Irish people braced for tough cutbacks and higher taxes on Tuesday as the government readied a new austerity budget to shrink a soaring deficit and win access to emergency loans from the EU and the IMF.

Ireland's recession-weary population has already endured two and a half years of cuts and the prospect of four more years of sacrifice, kickstarted with the toughest budget on record later on Tuesday, has many people wondering how they will cope.

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.

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 Dublin's inner city.

A property bubble has transformed Ireland from one of Europe's brightest stars to a country requiring 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.

But the 2011 budget, which will squeeze 6 billion euros ($8 billion) out of an economy still smarting from a prolonged recession, marks the beginning of the end for his government.

Cowen, the most unpopular leader in recent Irish history, has promised to call an election once the legislation underpinning the budget is passed, likely to be early next year.

His Fianna Fail party is set for a record drubbing and a coalition of the center-right Fine Gael and the center-left Labour party is expected to take over, possibly in the first quarter.

Both 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.


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 don't want to think about it, said John-Joe Feeney, a 41-year-old out of work carpenter in Dublin's poor inner city.

I just know they (the government) are going to hurt the people who have nothing, like me, my wife and kids and leave the fat cats alone. It's not worth thinking about.

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 that such measures risk tipping Ireland into a prolonged downturn that would make its debt targets even harder to achieve.

With such a figure (6 billion euros) being taken out of the economy, it is hard to see domestic demand picking up anytime soon, said Alan McQuaid, chief economist at stockbroker Bloxham.

Brian Lenihan, ranked by the Financial Times as the worst finance minister in Europe this week, will unveil the plan in parliament at 1545 GMT and the 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 Yara Bayoumy)