Ireland cuts budget to cope with recession fears
DUBLIN, Ireland—Ireland is cutting back its spending plans to cope with growing fears of recession and a sharp drop in tax revenues, the government announced Tuesday.
Finance Minister Brian Lenihan said the government hoped its budget cuts would save $690 million this year and $1.5 billion in 2009. They include plans to trim the civil service payroll by 3 percent.
To lead by example, Prime Minister Brian Cowen said his Cabinet -- as well as senior civil servants, police commanders and judges -- would be denied planned pay raises until at least September 2010.
"It is incumbent on all of us to make the compromises necessary to ensure that Ireland emerges undamaged from the difficult global environment we are now in," Cowen told a press conference following his weekly Cabinet meeting.
The move comes at a time when government spending is up 11 percent from the previous year, tax revenues are 8 percent down, and labor unions are demanding national pay increases to keep pace with Ireland's inflation rate of nearly 5 percent.
Ireland has spent the past decade enjoying budget surpluses buoyed by one of Europe's most dynamic property markets -- but the bubble has burst over the past year amid global credit worries.
Earlier this month, Lenihan announced that Ireland faced a $4.5 billion deficit this year and worse to come in 2009.
The ballooning red ink, if unchecked, would put Ireland's deficit spending on course to exceed 3 percent of its gross domestic product -- a budgetary barrier that all members of the European common currency, the euro, are supposed to observe.
"If we do not act now, the financial situation facing us for 2009 will be more difficult and the action needed more urgent," Lenihan said. "It has been suggested in some quarters that we ride out the present downturn by further large-scale borrowing. We are not going down that road."
He listed several areas where Ireland would reduce spending over the next 18 months. These include a minimum 50 percent reduction in contracts for advertising, public relations and outside consultants; $70 million less this year spent on overseas aid; and a freeze on buying offices for relocating government offices from Dublin to other parts of Ireland.
Ireland's sudden return to red ink offers more evidence of the demise of the vaunted Celtic Tiger economic boom of 1994-2007. The economy this year has been shrinking for the first time since the mid-1980s and unemployment is jumping, led by heavy layoffs in the construction industry.
