UPDATE 7-Ireland sets out record austerity budget

* Lenihan urges passage, says cuts are “demanding”

* First in series of budget votes passes

* Opposition says budget one of “puppet” government

* Election expected in first quarter of 2011

* IMF to meet Friday to approve Ireland bailout funds
(Adds IMF board date, paragraph 4)

By Padraic Halpin and Carmel Crimmins

DUBLIN, Dec 7 (BestGrowthStock) – The Irish government detailed the
toughest budget on record on Tuesday, targeting 6 billion euros
in spending cuts and tax hikes, and warning passage was crucial
to avert a deeper crisis and free up EU and IMF rescue funds.

In a speech to parliament, Irish Finance Minister Brian
Lenihan sketched out austerity measures for 2011 including cuts
to child benefit and public sector pensions, but stuck with
growth forecasts that some economists — and even the European
Commission — believe are too optimistic.

Ireland’s Parliament passed the first in a series of votes
on the budget on Tuesday evening, suggesting that enough of the
budget is likely to pass to release bailout funds. The budget’s
success had looked in doubt when independent politicians, on
whom the government depends for support, said they might vote
against it.

But the steps to pass the budget seemed to satisfy the IMF,
which scheduled a board meeting for Friday to consider a 22.5
billion euro loan for Ireland, part of a bigger 85 billion euro
joint EU/IMF rescue package. IMF Managing Director Dominique
Strauss-Kahn is set to return to Washington from Europe to
chair the meeting.

The risk premiums investors demand to hold Irish 10-year
bonds instead of German benchmarks fell on Tuesday to their
lowest levels in a month, in anticipation that the budget would
be approved.

A burst property bubble has transformed Ireland from one of
Europe’s brightest economic stars to a country that has been
forced to seek a bailout from the IMF and the EU to cover its
borrowing costs and shore up its banks.


The bailout, the second in the euro zone after Greece was
rescued in May, has stirred outrage in the humbled former
“Celtic Tiger.” Opposition parties slammed the government for
mismanaging the economy and sacrificing Irish sovereignty.

“This budget is the budget of a puppet government who are
doing what they have been told to do by the IMF, the EU
Commission and the European Central Bank,” said Michael Noonan,
finance spokesman for the center-right Fine Gael party and a
possible future finance minister.

Once all the resolutions underpinning the budget have
passed early next year, Prime Minister Brian Cowen — the most
unpopular leader in recent Irish history — has promised to
call an election he is widely expected to lose.

That means a new government, most likely a coalition of
Fine Gael and center-left Labour, will have to oversee the
budget cuts.

Both opposition parties have said they will renegotiate the
terms of the bailout package agreed late last month, although
in practice they will have little room for maneuver, having
agreed to the broad targets of the rescue plan. For details,
see [ID:nLDE6AS058]

Noonan said a new government may also have to bring forward
the 2012 budget if targets for next year were not being met.


The 2011 budget is the toughest in a four-year austerity
plan that aims to save 15 billion euros — nearly 10 percent of
annual economic output — and get the worst deficit in the
region back within EU limits by 2014.

Cowen will push through some four billion euros in spending
cuts next year, with social welfare benefits, public pensions
and capital projects all set for the chop.

“I’m afraid for the future, I’m afraid for the country and
everyone around me,” said Maeve, 62, a retired lecturer who
broke into tears when talking about economic hardship at the
Moore Street market in central Dublin.

Tax adjustments will make up another two billion euros with
roughly half of the additional revenues coming from lowering
income tax bands and tax credit changes, allowing the
government to target the 45 percent of workers, on lower
incomes, who did not previously pay income tax.

All property-based tax relief is due to be eliminated by
2014, drawing a line under controversial policies that helped
fuel the property bubble and prompted accusations of a cosy
relationship between the government and real estate tycoons.

Tax breaks, low interest rates and loose lending policies
fueled a development binge that saw housing estates, shopping
centers and hotels spring up across the country. Now many stand
idle or half-built.

At the height of the boom property prices in Dublin rivaled those in Manhattan and Moscow, and thousands of Irish were
millionaires on paper. The surge in personal wealth created a
champagne lifestyle where helicopters were a favored mode of
transport and many ordinary citizens splurged on second homes.


Some economists have warned that the budget measures risk
tipping Ireland into a prolonged downturn that would make its
debt targets even harder to achieve.

“Ireland will not be a pretty place in 2011,” said Jim
Power, chief economist at financial services firm Friends

But Lenihan retained his view that gross domestic product
(GDP) would expand by 1.7 percent next year, nearly double the
European Commission’s forecast of 0.9 percent. The government
is forecasting growth of 3.2 percent in 2012, 3.0 percent in
2013 and 2.8 percent in 2014.

Danny McCoy, head of the Irish Business and Employers
Confederation said he saw little in the budget to help job
creation or restore economic competitiveness.
($1=0.7541 Euro)

UPDATE 7-Ireland sets out record austerity budget