Tags: EU | Ireland | Financial | Crisis

Irish Budget Expected to Cut Spending by $6 Billion, Hike Taxes

Tuesday, 07 Dec 2010 07:29 AM

 

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Debt-struck Ireland braced for the painful details Tuesday of the toughest budget in its history, a condition for receiving a massive international bailout.

Finance Minister Brian Lenihan's 2011 budget is being unveiled and voted on Tuesday night in parliament as protesters gather in exceptional snow and ice outside.

The day's first protester arrived at dawn and left under police custody. The unidentified man drove up in a cherry picker covered in anti-government placards, parked it near the parliament gates, then began blasting pop music from loudspeakers and throwing tennis balls from the elevated platform. Police tore down the protest signs and seized the vehicle.

Lenihan says the plan — the fourth emergency budget for Ireland since 2008 — will cut spending by 4.5 billion euros ($6 billion) and raise taxes by 1.5 billion euros.

Ireland this year is spending more than 50 billion euros and collecting just 31 billion euros in taxes. Exceptional bank-bailout costs this year have driven the deficit to 32 percent of gross domestic product, a post-war European record.

The government wants the deficit reduced to 3 percent — the limit for members of the euro common currency — through four years of budget-cutting, with the worst cuts up front. The European Commission expects the effort to take five years.

Lenihan says his 2011 budget will draw many low-paid workers into the income-tax net for the first time, cut the minimum wage by 1 euro to 7.65 euros ($10.25) an hour, and trim welfare benefits across this nation of 4.5 million. Average households face four-figure cuts in net incomes.

Critics chiefly on the left of Irish politics warn that the cuts will drive tens of thousands into poverty, lengthen unemployment lines to new records and strangle hopes of economic recovery. Lenihan insists Ireland has no choice.

Last month, Ireland was forced to admit defeat in its two-year effort to fight its runaway deficit while plowing at least 45 billion euros into a bank bailout. That effort put the nation on course for bankruptcy next year as its borrowing costs surged to unsustainable highs on bond markets.

Ireland is expected to begin borrowing soon from a 67.5 billion euro ($90 billion) bailout fund unveiled last week.

But key European and International Monetary Fund donors stress that the loans, which carry an average interest rate of 5.8 percent, can flow only if Ireland passes its most severe austerity measures now. Ireland has already earmarked the first 10 billion euros in foreign aid to boost the cash reserves of five banks in full or partial state ownership.

Economists appear evenly divided over whether Ireland can take command of its debts and reverse its annual deficits — as the emergency budget and EU-IMF bailout envision — or remains on course for eventual default as the mounting cost of its loans proves overwhelming.

Political analysts expect parliament to approve the budget despite Prime Minister Brian Cowen's shaky hold on power. He has already promised to dissolve parliament and hold early elections once the budget's tax hikes are fully enacted, a process likely to stretch into February.

Cowen has a two-vote majority in Dail Eireann, the parliament, including support from two maverick independent lawmakers.

One of those independents, Michael Lowry, confirmed he will back the budget because "the consequences of not passing a budget would be disastrous for Ireland and its people." Lawmakers in the major opposition Fine Gael party also say they might abstain from the vote to ensure the budget's passage.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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