Ireland faces ‘tough’ budget vote

Ireland’s deal to secure bail-out aid brought thousands of protesters onto the streets of Dublin

The Republic of Ireland is set to unveil more details of its controversial budget cuts.

The ruling Fianna Fail party is due on Tuesday to present what will be the toughest budget in Dublin’s history.

Finance Minister Brian Lenihan is planning an initial 6bn euros (£5bn) of cuts in welfare spending and job losses.

It is part of a deal to secure an 85bn-euro bail-out, but Fianna Fail’s slim majority means the vote could be close.

Once the budget is cleared by parliament it will trigger the first tranche of bail-out funds from the European Union and International Monetary Fund.

The government previously announced cuts under a four-year National Recovery Plan unveiled two weeks ago.

Dublin is looking to save about 15bn euros over the period as it struggles to balance the books after its banking and property.

But on Tuesday prime minister Brian Cowen’s government is to announce its spending programme for this financial year, having already warned that 2010/11 was likely to see the biggest cuts of the four-year plan.

The Irish Republic’s generous welfare budget is a prime target for the axe.

Child benefit is being slashed, and social welfare spending – state pensions excluded – is being cut by 5%.

Thousands of public sector jobs will go. Civil service pay freezes will be imposed, and reform of the tax system will bring thousands of Irish people into the tax net. The minimum wage will be lowered.

Analysis

Dublin is a very cold place these days and the mood of the people matches the weather.

Politicians from the ruling Fianna Fail coalition usually enjoy a friendly and gregarious relationship with voters on all sides but that is no longer the case.

Voters are champing at the bit to get to the ballot box and punish this government.

That urge will intensify today when even further swingeing cuts are announced in the budget for 2011 including a de facto rise in income tax by dramatically widening the tax net as well significant cuts on social welfare.

Usually budgets contain some sweeteners for political reasons. One suspects that no amount of Canderel or Hermacetas would be able to sugar coat this most bitter of fiscal pills.

That the populace must endure this hardship so that failed Irish banks can be propped up is likely to live long in memories.

Mr Cowen says the cuts are necessary because Ireland was living way beyond its means.

Surging bond yields – the interest rates Dublin pays to borrow money – forced the government to ask for a bail-out on 28 November, as the Republic could no longer afford to raise money in the financial markets.

Mr Cowen, with his poll rating at a record low, needs to push the budget through to avoid having to call a snap election.

Failure to do so could plunge the Republic into a deeper crisis, one that could help spread contagion throughout the heavily-indebted eurozone.

Mr Cowen’s government only has a majority the Dail, or lower house of parliament, thanks the support of two independent MPs.

One of these MPs, Michael Lowry, pledged his support for the budget on Monday evening.

“The consequences of not passing a budget would be disastrous for Ireland and its people,” he said in a statement.

“Despite some adverse reaction in my constituency to this decision I feel duty bound to put the country’s interests first.”

The other independent MP, Jackie Healy-Rae, had yet to comment on whether he will vote for the budget.

And it is not clear if all opposition MPs will oppose the budget. There has been talk of some MPs abstaining from the vote, strengthening Mr Cowen’s hand.

But it is not essential that all parts of the budget are cleared on Tuesday.

The vote will be conducted via four separate ballots, and the budget must be passed within four months of Mr Lenihan presenting it to parliament.

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