Irish govt unveils first budget as austerity bites

Sun Dec 4, 2011 6:43pm EST

Related Topics

* Austerity budget billed as toughest of five-year term

* Economists warn euro crisis means worse may be ahead

* PM addresses nation to warn of pain ahead

By Conor Humphries

DUBLIN, Dec 5 (Reuters) - Ireland's government on Monday unveils what it hopes will be the toughest budget of its five-year term, but as it tries to keep the public onside economists are warning that a global downturn means the worst may be yet to come.

Prime Minister Enda Kenny, who came to power in February, has pledged to get Ireland's budget deficit, currently the worst in the industrialised world, under an EU limit of three percent of GDP by 2015 from an estimated 10 percent.

He has said this budget will be the toughest of a four-year run of belt-tightening and the narrative that the worst is nearly over has helped secure social harmony in Ireland, which unlike Greece has seen very little protest.

But with Europe in danger of tipping back into recession, Kenny may be forced to push through even harsher budgets in 2013 and beyond if Ireland's trade-dependent economy fails to produce sufficient revenues to meet its EU-IMF goals.

Growing concern about the economy prompted Kenny on Sunday night to make a televised address to the nation, the first by a prime minister since 1986, to warn of tough times ahead.

"I would love to tell you tonight that our economic problems are solved, that the worst is over," Kenny said, flanked by Irish and European Union flags. "But for far too many of you, that is simply not the truth."

Ireland already raised its adjustment target for 2012 to 3.8 billion euros from 3.6 billion euros due to weaker growth, with nearly 60 percent of the adjustment coming from spending cuts.

The government has peniclled in a 2013-2015 fiscal adjustment of 8.6 billion euros as it bids to assure investors it can exit its 85 billion euro EU-IMF bailout in 2013.

It says it expects to hit its 2011 deficit target after spending less money than planned. But a tax shortfall, which doubled in November to 1.6 percent caused economists to warn long-term projections may be too optimistic.

A Reuters poll last week showed that economists expect Ireland to miss its medium-term fiscal goals due to the threat of a recession in Europe.

Ireland's coalition government has a record majority and is expected to comfortably pass the 2012 budget but backbenchers, particularly from the centre-left Labour party, are uncomfortable about breaking election pledges.

Two Labour lawmakers have already been expelled from the parliamentary party in opposition to its economic policies and heaping more austerity on voters would raise the stakes.

In a break with tradition, the 2012 budget will be unveiled over two days instead of one with spending measures to be presented by the Minister for Expenditure and Public Sector Reform Brendan Howlin on Monday and tax plans to be unveiled by Minister for Finance Michael Noonan on Tuesday.

Much of the detail, however, is already known after Reuters obtained details of the budget in documents given to German lawmakers.

While Kenny said he would not to raise income taxes in 2012, his government will increase the top rate of sales tax by two percentage points to raise 670 million euros. He is also planning on introducing a property tax and raising motor taxes and carbon taxes. Capital gains taxes will also be targeted.

Social welfare rates will not be cut but eligibility for public handouts is likely to be tightened. Caps on recruitment will cut the public sector wage bill and the budgets for education and health are likely to be hit.

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