December 5, 2012 / 12:05 AM / 5 years ago

Ireland to test economy, public patience with latest budget

* Dublin to hike taxes by 1 bln euros, cut spending by more

* Record majority will see measures pass, reaction is key

By Padraic Halpin

DUBLIN, Dec 5 (Reuters) - The Irish government will test the public’s patience and the economy’s resilience on Wednesday when it unveils another 3.5 billion euro dose of austerity in its sixth budget since the financial crisis began.

Bailed-out Ireland has made a limited return to bond markets and is one of few euro zone countries that have managed to eke out mild growth, but with one of the highest budget deficits in Europe, there will be further harsh spending cuts and tax hikes.

The new measures come on top of 25 billion euros taken out of the economy since 2008 - equivalent to 15 percent of annual output - and the government is hoping to show a public so far willing to accept the cuts that the end is in sight.

“Tomorrow’s budget will be a very tough budget. It was always going to be a tough budget, but it is the budget that is going to get us to 85 percent of the adjustment that has to be made,” Deputy Prime Minister Eamon Gilmore said on Tuesday.

“It will therefore put the end in sight for these type of measures and these type of budgets.”

The broad thrust of the budget is already agreed under the terms of Ireland’s 85 billion euro EU/IMF bail-out, with around one billion euros coming from new tax measures, 500 million to be trimmed from the country’s capital budget and 1.7 billion to be saved through cuts to departmental current expenditure.

Finance Minister Michael Noonan at 1430 GMT will present the taxation measures - which will include a politically sensitive property tax - before spending minister Brendan Howlin lays out cuts mainly to the big-spending health and social protection budgets.

Ireland’s studious application of its austerity plan - which still has at least three years to run - has so far impressed investors and helped push yields on benchmark Irish 2020 bonds to 4.5 percent from over three times that level 18 months ago.

With a record majority, Noonan will have few problems in pushing the measures through parliament when the first votes are taken on Wednesday. The public’s reaction will be much more telling.

“I don’t think international investors are particularly concerned about the measures, their focus will be on the overall number and the reaction to it,” said Alan Ahearne, an economics professor at the National University of Ireland, Galway, who was special adviser to Noonan’s predecessor Brian Lenihan.

“One of the reasons there has been an increase in confidence among international investors is that they see that unlike other countries in the periphery, the budgetary adjustments, although difficult, are being accepted by the people.”

With unemployment stuck close to a crisis high of 15 percent and with homeowners struggling to pay mortgages, the government will nevertheless test the public’s patience.

Michael O‘Reilly, president of the Dublin Council of Trade Unions, will lead one of a number of small protests expected outside parliament and had a clear warning for the government.

“I‘m absolutely certain that there’s nothing else facing the country, only more protest. None of this is working,” he said.

Irish trade unions have protested little due to a deal struck with the government to protect public sector pay from further cuts but they have challenged authorities to slow down the pace of austerity.

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