Ireland to unveil harsh 2009 budget in recession

DUBLIN (Reuters) - Ireland is expected to present a harsh combination of tax rises and some 2 billion euros ($2.7 billion) in spending cuts on Tuesday, which may further deepen its first recession in 25 years.

The abrupt end of a decade-old property boom coupled with global financial turmoil made Ireland the first euro zone country this year to enter recession, causing a steep fall in tax receipts.

As the budget deficit reached three times its size compared with the same time last year, the government brought forward the publication of its 2009 budget by two months to reassure the public and investors.

Government data released over the weekend showed the exchequer deficit for this year was seen at 11.52 billion euros ($15.7 billion), rising to 14.79 billion euros in 2009, on a pre-budget basis.

Assuming there were to be no changes to tax or spending when Finance Minister Brian Lenihan presents his 2009 budget at 10:45 a.m. EDT, that would imply a general government deficit of 7 percent of gross domestic product in 2009.

At 5.5 percent of GDP, the shortfall for this year is already seen at almost double the 3-percent cap set by the European Union's Stability and Growth pact.

Lenihan has said he aims to cut spending by almost 2 billion euros or 1 percent of GDP, with all ministries affected except for social affairs, where provisions are made for a higher number of unemployed and rises in welfare payments.

"We have to ensure that our income tax system, our tax system is progressive and that those who can afford to pay, pay the most," Lenihan said on Tuesday.

Ireland needs to readjust its spending after enjoying more than a decade of good times, said Prime Minister Brian Cowen, whose first five months in office have been marked by the economic downturn.

"It's a question of rearranging priorities," Cowen said.

Lenihan also said earlier that some infrastructure projects within the 184 billion euro National Development Plan would need to be delayed.

"There are likely to be some tax-raising measures, which will reduce real incomes," said Rossa White, chief economist at brokerage Davy. "That is on top of the hit to the economy from lower capital spending in 2009."

Rises in income tax, excise duties and a new airport departure tax have been some of the likely measures mentioned by Irish media and analysts.

A special "income levy" of 1 to 2 percent is expected to be the star of the budget "horror show," the Irish Independent said in an editorial.

"The pills are sure to taste a little bitter after a decade of budget giveaway sweeteners," it said.

(Editing by Victoria Main)