Wales faces 'a very difficult financial environment' after 2010
Welsh public services are facing an 'unprecedented' £500m budget cut in 2010, BBC Wales can reveal.
Finance Minister Andrew Davies has warned that assembly government funding in the next few years may be further hit by the economic downturn.
This would have a massive knock on effect on health, education and local government spending, he said.
Mr Davies told the Dragon's Eye programme: "The years of plenty have come to an end".
Mr Davies explained that the public sector had become used to annual increases of between 4% and 7% a year for the first two terms of the Assembly.
But he demanded an end to what he calls the "obsession" with budgets in some parts of the public sector, and a new focus on efficient delivery of services.
The minister said he was "impatient" with the pace of change, and told the programme that it was "daft" for local authorities to be delivering 22 separate services in many areas.
He warned that Wales was facing "a very difficult financial environment" and said that without huge improvements in the public sector, future governments could find themselves coming up against a "brick wall" in public spending from 2011.
However Mr Davies insisted that the One Wales programme of government, agreed between coalition partners Labour and Plaid Cymru, was deliverable even within the spending squeeze.
And he added that it was too early to talk about cuts to particular services.
Chancellor Alistair Darling announced in his pre Budget report (PBR) that to pay for the increase in UK government spending to combat the downturn, value for money savings of £5bn would have to be found in 2010-11.
If all of this was passed on to Wales, it would mean a cut of up to £300m.
Underspends in the NHS capital budget in England are expected to reduce the Welsh NHS budget by around £75m in that year.
And bringing forward capital spending this year and next will have to be paid for by a £150m reduction in the 2010-11 budget.
The implications for Welsh public spending are expected to be severe.
Welsh ministers have been told that, at a minimum, they will receive no increases to their budgets for 2010-11.
Mr Davies has told the cabinet that the PBR has "set a challenge" for the assembly government.
With reserves already forecast to be low, there will be significant pressure to maintain the current level of services, let along paying for promised improvements.
And from 2011 onwards, the new assembly government will have to adapt to growing cost pressures with extremely low, or even flat budget increases.
'Room for improvement'
Mr Davies told Dragon's Eye: "The first four years of the assembly, the annual growth in real terms was about 7%, the second four years it was around 4%, and at the moment, the current period, it's around 1.8%.
"So, yes, there's a reduction in growth, but growth nonetheless. But the growth is slowing down, and in the future it may well be reductions, rather than growth.
"Clearly as finance minister I have been saying consistently for around eighteen months now, the years of plenty have come to an end, and we need to be planning for some lean years coming ahead.
"There has been significant progress, but clearly, we've got just over a year to plan for a very difficult financial environment, and we need to make some significant progress."
Mr Davies said he knew there was huge room for improvement, for delivering better services more efficiently.
He said: "We need to get our act together as a government, we need to be much more streamlined, local authorities will often say the assembly government doesn't speak with one voice.
"We need to be much clearer as a government about what the key messages are.
"Given my experience in industry, you didn't talk about money all the time, what you did talk about is what you actually delivered, what were the outcomes.
"And that's got to be the big sea-change in the public sector, is less preoccupation, sometimes obsession, with budgets, and much more focus on what you actually get for that investment."
Conservative finance spokesman Nick Ramsay AM said they had been warning about the situation for months and it was "scarcely credible" for Mr Davies to argue the assembly government could still deliver all its policy commitments.
"What the minister does not say is how these cuts will affect frontline public services, by how much, or how they will affect the staff who provide them," he said.
"As the consequences of Gordon Brown's recession hit Wales, the Labour-Plaid government needs to prioritise spending on key areas instead of on expensive pet projects and gimmicks."
Dragon's Eye, BBC One Wales, Thursday 12 February, 2235 GMT