Ireland eases back on austerity as bailout exit beckons

Reuters

* Presents some tax breaks while also making budget cuts

* Bailout exit closes chapter in Ireland's history

* Growth seen accelerating to 2 percent in 2014

By Sam Cage and Padraic Halpin

DUBLIN, Oct 15 (Reuters) - Ireland eased back on itsausterity programme on Tuesday, giving voters a modest breakfrom six years of pain as it aims to become the first euro zonecountry to pull out of an international bailout.

Presenting the 2014 budget, Finance Minister Michael Noonanannounced Dublin would impose fewer savings than originallyplanned on a people worn down by the years of tax increases,spending cuts, high unemployment and heavy debts.

"By the time the majority of the measures that I haveannounced today become law on the first of January next, I amconfident that Ireland will have left the EU/IMF programme," Noonan told parliament. "We will have closed this chapter ofIreland's history."

Noonan is using savings from a deal on its bank debt to makethe smaller cuts, going against advice from his own central bankand initial misgivings from the EU and IMF. But as Ireland hashit all its bailout targets, this is unlikely to complicatecompletion of the 85 billion euro ($115 billion) bailout

Ireland had to rescue its banks after the financial crisiserupted in 2008, dragging the state close to bankruptcy andforcing it to accept the rescue by the European Union andInternational Monetary Fund two years later.

Last weekend Prime Minister Enda Kenny said Ireland wouldend the programme on Dec. 15, leaving Greece, Portugal andCyprus still with sovereign bailouts. Spain has also takenEuropean money to rescue its banks.

An exit will allow Ireland's centre-right-led coalitiongovernment to show it is regaining economic sovereignty andBrussels to claim austerity policies are bearing fruit.

However, Ireland has not yet finished with austerity. Noonan will make 2.5 billion euros in tax increases and spendingcuts next year, including a new bank levy to raise 150 millioneuros and higher tax on alcohol, tobacco and savings. That isstill much less than the 3.1 billion originally agreed.

But deep discontent remains in a country of 4.6 million that was scarred by poverty and emigration before a boom fuelledby easy credit, construction and low taxes helped make it one ofEurope's richer nations.

THEY'RE KILLING US

Noonan was presenting Ireland's seventh austerity budget insix years and the popularity of Kenny's government is waning.

Outside parliament, a small group of protesters wavedplacards saying "Austerity kills" and "The Enda is Nigh". Butthe small size of the demonstration underlined the resignationwith which many Irish have accepted austerity, compared with therage that has rocked countries such as Greece and Spain.

"They're killing us," said community centre manager TommyCoombes. "They need to think twice before continuing with thisausterity."

With the economy expected to grow only 0.2 percent this yearand 2.0 percent in 2014 - slightly more than the government's previous forecast given just a week ago - the government willmaintain a lower sales tax rate on the hospitality industry andcut air travel tax to zero in an attempt to spur more spending.

It is also banking on exports increasing as major tradingpartners Britain and the euro zone recover.

Accelerating growth should help to bring the budget gap downto 4.8 percent of gross domestic product in 2014, below a 5.1percent target agreed with the international lenders, and Noonanaims to deliver a small primary budget surplus in 2014.

The new measures mean Ireland will have made 95 percent ofthe 33 billion euros in budget cuts needed to bring its deficitdown to the EU limit of 3 percent of GDP, Goodbody Stockbrokersestimated.

"It should support the recovery ... and it should also bereasonably well accepted by financial markets," said AustinHughes, chief economist at KBC Bank Ireland.

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