Ireland braced for emergency budget

Author: By David McKittrick, Ireland Correspondent

Irish economists expect the package of measures to be the toughest budget for decades, given the yawning gap between income and expenditure which must be closed. Taxation is expected to rise while government spending will be sharply cut back in an effort to cope with what is widely perceived as an ongoing crisis.

The prime minister, Brian Cowen, faces the unenviable task of unveiling a budget that will reassure the international capital markets that his administration has found a new strategy and sense of direction, while at the same time pleasing the domestic audience.

Mr Cowen must convince voters that his government has come up with a workable plan that will share the economic pain fairly, and that some semblance of order is being restored. That is quite a challenge, with the prime minister already having warned that living standards in Ireland are about to drop significantly.

Today’s measures follow a regular budget unveiled in October last year, since when economic indicators have nose-dived so steeply that an emergency package has become essential.

One of the major problems is that housing construction, which grew very quickly during the years of the Celtic Tiger, has now, in the words of the Irish Central Bank, “closed down”.

Until the last few weeks, economists had expected this budget to be savage, though government sources now predict it may not prove to be quite as tough as expected.

Ministers have, however, made it clear that the clampdown on tax and spending will not be a one-off, and that exceptionally tough budgets will be the norm in future years.

Unemployment has risen to 11 per cent in Ireland, with more than 350,000 people claiming benefit ? a figure so high that it is itself significantly increasing public spending. Workers are being laid off at the rate of 350 a day.

Brendan Keenan, an economic commentator in Ireland, said: “The speed at which unemployment has risen, and employment declined, can certainly be compared with leaping off a cliff. A turnaround on this scale has never been seen before.”

Some of the gloomier, or perhaps more excitable, commentators have warned that civil unrest might ensue if the authorities get things wrong in their management of the downturn.

Last October, cuts in health provision for the elderly produced no actual violence but generated angry marches and protest meetings which forced a government U-turn. A recent survey found that four in ten people blame the government, rather than the banks, for the recession.

As in the UK, the United States and elsewhere, however, some bankers have been heavily criticised for allegedly plundering millions from their institutions.

Several major figures are pilloried as banking villains, and police have already raided one major institution, the Anglo Irish Bank.

In recent weeks a new sense has grown that Mr Cowen and his finance minister, Brian Lenihan, are beginning to take control of the crisis. Their Fianna Fail party has staged a modest rally from its recent all-time low in the opinion polls.

Mr Cowen’s message is that years of sacrifice lie ahead, along with financial restructuring.

“We have to basically redesign our taxation system to meet the new requirements of our day,” he said.

“I’ve been very clear and candid in terms of a drop in our standards of living that has been taking place and will take place. This is uncharted territory. We have a serious challenge ahead of us, and there is no painless or easy solution available.”

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