Ireland braced for tough times ahead

The Republic of Ireland is braced for a budget which is predicted to be the harshest for more than a decade as its government struggles to increase the stability of its economic system.

Finance minister Brian Lenihan is expected to announce in the Irish parliament today both increased taxes and spending cuts in a budget which will mark the ending of the "Celtic Tiger" period.

The new mood of parsimony has led to the leader of the opposition voluntarily taking a cut in his official salary, leading to speculation that ministers may follow suit.

The period which took Ireland to unprecedented levels of prosperity is now wistfully regarded as a thing of the past, with the Republic now facing into years of difficulties.

Its problems include a collapse of confidence in the banking system, steep falls in house prices, negative equity and increasing unemployment as the years of plenty give way to leaner times.

Recent research predicts a 30 per cent fall in house prices will take place between the 2007 peak and 2009.

Even before the credit crunch emerged the Irish economy had markedly slowed, with a recognition that the boom years were over. But now expectations have obviously been lowered to deeper levels.

The most recent estimate is for an exchequer deficit of almost 15 billion euros. Prime minister Brian Cowen has warned that "tough decisions" would be taken in the budget, declaring: "We've had many years of unprecedented and unparalleled and continuous growth.

"That is not in prospect in the immediate period ahead. We have to adjust our arrangements accordingly." One of his ministers added that "tough and very severe decisions" would be outlined in the budget.

Medical benefits for the over-70s are among the schemes which may suffer from cuts, as well as higher education registration fees.

Opposition leader Enda Kenny, leader of Fine Gael, last week caused a surprise by announcing at a news conference that he was taking a five per cent cut in his parliamentary salary.

The surprise extended to senior colleagues who were accompanying him, since he was later overheard saying to them, "Sorry to land you in that there." Under media questioning they both said they would be opting for the same reduction.

There has been no subsequent rush among parliamentarians seeking pay cuts, but the move has increased pressure on the government to make similar symbolic gestures.

Meanwhile the European Commission has approved Ireland's bank guarantee plan in spite of speculation that it might have contravened competition regulations. The government's scheme, announced two weeks ago, attracted some international criticism, but in Dublin was seen by many as a decisive act at a time of great uncertainty.