009 to £16.1bn by 2010/11.
The assembly government's unallocated reserves will rise to £845m in 2010/11.
But the core funding for local government and social justice will be cut by 0.6% in real terms in 2008/9 - and stay broadly flat in the two years after that.
Giving evidence to the assembly's finance committee, Mr Davies said: "As far as council tax levels, it comes down to each local authority and revenues they have available.
BUDGET RISES AFTER INFLATION
"They have been funded very generously compared with local authorities in England in recent years."
The economy and transport budget will receive a modest cash boost of 1.3% in the first year, 2008/9 but in 2009/10 it will be cut by 1.8% and by 1.7% the year after.
Conservative AM Alun Cairns, who chairs the committee, said the education budget would face a cut in real terms after money for top-up fees, which will not apply in Wales, is taken out of education spending.
Mr Cairns said: "Doesn't the amount mean in real terms there will be a cut in the education budget excluding top-up fees?"
Mr Davies said: "There are significant resources going into the education budget."
The assembly government has said the health and social services budget would increase by £1.2bn over three years.
But after inflation is taken into consideration, the increase in 2008/9 would be just 1.5%, and rises of 0.4% and 0.6% in the years following that.
£136m in 2008/9
£426m in 2009/10
£845m in 2010/11
The impact of inflation in most other portfolios is more significant, leading to real cuts in services across the assembly government, although this could be offset in future budgets by utilising unallocated reserves.
Mr Davies insisted there was no part of the One Wales agreement - the power-sharing deal drawn up between Welsh Labour and Plaid Cymru - that was undeliverable, and dismissed questions about capping council tax increases as "premature."
He said: "To say we have had a budget cut is extremely wide of the mark."
Figures show that the assembly government will have unallocated reserves of almost £136m in 2008/9, rising to almost £846m in 2010/11.
Mr Davies clarified that the Private Finance Initiative (PFI) had been ruled out as a way of funding new capital projects only in the Welsh NHS, and that it remained an option in other areas of government expenditure.
The committee agreed to ask Welsh Secretary Peter Hain for an explanation about the 80% increase in the budget for the Wales Office.