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Irish lawmakers offer initial OK for brutal budget

By Shawn Pogatchnik

Associated Press

Published: Tuesday, Dec. 7 2010 3:05 p.m. MST

Protesters hold a demonstration outside Leinster House, Dublin, Ireland, Tuesday, Dec. 7, 2010. Lawmakers narrowly approved tax hikes Tuesday as part of Ireland's most brutal budget in history, a euro6 billion ($8 billion) slash-and-tax plan imposed as a key condition of the nation's international bailout. Rejection following Tuesday's publication of the long-awaited 2011 budget would have forced Prime Minister Brian Cowen's resignation and snap elections and raised doubts about whether Ireland could tap €67.5 billion ($90 billion) from the European Union and the International Monetary Fund.

Peter Morrison, Associated Press

DUBLIN — Lawmakers narrowly approved tax hikes Tuesday as part of Ireland's most brutal budget in history, a €6 billion ($8 billion) slash-and-tax plan imposed as a key condition of the nation's international bailout.

Rejection following Tuesday's publication of the long-awaited 2011 budget would have forced Prime Minister Brian Cowen's resignation and snap elections — and raised doubts about whether Ireland could tap €67.5 billion ($90 billion) from the European Union and the International Monetary Fund.

But Cowen survived thanks to an 82-77 vote in favor of midnight hikes in taxes on vehicle fuel. The complex budget faces several more parliamentary tests between now and February, with at least three separate votes for major bills on welfare cuts, sweeping expansion of the income-tax net and other measures.

Unveiling the budget, Finance Minister Brian Lenihan said every household in this country of 4.5 million must take hits on their net incomes to close Ireland's staggering deficit.

Lenihan said Ireland had no choice but to slash spending and raise taxes immediately because the country this year is spending more than €50 billion on daily government activities and has committed at least €45 billion to bail out its banks — yet is collecting just €31 billion this year in taxes.

The result has been an underlying deficit this year of 11.6 percent of Ireland's gross domestic product, second-worst in the 16-nation eurozone to fellow aid patient Greece. When exceptional bank-bailout costs are included, as European Union authorities have required, Ireland's 2010 deficit skyrockets to a modern European record of 32 percent of GDP.

Lenihan's plan — the harshest yet of four emergency budgets unveiled since 2008 — contains €4.5 billion ($6 billion) in spending cuts and €1.5 billion ($2 billion) in tax rises. A potential further €9 billion ($12 billion) in cuts and tax hikes loom for 2012-14.

He said these measures represent the minimum required to counter "the worst crisis in our history" and put Ireland on course to reduce its deficit to the eurozone limit of 3 percent by 2015 as EU authorities expect.

As Lenihan spoke, outside the wrought-iron parliament gates, several hundred left-wing protesters endured icy weather to denounce the cuts as likely to hit the poorest citizens the hardest. Some banged drums, blew whistles, clanked cattle bells and tooted horns. Many more waved placards demanding that Ireland's state-aided banks default on their hundreds of billions in debts to foreign banks — a notion that Lenihan dismissed as economically suicidal.

The finance chief stressed that Ireland faced no easy choices as it deepens its austerity measures while simultaneously seeking to grow its economy.

He called the €80 billion ($105 billion) that Ireland's banks are estimated to have lost on dud property loans "unforgivable" — yet defended the need for Ireland's taxpayers to foot the lion's share of that bailout bill rather than the foreign banks that loaned Dublin institutions the money.

"There's simply no way this country, whose banks are so dependent on international investors, can unilaterally reneg on senior bondholders against the wishes of our European partners and the European institutions," Lenihan said. "This course of action has never been an option during the course of this crisis."

Instead, Lenihan said income taxes would be broadened to bring tens of thousands of low-salaried workers into the tax net for the first time, while welfare payments would be cut across the board. Spending on capital projects — chiefly jobs-intensive building of roads and public transportation networks — would be cut by €1.8 billion ($2.4 billion).

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