Ireland eases back on austerity as bailout exit beckons

October 15, 2013

* 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 its austerity programme on Tuesday, giving voters a modest break from six years of pain as it aims to become the first euro zone country to pull out of an international bailout.

Presenting the 2014 budget, Finance Minister Michael Noonan announced Dublin would impose fewer savings than originally planned 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 have announced today become law on the first of January next, I am confident that Ireland will have left the EU/IMF programme," Noonan told parliament. "We will have closed this chapter of Ireland's history."

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

Ireland had to rescue its banks after the financial crisis erupted in 2008, dragging the state close to bankruptcy and forcing it to accept the rescue by the European Union and International Monetary Fund two years later.

Last weekend Prime Minister Enda Kenny said Ireland would end the programme on Dec. 15, leaving Greece, Portugal and Cyprus still with sovereign bailouts. Spain has also taken European money to rescue its banks.

An exit will allow Ireland's centre-right-led coalition government to show it is regaining economic sovereignty and Brussels 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 spending cuts next year, including a new bank levy to raise 150 million euros and higher tax on alcohol, tobacco and savings. That is still 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 fuelled by easy credit, construction and low taxes helped make it one of Europe's richer nations.



THEY'RE KILLING US

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

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

"They're killing us," said community centre manager Tommy Coombes. "They need to think twice before continuing with this austerity."

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

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

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

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

"It should support the recovery ... and it should also be reasonably well accepted by financial markets," said Austin Hughes, chief economist at KBC Bank Ireland.