Ireland cringes as chill of austerity budget sets in

Ireland’s government yesterday unveiled what many are calling its harshest ever budget, which came just hours after the European Union approved Dublin's $113 billion loan.

The much-leaked document contains plenty of pain, including $8 billion of spending cuts designed to stabilize public finances and rescue the country from its current economic crisis.

But the government has signaled that many more tough years are ahead. No section of society has escaped the axe, but there are widespread complaints that low and middle-income families will be hurt most. Opposition parties and civil society groups have attacked the austere nature of the budget while the far left says it's unnecessary.

When Irish finance minister Brian Lenihan announced deep spending cuts and tax increases for all sections of society, he said it was “a substantial down payment on the journey back to economic health.”

The new budget measures are largely a result of Ireland's EU loan, seen as a way to help Ireland and also protect the euro amid increasing investor worries over the stability of EU economies.

Headlining the budget was a raft of changes to the tax system, including a new “universal social charge,” along with cuts in welfare and the minimum wage alongside increases in college fees.

There have also been cuts in wages for public servants. Employees of semi-state owned enterprises will now have their salaries capped at $330,000 annually, though it is unlikely the change can be applied to current office-holders.

The office of prime minister took an $18,500 pay cut and government ministers will lose $13,000 each – staring with the next government. An election is expected in January. At $282,000, the Irish premier will still earn more than every other European leader, the salary topped only by President Obama and the premiers of Hong Kong and Singapore.

Most opposition lawmakers slammed the budget. There had been concerns in government circles that the budget would not pass but two independent lawmakers announced late Monday that they would vote vote against it.

In contradiction to her party’s objection to the measures, one Fine Gael lawmaker offered to abstain in order to give the government a majority. Lucinda Creighton told the Sunday Business Post that she did not “believe it would be good for the country for this budget to fall.”

Both labor unions and business organizations complained the budget was not in the country’s interests, while some of the harshest criticism came from Ireland’s resurgent left and center-left.

“My biggest problem is there is not much being targeted for jobs and recovery. There was very little stimulus: public investment is down by [$2.4 billion] and there is nothing there for business investment,” says Joan Burton, Labour party finance spokeswoman.

Asked if Labour could have avoided cuts widely seen as necessary, Ms. Burton says her party had a different emphasis.

“The problem is the deflationary aspect of it. One of the hidden assumptions [of the budget] is that emigration will continue, particularly for young people,” she says.

The response for economists has been mixed.

Ronan Lyons, who is currently studying for a PhD at Oxford University and worked as a commercial economist in Ireland, is broadly supportive of the measures.

“The overall thing about the budget is they say they’re going to take out [$8 billion] but they really made very few reforms [and] there will be three more [similarly] tough budgets to come. However, the growth path Ireland will have now is looking better than it was before the budget,” he says.

Constantin Gurdgiev from Trinity College Dublin is less enthusiastic.

“What they’ve done is effectively cluster-bombed the middle class,” says Dr. Gurdgiev. “There is no thinking or strategy here and it’s destructive in terms of growth in the domestic sector.”

Two unrelated occurrences saw a mild panic spread before the budget announcement. A computer glitch shut down 1,000 Bank of Ireland ATMs, leading some to believe the bank had run out of money. Branches remained open but with “limited” cash withdrawal facilities. Telephone and online banking was also affected and the bank has warned of potential double charging on some accounts.

Adding to the sense of doom, Dublin City Council announced it was shutting-off water in the capital for 12 hours from 7 p.m. due to, it claimed, a water shortage caused by people leaving taps running during the past week of freezing weather.

Public anger is running high but has not yet hit fever pitch. A small protest group of around 150 people stood outside the Irish parliament Tuesday and one man was arrested for staging his own protest – he parked a cherry picker outside the building, unveiling an antigovernment message.

There were reports of other small, isolated protests, with participants numbering in the hundreds, in the capital.