Page last updated at 17:44 GMT, Wednesday, 9 December 2009

Tough 2010 Irish budget unveiled

Brian Lenihan: "We've had to make some very tough choices"

The Irish government has unveiled one of the most severe budgets in the Republic's history.

Finance Minister Brian Lenihan announced pay cuts for public sector workers, as part of efforts to achieve savings of 4bn euros ($5.9bn; £3.6bn).

Taoiseach Brian Cowen will have his pay reduced by 20%. "Those at the top will lead by example," Mr Lenihan said.

The Irish economy will shrink by 1.25% in 2010, he forecast. He had previously estimated a contraction of 1.5%.

The economy is expected to shrink by 7.5% this year, confirming a previous reading.

"Our economy is still in a weakened condition, and our self confidence as a nation has been shaken," Mr Lenihan said.

"The government's strategy over the last 18 months is working and we can now see the first signs of a recovery here at home and in our main international markets."

Richard Bruton, finance spokesman for the opposition Fine Gael party, called the budget "jobless and joyless".

He added that the proposed cut in the Taoiseach's pay was "simply a sham" and did not take into account previous adjustments.

The real cut was much lower than 20%, he said.

Planned savings

Mr Lenihan announced savings in 2010 of:

• 1bn euros on the public sector pay bill. Public servants will face pay cuts, ranging from 5% on those earning 30,000 euros to 15% on those earning more than 200,000 euros

• 760m euros on social welfare

• 980m euros on day-to-day spending programmes

• 960m euros on investment projects.

But he said the pay cuts in the public sector would not apply to existing public service pensioners.

He also reduced the rates of child benefit by 16 euros per month, bringing the lower rate to 150 euros per month and the higher rate to 187 euros per month.

And he introduced a carbon tax, equivalent to 15 euros per tonne.

Other taxation measures include switching to a simpler income tax system with just two charges on wages, and bringing VAT down to 21% from 21.5%.

Excise on beer, wine and spirits was reduced, but there was no change in tobacco tax.

Corporation tax - which has been a draw for foreign investors in the Irish Republic over the last few years - was held at 12.5%.

Lowering the deficit

The Irish deficit currently stands at 12% of GDP. European Union (EU) rules state that countries are expected to keep their budget shortfalls below 3% of GDP.

While this government was partly responsible for the current economic mess we find ourselves in, this tough budget reflects the 'real-economic' and is the only way to a real recovery

Steven Nestor, Dublin, in reaction to the announcement

But Mr Lenihan said if it were not for action taken by the government, the situation could have been much worse.

"The government over the past 18 months has made budgetary adjustments of more than 8bn euros for this year," he said.

"Had we not done so, the deficit would have ballooned towards 20% of GDP - a level at which the very financial survival of this country would have been at risk."

He went on to say that he expects the deficit to come down over the next few years - to 11.6% next year, 10% in 2011 and to reach 2.9% in 2014, thereby reaching the EU target.

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