Ireland's finance minister has unveiled the austerity measures his government says are essential for securing rescue funds and avoiding a deeper economic crisis, amid fears over the effects budget cuts will have on Ireland's poor.
REUTERS - The Irish government detailed the toughest budget on record on Tuesday, targeting 6 billion euros in spending cuts and tax hikes and warning passage was crucial to avert a deeper crisis and free up EU and IMF rescue funds.
In a speech to parliament, Irish Finance Minister Brian Lenihan sketched out austerity measures for 2011 including cuts to child benefit and public sector pensions, but stuck with growth forecasts some economists -- and even the European Commission -- believe are too optimistic.
Lenihan acknowledged the government had made "mistakes" but said it was time for the country, at the heart of a deep debt crisis shaking the entire 16-nation euro zone, to move forward with "confidence and purpose".
"The scale of this adjustment is demanding, but it demonstrates the seriousness of our intent," Lenihan said.
A burst property bubble has transformed Ireland from one of Europe's brightest stars to a country that has been forced to seek an 85 billion euro bailout from the IMF and the EU to cover its borrowing costs and shore up its banks.
Prime Minister Brian Cowen needs to get his 2011 fiscal plan past parliament to access the first tranche of emergency aid and despite a razor-thin majority he is expected to win passage in a series of votes that begin Tuesday night.
The risk premiums investors demand to hold Irish 10-year bonds instead of German benchmarks fell on Tuesday to their lowest levels in a month, in anticipation the budget will be approved.
The bailout, the second in the euro zone after Greece was rescued in May, has stirred outrage in the humbled former "Celtic Tiger" and opposition parties slammed the government for mismanaging the economy and sacrificing Irish sovereignty.
"This budget is the budget of a puppet government who are doing what they have been told to do by the IMF, the EU Commission and the European Central Bank," said Michael Noonan, finance spokesman for the centre-right Fine Gael party and a
possible future finance minister.
Once all the resolutions underpinning the budget have passed early next year, Cowen, the most unpopular leader in recent Irish history, has promised to call an election he is widely expected to lose.
That means a new government, most likely a coalition of Fine Gael and centre-left Labour, will be tasked with overseeing the budget cuts.
Both opposition parties have said they will re-negotiate the terms of the bailout package agreed late last month, although in practice they will have little room for manoeuvre, having agreed to the broad targets of the rescue plan.
Noonan said a new government may also have to bring forward the 2012 budget if targets for next year were not being met.
Hurting the people
The 2011 budget is the toughest in a four-year austerity plan that aims to save 15 billion euros -- nearly 10 percent of annual economic output -- and get the worst deficit in the region back within EU limits by 2014.
Cowen will push through some four billion euros in spending cuts next year, with social welfare benefits, public pensions and capital projects all set for the chop.
"I'm afraid for the future, I'm afraid for the country and everyone around me," said Maeve, 62, a retired lecturer who broke into tears when talking about economic hardship at the Moore Street market in central Dublin.
Tax adjustments will make up another two billion euros with roughly half of the additional revenues coming from lowering income tax bands and tax credit changes, allowing the government to target the 45 percent of workers, on lower incomes, who did not previously pay income tax.
All property-based tax relief is due to be eliminated by 2014, drawing a line under controversial policies that helped fuel the property bubble and prompted accusations of a cosy relationship between the government and real estate tycoons.
Tax breaks, low interest rates and loose lending policies fuelled a development binge that saw housing estates, shopping centres and hotels spring up across the country. Now many stand idle or half-built.
At the height of the boom property prices in Dublin rivalled those in Manhattan and Moscow and thousands of Irish were millionaires on paper. The surge in personal wealth created a champagne lifestyle where helicopters were a favoured mode of transport and many ordinary citizens splurged on second homes.
Some economists have warned the measures risk tipping Ireland into a prolonged downturn that would make its debt targets even harder to achieve.
"Ireland will not be a pretty place in 2011," said Jim Power, chief economist at financial services firm Friends First.
But Lenihan retained his view that gross domestic product (GDP) would expand by 1.7 percent next year, nearly double the European Commission's forecast of 0.9 percent. The government is forecasting growth of 3.2 percent in 2012, 3.0 percent in 2013 and 2.8 percent in 2014.
Danny McCoy, head of the Irish Business and Employers Confederation said he saw little in the budget to help job creation or restore economic competitiveness.
Parliament's lower chamber will vote on changes to excise duties and sales taxes in the evening.
A vote on social welfare measures and another vote on changes to public pensions are due next week. A fourth vote on general finance steps is due in the first quarter of 2011.
A failed vote this week or next would trigger a general election and prevent the flow of funds from the EU and IMF until a new administration was in place.