- Associated Press - Tuesday, December 7, 2010

DUBLIN | Ireland must endure the toughest cuts and tax increases in its history as an unavoidable price for saving the debt-burdened nation from bankruptcy, Finance Minister Brian Lenihan told lawmakers as they prepared to vote on a brutal 2011 budget.

Mr. Lenihan’s plan — the harshest yet of four emergency budgets unveiled since 2008 to combat a runaway deficit — contains $6 billion in spending cuts and $2 billion in tax rises.

Mr. Lenihan told lawmakers he thinks Ireland’s economy can grow despite the fact that almost all 4.5 million residents face “a traumatic and worrying time.” He said the depth of the cuts represents the minimum required to counter “the worst crisis in our history and one with few international parallels.”

As he spoke, outside the wrought-iron parliament gates, hundreds of left-wing protesters gathered in icy weather to denounce the cuts as likely to hit the poorest citizens the hardest.

Mr. 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 $2.4 billion.

Mr. Lenihan said Ireland had no choice but to slash spending and raise taxes immediately because the country this year is spending more than $66 billion on regular government and at least $60 billion to bail out its banks — yet collecting just $25 billion this year in taxes.

The staggering imbalance means an underlying deficit this year of 11.6 percent that, when bank-bailout costs are included, balloons to a modern European record of 32 percent of GDP.

He defended the government’s reluctant decision last week to negotiate a $90 billion loan fund from the European Union and International Monetary Fund (IMF), a Greek-style bailout that Ireland long had dismissed as unnecessary.

The first $13 billion in foreign loans is earmarked to bolster the cash reserves of five Dublin banks that the government has nationalized or is propping up.

Political analysts expected the budget to pass its initial vote Tuesday night, but its measures face several more votes through next month. Prime Minister Brian Cowen has pledged to resign and call an early national election once the budget is fully enacted in the spring.

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