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Ireland's glimpse of pain

news | 15:22 UK time, Wednesday, 24 November 2010

Irish Prime Minister Brian Cowen addresses reporters in Dublin, 24 November

The Irish government has announced what it calls "a major plan for economic recovery". It is brutal. Some have even labelled it "vicious".

Some of the broad details were trailed well in advance. There will be 15bn euros of savings over the next four years and 6bn of those will come next year. The balance between tax increase and spending cuts will be announced in the budget on 7 December.

Make no mistake, this a hard-knuckle plan. Very few other countries have cut spending by 20%.

Once again, the public sector will feel the axe. Cuts in public sector pay will account for 1.2bn euros. New entrants to the civil service or the public sector will get a 10% pay cut. Jobs will be lost - more than 24,000 of them. There will be cuts in public sector pensions.

The minimum wage will be reduced to 7.65 euros an hour.

Over the next four years, 2.8bn will be cut from the social welfare bill. There will be cuts in services. Students will have to make a new contribution to their studies.

Taxes will go up but not corporation tax which the plan says remains a "cornerstone of industrial policy". VAT will drift steadily up to 23% in 2014. The numbers paying the upper rate of income tax will go up. There will an increase in pension-related taxes.

The purpose of all this is to pare Ireland's deficit from 32% now (taking into account this year's one-off support for the banking sector) down to 3% in 2014.

A woman protests against the cuts in Dublin, 24 November

Many questions flow from this "blueprint for sustainable economic growth".

The government expects economic growth of 2.75% for the years 2011 to 2014. That is far from certain considering the spending cuts they are making.

To date, the Irish people have swallowed the austerity medicine. They may be more hostile this time around. There could well be demonstrations and opposition on the streets.

Elections are sure to follow and it is not clear which party or government will oversee this programme. The Irish people may use the ballot box to reject this package.

The plan says that economic recovery will be export-led. Although costs will clearly be lower - and that should help exports - many other countries that Ireland trades with are also making cuts.

The Irish will need good fortune this plan to deliver.

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