* Taxes up 1.2 bln euros ($1.6 bln), spending down by more
* Record majority see measures pass, reaction is key
* Ireland well on the road to recovery -finance minister
* Services sector, unemployment data help soften blow
By Padraic Halpin and Conor Humphries
DUBLIN, Dec 5 The Irish government tested the
economy and a long-suffering public with a new 3.5 billion euro
($4.6 billion) dose of austerity on Wednesday, though better
service sector and jobless data helped soften the blow a little.
Bailed-out Ireland has made a limited return to bond markets
and is one of few euro zone countries to keep eking out mild
growth, but with one of the highest budget deficits in Europe,
it has little option but to further cut spending and hike taxes.
New measures included a politically incendiary property tax
at a time when one in six homeowners are struggling to pay their
mortgages and the budget was greeted by some 1,500 protesters
outside parliament, a small number of whom clashed with police.
Finance Minister Michael Noonan said the government's aim
was to ensure the wealthy made a fair contribution, but the cuts
will try the patience of people in a country which has so far
avoided large-scale protests seen elsewhere in Europe.
Striking a more restrained tone than his predecessor Brian
Lenihan who ended his 2009 budget speech by claiming the economy
had turned a corner, only to seek an EU/IMF bailout within a
year, Noonan nevertheless said the end was in sight.
"When I stood before the house last year, the Irish
government was locked out of bond markets. Our 2-year bond
yields were almost 10 percent," Noonan told parliament,
delivering the country's sixth budget in little over four years.
"Now they are less than 2 percent. We have seen a total
transformation in only 12 months ... We are now well on the road
to recovery so let's look to the future with confidence."
The new measures come on top of 25 billion euros taken out
of the economy since 2008, equivalent to 15 percent of annual
output, although the rapid rate of services sector growth last
month showed its ability to weather the cuts as well as Europe's
The services sector, which accounts for about 60 percent of
the economy, grew at its fastest pace in five years while
separate data on Wednesday showed that the jobless rate hit a
17-month low, helping to soften the budget blow.
With a record majority, the ministers had no problem pushing
the first measures through parliament.
The broad thrust of the budget had already been agreed under
the terms of Ireland's 85 billion euro EU/IMF bail-out, with 1.2
billion coming from new tax measures, and just under 2 billion
saved through cuts to expenditure.
Noonan detailed the tax hikes, some aimed at wealthy
pensioners, announcing cuts to capital gains taxes and pension
relief, a hike in motor taxes and putting an extra euro of
excise duty on a bottle of wine.
After tax receipts fell 0.5 percent behind target for 2012
following a big drop in November, he said the new measures would
have a bigger carry over effect than originally pencilled in and
almost halve the next round of required tax hikes in a year's
time to 500 million euros.
His colleague, spending minister Brendan Howlin of the
junior coalition Labour party, laid out cuts mainly to the large
health and social protection budgets, cutting child benefit
along with free health care entitlements.
"They've managed to come up with a budget that uses all
tools and spreads the pain fairly widely. No individual cut is
really very drastic," said Philip Lane, economics professor of
at Trinity College Dublin.
"Ireland is taking a very gradual approach to austerity,
it's not like they are trying to get down to zero very quickly.
It's sizable but the bottom line is still that there's a huge
amount of borrowing."
Noonan reiterated that Dublin would trim its budget deficit
to a better-than-expected 8.2 percent of gross domestic product
(GDP), a still-high level that puts it under extra pressure to
hit growth targets that also remained unchanged.
Political analysts said that while it may be risky to target
well-off pensioners after Ireland's elderly forced the
government to drop plans to means-test medical allowances four
years ago, similarly sized demonstrations were unlikely to be
repeated this time.
However with unemployment close to a crisis high at 14.6
percent, the property tax sure to be unpopular and Dublin under
pressure to strike a deal with Europe to ease the burden of an
expensive bank bailout, the government cannot take the public's
patience for granted.
"I can't afford to pay the property tax and I'll go to jail
before I'm forced to pay, it's as simple as that," said Tom
Busteed, a pensioner who travelled from the southern county of
Cork to protest outside the gates of parliament.
"It should be equal cuts for everybody, but that's not