Ireland Unveils Austerity Plan to Help Secure Bailout
By LIZ ALDERMAN
Published: November 24, 2010
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DUBLIN — The Irish government announced plans for steep tax increases and sharp cutbacks in its social welfare state and public spending on Wednesday. The austerity measures are meant to help secure an international bailout and to pay for a severe banking crisis that has depleted the country’s finances.
Paul Mcerlane/European Pressphoto Agency
Prime Minister Brian Cowen announced the austerity measures in Dublin.
The plan, which would slash public spending by 15 billion euros ($20 billion) over four years came as the embattled government prepared to effectively nationalize two troubled banks that have bled the state of money, and Standard & Poor’s lowered Ireland’s credit rating, citing concerns about the how much the government was borrowing and about the vast amounts needed to shore up the country’s banking system.
Throngs of protestors shouted outside Prime Minister Brian Cowen’s office as he unveiled details of how the government planned to reduce its budget deficit to the equivalent of 3 percent of gross domestic product by 2014, from about 32 percent now. In an energetic speech aimed at bolstering national morale, Mr. Cowen urged Ireland to “pull together as a people to confront this challenge, and do so in a united way.” He said the budget would raise money mainly by taxing those who earn more, while going softer on those who have less, but he cautioned that the “size of the crisis means no one can be sheltered.”
The International Monetary Fund and Ireland’s partners in the European Union insisted on an austerity budget as a condition for the country obtaining assistance totaling 85 billion euros ($114 billion), money the country badly needs after it stepped in to rescue its banks. During the economic boom years before 2008, Irish banks borrowed cheaply and pumped out loans on houses and construction projects, helping to fuel an American-style housing bubble that went bust, ravaging their balance sheets.
The budget calls for cuts of nearly 15 percent in Ireland’s social welfare budget, one of Europe’s most generous, saving 3 billion euros a year. Some 24,750 public jobs — a huge number in a country of about 4 million people — would be eliminated, cutting state payrolls down to about what they were in 2006 and saving about 1.2 billion euros a year. Child benefits other social welfare payments would be reduced, and the nation’s minimum wage, now 8.65 euros ($11.59) an hour, would be cut by 1 euro in the hope of promoting job creation.
The country’s tax net would be widened to take in some low-income workers who currently pay no tax, and a series of new taxes would be imposed on certain residential properties, as well as on 120,000 people who receive public sector pensions.
But the budget plan does not touch Ireland’s very low corporate tax rate of 12.5 percent, which has helped to lured companies like Microsoft, Intel and Pfizer to set up operations in the country. Though the country’s political parties are bitterly divided over many aspects of economic policy, they all agree that the low corporate tax rate is one of the few pillars that can allow Ireland to return to economic health. Multinational companies employ about 1 out of 7 working people in Ireland, and their businesses are stoking export growth, even as the latest austerity program is expected to depress consumer demand and touch off a wave of retrenchment and job losses.
The government is expected within days to take over effective control of the two largest banks in the country, AIB and the Bank of Ireland, following plunges in their share price.
Officials from the European Union and the monetary fund have been in Dublin since last week, talking with the government about the financial crisis. They will spend the next several days poring over the details of the budget plan.
Boisterous protestors gathered outside the hotel rooms where IMF officials have been staying before moving on to the government building. The finance ministry did not announce the location of where the budget would be unveiled until nearly noon Wednesday, citing security concerns and the likelihood that protest crowds could grow throughout the day. (the newyork times)
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