Irish unveil harshest cuts, tax hikes in history

Ireland unveiled the harshest budget measures in its history Wednesday, a four-year plan to slash deficits by €15 billion (US$20 billion) so it can get a massive bailout from the European Union (EU) and the International Monetary Fund (IMF).

The plan seeks to cut €10 billion (US$13.3 billion) from spending and raise €5 billion (US$6.7 billion) in extra taxes from 2011 to 2014.

It axes thousands of state jobs, welfare benefits, and pension payments while raising university fees and taxes, forcing even Prime Minister Brian Cowen to concede it will hurt the living standard of everyone in the nation.

Analysts, meanwhile, feared that the size of the EU-IMF bailout - estimated at €85 billion (US$115 billion) - will be too little to save Ireland from an eventual default.

And bank shares plummeted for a third straight day on the Irish Stock Exchange in growing expectation that investors would be wiped out if the government is forced to seize total control of the country's two dominant banks, Allied Irish and Bank of Ireland.

"The government is completely in denial about the amount of money they'll have to borrow," said Constantin Gurdgiev, a finance lecturer at Trinity College Dublin and an economics adviser to IBM in Europe.

Ireland is still negotiating the terms of the bailout with European Central Bank and IMF experts. It hopes the tough budgetary medicine will permit its 2014 deficit to fall to three per cent of gross domestic product, the limit for the 16 nations that use the euro currency.

While most eurozone members are violating that rule, Ireland's deficit this year is forecast to reach 32 per cent, a modern European record, fuelled by exceptional costs from Ireland's unfathomable bank-bailout effort.

"Today is about Ireland putting its best foot forward, Ireland saying: 'Yes, here is what we're prepared to do as a government and a people to put right what has to be put right, and to give ourselves prospects and prosperity again'," said Cowen, who is widely expected to resign or be forced from office within weeks.

Business leaders welcomed the package as brutal but unavoidable, given that Ireland is all but frozen out of normal lending markets and its banks are running out of cash.

But outside the guarded iron gates of Cowen's office, about 100 activists denounced the government and the IMF, and Irish unions planned to march Saturday against the cuts.

"This is a road map back to the Stone Age," said Jack O'Connor, president of Ireland's largest union, SIPTU.

He noted that Ireland had already suffered nearly €15 billion in cuts and tax hikes since 2008, gutting economic growth and helping to double unemployment to 13.6 per cent.

"Ireland needs a strategy for growth, but this plan will achieve the opposite," O'Connor said.

Ireland's 140-page National Recovery Plan proposes to introduce property and water taxes, raise the sales tax from its current rate of 21 per cent to 22 per cent in 2013 and to 23 per cent in 2014, and cut the minimum wage by €1 to €7.65 (US$10.20).

Ireland's bloated civil service will be particularly hard hit - seeing cuts of about €1.2 billion and 24,750 state jobs lost.

Income tax bands will be widened so more lower-paid workers pay taxes, and middle-class workers will see annual taxes rise more than €3,000 (US$4,000).

A raft of welfare payments will be gradually reduced.

Young and old alike face higher bills and less income. University fees will rise, as will the charges on state-funded pensions.

But monthly pension payouts will fall up to 12 per cent.

Ireland's legendary tax-free existence for authors, musicians and artists is facing a major cutback so that only the first €40,000 (US$53,000) of income will avoid tax.

- AP