Irish Finance Minister Michael Noonan will ratchet up preparations for the nation’s exit from its bailout program, after laying out plans yesterday for a seventh austerity budget.
Noonan sketched out 2.5 billion euros ($3.4 billion) of tax increases -- including more levies on beer, cider and banks -- and spending cuts, including abolishing an 850-euro bereavement grant. He plans to narrow the fiscal deficit to 4.8 percent of gross domestic product in 2014 from 7.3 percent this year.
By January, “we will have exited the program, and Ireland will have been handed back her purse,” Noonan told lawmakers in Dublin. “We are well along the recovery path and it is time now to begin to look forward.”
The government is reducing the 3.1 billion euros of adjustments it had originally sketched out for next year, trying to buttress signs of a recovery after the worst recession in Ireland’s modern history. Noonan said yesterday that after the budget he’ll consult with the country’s bailout masters on a strategy to exit the three-program rescue program Ireland entered in 2010.
The budget “sits well with the idea of Ireland slowly and smoothly edging its way out of the bailout at the end of this year, having restored the state finances to a sustainable, if still fragile, position,” said Owen Callan, an analyst at Danske Bank A/S in Dublin, which is also a primary dealer in Irish debt.
The premium Ireland pays to borrow for a decade compared with Germany is 1.79 percentage points, down from a high of 11.4 points in July 2011. The yield on Ireland’s 10-year bond has dropped to 3.70 percent.
Noonan said the government hasn’t finally decided on whether to seek a precautionary credit line from international authorities after it exits the bailout.
“Countries who have exited programs have had follow up programs or backstop arrangements to ensure a return to the markets at very little risk,” Noonan said.
On the other hand, the country’s debt agency has almost 25 billion euros in cash, meaning Ireland already has “a credible backstop” in place, Noonan said.
The government is aiming to narrow its deficit to below the European Union’s 3 percent limit in 2015, after seeking a three-year 67.5 billion euro bailout program in 2010. Investors shunned the country’s bonds after its banking system came close to collapse in the wake of the implosion of a real estate bubble.
As part of his plan, Noonan will hit banks with an annual tax aimed at raising 150 million euros. The levy, which will apply to lenders including Bank of Ireland Plc and Royal Bank of Scotland Group Plc’s Irish unit, will run for three years.
The government is also raising taxes on cigarettes, beer and cider, while eliminating a payment to help some households with phone bills and abolishing the bereavement grant, which is used to pay for funeral expenses.
“Even the dead are not safe from this government,” Michael McGrath, finance spokesman for Fianna Fail, the biggest opposition party, said in parliament.
Police marshalled about 50 protestors who gathered outside parliament to demonstrate against continued austerity.
Irish politicians should reduce their own salaries and expenses before targeting taxpayers, said Willie O’Brien, 72, who traveled to Dublin from Cork in the southwest of the country for the protest.
“I’ve no problem making sacrifices,” said O’Brien, a retired nurse who carried a banner with ‘GREED!’ written across the top, in an interview outside the Irish parliament. “They should practice what they preach.”