Irish unveil tough four-year austerity plan
The Irish government has unveiled a range of tough austerity measures designed to help solve the country's debt crisis.
Among the spending cuts and tax rises are a reduction in the minimum wage, a new property tax and thousands of public sector job cuts.
The four-year plan is designed to save the state 15bn euros ($20bn; £13bn).
The government is also negotiating a bail-out package with the EU and IMF, expected to be worth about 85bn euros.
However, controversy surrounds the government's growth forecast - which is crucial for its deficit forecast over the next four years - and which many economists consider too optimistic.
Meanwhile bond markets have expressed their displeasure, with yields on Irish government bonds returning to the same elevated levels they were at before talks over the bail-out began.
Spain is also being caught up in a broader loss of confidence in eurozone governments, with the yield on its 10-year bond rising above 5% for the first time since 2002.
Key points of the recovery plan include:
- 24,750 public sector jobs cuts
- 2.8bn euros of savings in social welfare spending
- 1.9bn euros to be raised from income tax changes
- 1 euro cut in the minimum wage to 7.65 euros an hour
- VAT rise from 21% to 22% in 2013, and to 24% in 2014
- the corporation tax rate remains unchanged at 12.5%
- a new "site value" property tax to raise 200 euros from most homeowners by 2014.
Finance minister Brian Lenihan said that the spending cuts would be concentrated in areas of highest spending - pay, pensions and social welfare.
"It is important to understand these are key drivers to expenditure and will be curtailed," he told a press conference.
The government has said it wants to protect health and education spending as far as it can.
Controversially, the plan does not include any revision to the government's growth forecast, which is considered by most private economists to be too optimistic.
The government still expects the economy to average 2-2.5% growth in 2011, and 3.5-4.5% the year after. The figures include the effect of inflation.
But rating agency Standard & Poor's - which cut the Republic's credit rating on Tuesday night - said it expects virtually no growth over the next two years.
Lower growth would mean lower tax revenue and higher unemployment benefit payments, and could lead to bigger losses at Ireland's banks, than is currently forecast by the Irish government.
Publication of the plan follows days after the arrival of the EU and IMF negotiating team.
But speaking to the BBC, Mr Lenihan denied the delegation had a role in drafting the plan, saying it was "our work and our work alone."
In total, the spending cuts will amount to 10bn euros while tax rises will bring in a further 5bn euros.
The 15bn euros equates to about 9% of the country's total economic output, which is similar in percentage terms to the 8% budget cuts the UK coalition government has recently announced.
However, the Irish government has already implemented 15bn euros of cuts in the last two years.
Mr Cowen said he hoped the latest plan would "bring certainty to our people to make sure they have hope for the future".
"We can and will pull through as we have in the past. We love our country and we want to make sure our children have a future here too."
He added that the plan was also "about growing the economy and identifying those sectors of the economy that are proving to be successful".
But the plans, which include public sector pay cuts and layoffs, were met with immediate opposition from unions.
"This is a road map back to the Stone Age," said Jack O'Connor, head of Ireland's biggest union, Siptu. "Ireland needs a strategy for growth, but this plan will achieve the opposite."
The union is organising a march on Saturday in protest at the cuts.
However, Mr Cowen said the rationale behind the recovery plan was job creation. He pledged to reduce unemployment below 10% by 2014.
Opposition parties have also been vocal in their criticism of the government and called for an immediate general election.
Mr Cowen refused to answer questions about an election, which is expected early next year.
The government's tenuous position is undermining the credibility of the recovery plan and contributing to instability in financial markets, analysts say.
"I'm not sure [the plan] is really going to convince markets," said Ben May at Capital Economics.
"The whole political uncertainty at the moment means that people aren't 100% sure that they will even be able to pass the budget. Even if they do, there's probably going to be a new government early next year."