Huge cuts revealed in Irish budget

The Irish Government today unveiled a raft of budget measures to restore the State's finances by 2014.

Measures include cutting social welfare by 3 billion euro (£2.5 billion), reducing the public sector pay bill by 1.2 billion euro (£1 billion) and increasing VAT by 2%.

The four-year plan warned that the drastic cuts will negatively impact on the living standards of the people of Ireland.

The budget roadmap includes the following savings and tax reforms:

* The minimum wage is cut by one euro to 7.65 euro (£6.48);

* VAT will increase 1% to 22% in 2013 and to 23% in 2014;

* Corporation tax will remain at 12.5%;

* Public sector workforce to be cut by 24,750, bringing levels back to 2005 levels;

* Student fees will increase;

* Water metering will be brought in by 2014;

* Carbon tax charges will double to 30 euro (£25) a tonne, raising 330 million euro (£279 million).

The National Recovery Plan stated: "The Plan will help dispel uncertainty and reinforce the confidence of consumers, businesses and of the international community.

"The tax and expenditure measures contained in this Plan will negatively affect the living standards of citizens in the short term.

"But postponing these measures will lead to greater burdens in the future for those who can least bear them, and will jeopardise our prospects of returning to sustainable growth and full employment."

Taoiseach Brian Cowen said no one can be sheltered from a plan for national recovery.

"It's to bring certainty for our people," Mr Cowen said.

"It's to ensure that they have hope for the future. To let them know that while we have a challenging time ahead, we can and will pull through, as we have in the past.

Mr Cowen said the plan would see workers facing taxes they paid in 2006 while the Government would oversee spending levels similar to 2007.

"It's a time for us to pull together as a people. It's a time to confront these challenges and do so in a united way," the Taoiseach said.

Property will be taxed under a new site value levy designed to raise 530 million euro (£449 million) and used to fund local services.

The public sector will be further hit through pension reform and 10% reductions in pay levels for new entrants, and those who have retired from State jobs will be hit with pension deductions to raise 100 million euro (£84 million).

The plan was unveiled in Government Buildings, central Dublin, by the Taoiseach, Finance Minister Brian Lenihan and John Gormley, leader of the junior coalition partners the Greens and Environment Minister.

Mr Gormley said his party focused on education and environmental measures, such as water rates, renewable energy and broadband.

"We are proud that education spending will be increased over the coming period," he said.

"This is vital to protect the needs of a rising generation.

"Increased spending on education is, above all, central to the efforts to rebuild national prosperity."

The Government predicted that the economy will grow by 2.75% on average between next year and 2014.

It forecast 90,000 new jobs and unemployment easing back to below 10% over the period.

The plan is designed to reduce the State's running costs by 15 billion euro (£12.7 billion) by 2014, with 10 billion euro (£8.4 billion) from spending and the rest from tax.

The December 7 Budget will explain in detail how six billion euro (£5.1 billion) of the savings will be pushed through next year.

EU Commissioner for Economic and Monetary Affairs Olli Rehn hailed the four-year plan as a "sound basis" for negotiations on the final details of an international bail-out to bolster Dublin's recovery efforts.

"I welcome the continued commitment of the Irish authorities to reducing the deficit to below 3% by 2014. The four-year fiscal plan is an important contribution to the stabilisation of Irish public finances." said Mr Rehn in a statement in Brussels.

He went on: "The plan strikes a good balance of durable expenditure and revenue measures, with due regard to protecting the least well off.

"A 2011 budget involving a consolidation effort of six billion euro (£5 billion) would be appropriate, as it would strike a balance between allowing the nascent recovery to strengthen and addressing budgetary challenges in a timely fashion."

He said the structural reform commitments in the plan were also welcome: "These policies encourage exports and a recovery of domestic demand. Implementation of the reforms will thus contribute to the authorities' ambitious fiscal adjustment strategy and a return to fiscal sustainability."

The Commissioner added: "The plan is a sound basis for the negotiations on the fiscal and structural reforms of the policy programme underlying the international financial assistance that Ireland has requested to the European Union and the International Monetary Fund."