Ireland set to ease austerity as bailout exit looms

Ireland's Finance Minister Michael Noonan presents the budget to waiting media at the Government Buildings in Dublin

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Ireland's Finance Minister Michael Noonan presents the budget to waiting media at the Government Buildings in Dublin December 5, 2012. REUTERS/Cathal McNaughton

DUBLIN (Reuters) - Ireland is set to ease austerity in a 2014 budget to be unveiled on Tuesday, attempting to give hard-pressed voters a break as it gets ready to end its dependence on an international bailout later this year.

Dublin is using savings from a landmark deal on its bank debt to make fewer cuts than originally planned for a population of 4.6 million that is weary of six years of tax hikes, spending cuts, high unemployment and hefty debts.

Having consistently hit targets to rebalance its economy, Ireland is confident it will be the first of the euro's debt-laden economies to complete a three-year European Union/International Monetary Fund bailout programme in December.

That will be a vital landmark for the centre-right-led coalition government to show it is regaining economic sovereignty and Brussels to claim its austerity policies are bearing fruit.

"Growth momentum is picking up, with a possible carry over into 2014," said Alan McQuaid, chief economist at Merrion Stockbrokers. "Markets will probably see it as a final step towards exiting the bailout."

By making smaller cuts, Finance Minister Michael Noonan is going against advice from his own central bank and initial misgivings from the EU and IMF. But given Ireland has hit all its targets, it is unlikely to complicate completion of the 85 billion euro (72.1 billion pounds) bailout.

Noonan has already revealed a lot of the economic forecasts the country's seventh austerity budget since 2008 will be based on, saying the adjustment will be 2.5 billion euros, substantially less than the 3.1 billion originally agreed.

He expects economic growth to accelerate to 1.8 percent in 2014 from 0.2 percent this year, which will help to bring the budget gap down to a targeted 4.8 percent of gross domestic product, below a 5.1 percent target agreed with lenders.

Noonan, whose budget plans will again focus more on spending cuts than tax hikes, forecasts a 7.3 percent deficit this year, still one of the highest in the EU, and aims to deliver a small primary budget surplus in 2014.

What remains unclear is where cuts will fall and whether Noonan will choose to ease off in some areas. He is expected to reverse a cut in sales tax which had boosted the hospitality sector and increase capital gains tax.

Some media have reported he will add to free healthcare for young children and may consider cutting sales tax on construction to encourage an industry almost wiped out by the crash but which is now showing signs of life.

Bookmaker Paddy Power gives odds of 6/1 on "recovery" being the first of the austerity era's buzzwords to be wheeled out in Noonan's speech, followed by "euro zone" and "bailout" at 7/1. "Sacrifice" was at 12/1 and "persevere" at 20/1.

"Recent budgets haven't been associated with good news but a free tin of biscuits for Christmas would certainly brighten up an otherwise dreary Tuesday," the betting firm said in a statement.

(Reporting by Sam Cage)

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