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Irish Republic faces second tough budget in a year

Irish Finance Minister Brian Lenihan will deliver his second tough budget this year on Wednesday as he tries to get the Republic's debt under control. BBC Northern Ireland Dublin correspondent Shane Harrison reports on what it might contain.

Buttercrane Shopping Centre in Newry
Newry in Northern Ireland is a popular destination for southern shoppers

It's now more than a Christmas ritual - massive tailbacks just outside the border city of Newry as shoppers from the Irish Republic head to Northern Ireland to take advantage of lower prices and the weak sterling rate.

But what's good news for Northern Ireland traders is bad news for Brian Lenihan as he prepares for his latest in a series of tough budgets designed to tackle the Republic's economic difficulties.

Like the United Kingdom, the Republic has a growing debt problem. Both governments are spending significantly more than they're raising.

The Department of Finance in Dublin is forecasting a 26bn euros shortfall this year.

Pay cuts

It says that unless severe measures are taken now, the debt could grow from just under 12% to 14% of GDP next year.

Member states of the eurozone are not expected to exceed 3%.

That's why Mr Lenihan will try to shave 4bn euros off government expenditure.

Irish Minister for Finance Brian Lenihan
Finance Minister Brian Lenihan has to try to save 4bn euros

There will pay-cuts for public servants amounting to 1.3bn euros - that's about 6% in most cases and about 1bn euros of cuts in social welfare.

Needless to say, public servants are unhappy about losing more wages after the 7% pension levy imposed on them in April's emergency budget.

And already there is talk of industrial action from rank-and-file police officers.

The unions feel they were snubbed because the Fianna Fail-Green Party coalition government rejected their proposal for 12 days of unpaid leave as a way to save the government money.

That idea was ridiculed on radio phone-in programmes when nobody was able to explain cogently how it would work on the ground in such areas as health and education.

We know from leaks that the old age pension is safe but there will be cuts of about 10% to child benefit while dole payments will fall by 4% to just 200 euros a week.

The government will argue that with deflation of just over 4% this year, many of those measures will have minimal impact.

Irish Prime Minister Brian Cowen
Brian Cowen's pay is to be cut but he'll still earn more than Barack Obama

But that won't be how those affected will see it.

Irish Prime Minister Brian Cowen and his ministers will try to seek the high moral ground by announcing that they are taking pay cuts.

Mr Cowen will take a 20% hit that will see his salary fall to almost 230,000 euros a year.

But as cynics have been quick to point out, he'll still earn more than either Barack Obama or Angela Merkel.

At this stage it's unclear what will happen to the old reliables - cigarettes, alcohol and fuel.

Mr Lenihan knows that if he increases taxes on them, it's likely to encourage even more people to cross the border to shop in Northern Ireland or increase the coffers of illegal tobacco sellers.

Tough budgets

He has indicated that he sees little scope for more taxes other than a carbon tax, which Green Party ministers favour.

The two Brians, Lenihan and Cowen, know they're unlikely to win any popularity contests soon as they try to grapple with the fall-out from the international credit crunch, the Republic's property-related boom and bust and a strong euro against a weak sterling.

What's more, tough budgets will be the order of the day again, next year and all the way to 2014, regardless of whether there's an economic global recovery.

If you'll pardon the mixed metaphor, administering strong medicine to the sick patient that is the Irish economy is not a recipe for political success in the short term, but the government hopes to benefit in the longer term from being seen to be prepared to govern rather than administer the country.

That's a decision for voters on another day.

In the meantime, be prepared for long delays on roads heading to Northern Ireland as southern shoppers continue the increasingly year-long ritual of bargain-hunting.

Budget, what budget?



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SEE ALSO
Striking workers head north for bargains
25 Nov 09 |  Northern Ireland
'No repeat' of shoppers' exodus
02 Nov 09 |  Northern Ireland
Ireland 'faces worst recession'
25 Jun 09 |  Europe
Ireland unveils emergency budget
07 Apr 09 |  Business

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