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Cash-strapped Ireland awaits brutal 2011 austerity budget

Irish Finance Minister Brian Lenihan is to present his proposed 2011 budget to parliament later on Tuesday, and it's unlikely to make pleasant reading. The debt-ridden country needs to fill a six billion euro hole.

An Irish euro coin on top of a map of the country

One down, 5,999,999,999 to go

Ireland's already unpopular ruling party, Fianna Fail, will on Tuesday present the toughest budget in the country's history.

Finance Minister Brian Lenihan has already announced that Dublin will be looking to raise an extra six billion euros ($8 billion) in 2011, through a combination of tax increases and spending cuts. Due to the domestic budget presentation, Lenihan has been forced to skip the high profile Eurogroup meeting in Brussels this week addressing the eurozone's debt woes, sending ministry officials in his place.

The Irish government effectively issued an outline of its plans for the coming year two weeks ago, when ironing out a broad four-year National Recovery Plan in order to qualify for an 85 billion euro rescue deal from the European Union and International Monetary Fund. The first tranche of these emergency loans will not be released until the budget is passed.

To placate the EU and IMF, Ireland needs to generate an extra 15 billion euros by 2014, as it battles to bring its annual budget deficit back within the prescribed eurozone limit of 3 percent of Gross Domestic Product (GDP). This year's deficit, which has ballooned due to the government bailout of the country's biggest moneylender, Anglo Irish Bank, is likely to be 32 percent of GDP.

"The budget is usually the most eagerly anticipated event in the fiscal calendar," economist Dermot O'Leary at Goodbody stockbrokers in Dublin told the AFP news agency. "This year though, the thunder has been stolen by the release of last week's four-year plan. We already know the broad parameters of what will be contained in the budget for 2011."

Cuts in public sector, taxes to rise

Thousands of protesters in Central Dublin, Saturday, November 27

Tens of thousands protested when the initial recovery plan was announced

Roughly two-thirds of the savings are set to come from the public sector. Ireland's relatively generous welfare spending is likely to take a big hit, with child benefit and social welfare spending facing a reduction of at least 5 percent. Only state pensions are expected to remain unchanged.

Thousands of public sector jobs will also be cut, and those civil servants who keep their jobs will face pay cuts or freezes.

Changes in tax brackets will generate the rest of the revenue. By lowering income tax brands and revising the country's tax credit system, the government will be able to target thousands of Irish adults on lower incomes who currently do not have to pay income tax. A reduction in the country's minimum wage, which is currently the second highest in the EU at 8.65 euros per hour, is also on the cards.

Government promises election once budget passes

Brian Cowen in front of a sign reading: Plan for Recovery

Even if Ireland recovers, Prime Minister Cowen is unlikely to

Irish Prime Minister Brian Cowen's government might be forced into snap elections if the budget does not pass. Cowen, whose approval ratings are at an all-time low, has also pledged to call elections soon after parliament ratifies the austerity measures.

Cowen's coalition government no longer controls the lower house of parliament, the Dail, and will need to find either independent or opposition support.

"The consequences of not passing a budget would be disastrous for Ireland and its people," independent MP Michael Lowry said in a statement on Monday evening, pledging his reluctant support to the government's proposal.

"Despite some adverse reaction in my constituency to this decision I feel duty bound to put the country's interests first."

The Dail's other independent lawmaker, Jackie Healy-Rae, has not yet revealed his position.

It's unclear whether the main opposition group, the center-right Fine Gael and center-left Labour parties, will attempt to thwart the budget in parliament or not. Barring a dramatic change in the public mood, these two parties look certain to rule in coalition once Irish voters next go to the polls.

Author: Mark Hallam (AFP, Reuters)
Editor: Rob Turner

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