The Irish government unveiled a tough 2011 budget on Tuesday which foresees 6 billion euros in spending cuts and tax hikes, warning that passage was crucial to avert a deeper crisis and free u
p EU/IMF aid.

In a speech to parliament, Irish Finance Minister Brian Lenihan sketched out a welter of austerity measures, including cuts to child benefit and public sector pensions and a widening of the tax net, but retained his rosy growth forecasts.

He acknowledged mistakes but said it was time for the country, at the heart of a deep debt crisis shaking the entire 16-nation euro zone, to move forward with confidence and purpose.

The scale of this adjustment is demanding, but it demonstrates the seriousness of our intent, Lenihan said.

A burst property bubble has transformed Ireland from one of Europe's brightest stars to a country that has been forced to seek an 85 billion euro bailout from the IMF and the EU to cover its borrowing costs and shore up its banks.

Prime Minister Brian Cowen needs to get his 2011 fiscal plan past parliament to access the first tranche of emergency aid and despite a razor-thin majority he is expected to win passage in a series of votes that begin Tuesday night.

The bailout has stirred outrage in the humbled former Celtic Tiger and the main opposition party Fine Gael criticized the government for mismanaging the economy and sacrificing Irish sovereignty.

This budget is the budget of a puppet government who are doing what they have been told to do by the IMF, the EU Commission and the European Central Bank, said Michael Noonan, finance spokesman for the center-right Fine Gael party and a possible future finance minister.

Once all the resolutions underpinning the budget have passed early next year, Cowen, the most unpopular leader in recent Irish history, has promised to call an election he is widely expected to lose.

That means a new government, most likely a coalition of Fine Gael and center-left Labour, will be tasked with overseeing the budget cuts, which will hit an economy already smarting from a prolonged recession.

Both opposition parties have said they will re-negotiate the terms of the bailout package agreed late last month. But in practice the opposition will have little room for maneuver, having agreed to the broad targets of the rescue plan.

Fine Gael want the IMF out of here, Noonan said.


The 2011 budget is the toughest in a four-year austerity plan that aims to save 15 billion euros -- nearly 10 percent of annual economic output -- and get the worst deficit in the region back within EU limits by 2015 at the latest.

Cowen will push through some four billion euros in spending cuts next year, with social welfare benefits, public pensions and capital projects all set for the chop.

I'm afraid for the future, I'm afraid for the country and everyone around me, said Maeve, a retired lecturer who broke into tears when talking about economic hardship at the Moore Street market in central Dublin.

I look at the misery around me and wonder what will happen to this country, she said, as icy rain pelted the Christmas shop windows in the inner-city.

Tax adjustments will make up another two billion euros with roughly half of the additional revenues coming from lowering income tax bands and tweaking tax credits, allowing the government to target the 45 percent of workers, on lower incomes, who did not previously pay income tax.


Some economists have warned the measures risk tipping Ireland into a prolonged downturn that would make its debt targets even harder to achieve.

But Lenihan retained his view that Gross Domestic Product (GDP) would expand by 1.7 percent next year, nearly double the European Commission's forecast of 0.9 percent.

The headline message is the numbers in the budget remain extremely optimistic about economic growth, said Neil Gibson, economic advisor at Ernst & Young.

The budget clarifies the position of how we'll get the economy back in balance, but it's banking on extremely strong recovery that we don't think is possible.

Parliament's lower chamber will vote on changes to excise duties and sales taxes in the evening.

A vote on social welfare measures and another vote on changes to public pensions are due next week. A fourth vote on general finance steps is due in the first quarter of 2011.

A failed vote this week or next would trigger a general election and prevent the flow of funds from the EU and IMF until a new administration was in place.

Ireland's budget deficit is set to blow out to a jaw-dropping 32 percent of gross domestic product (GDP) this year due to the one-off inclusion of a 30 billion euro-plus bill for shoring up its banks.

(Additional reporting by Jodie Ginsberg and Yara Bayoumy)

(Writing by Noah Barkin)