Ireland, Italy and Greece face more cuts and tax rises

 

Brendan Howlin, Ireland's public expenditure and reform minister, announced that spending would be cut by 2.7%. Photograph: Julien Behal/PA

Ireland faces more heavy cuts in public spending next year, with welfare and health departments taking the brunt of the pain under the country's latest austerity budget outlined on Monday.

The public expenditure and reform minister, Brendan Howlin, said spending would be cut by 2.7%, amounting to €1.4bn (£1.2bn) of reductions, in the first part of a budget which will continue with announcements on tax increases from the finance minister Michael Noonan on Tuesday.

The austerity measures come days before the critical EU summit on Friday which could force Ireland back to the ballot box in the new year. If a new treaty emerges from the meeting of EU leaders, the Fine Gael-Labour government would be obliged to hold a referendum under the Irish constitution. Given the unpopularity of the coalition's cost-cutting programme, there is no guarantee Ireland would endorse the treaty and a rejection could plunge the entire EU into further political and economic chaos.

In Italy the prime minister, Mario Monti, presented his austerity package to parliament and warned that without the reforms the country could become "the next Greece".

"If Italy were not capable of reversing the negative spiral of growth in debt and restoring confidence to international markets, there would be dramatic consequences, which could go as far as putting the survival of the common currency at risk," Monti told parliament. "Italy is ready to do what it has to do but Europe must not fail to do its part," he said.

The package, dubbed a "Save Italy" decree by Monti, aims to raise more than €10bn from a property tax, impose a new levy on luxury items like yachts, raise value added tax, crack down on tax evasion and increase the pension age.

New Greek prime minister Lucas Papademos will present an austerity package to parliament on Tuesday.

Addressing the Dáil, Howlin revealed that the biggest spending cuts would be in health and social welfare budgets. The minister said that job cuts in the Irish health service would save €145m while there would be "efficiencies" of €50m in services for the disabled, children and people with mental health problems.

In a grim prognosis of the Irish economy, Howlin said: "Our country has suffered the greatest economic crisis in living memory leading to a large fall in exchequer revenues."

Howlin said that it was also time for Irish budgets to be planned for three-year terms.

"The fact is that Ireland's traditional system of budgeting no longer works for us," he said.

"The old budgeting system that we have inherited from our past is secretive and opaque.

"It has not led to sustainable spending policies, to proper value for money, or to good outcomes for our citizens."

Howlin confirmed that there would be no changes to the weekly rates of social welfare or child benefit. Irish social welfare payments are among the most generous in the EU. However, entitlements to child benefit at a higher rate for third and subsequent children are to be phased out over two years while one-off grants in respect of multiple births are also to be discontinued.

Meanwhile entitlement to the one-parent family payment will be restricted to cases where the youngest child is seven years old, over the period to 2014. This measure will result in savings of €20.7m, Howlin said.

He projected that by 2015 the government will reduce the public sector workforce by 37,500 and reduce the public pay bill by €3.5bn over the next seven years.

Howlin stressed that these job losses would not affect frontline services in areas like health and education.

Referring to the ongoing crisis in the eurozone, Howlin said: "We are going through a painful process of adjustment. Public anger is acute because the public was not responsible for putting us in this position.

"Twelve months on from the arrival of the Troika we have seen some improvement. Our position has stabilised.

"Twelve months ago we were Europe's problem. Now problems in the European and global economy threaten our recovery."

The Republic's budget day mark 2 falls on the 90th anniversary of the Anglo-Irish Treaty which led to the foundation of the modern Irish state and the partition of Ireland.

However Noonan's budget statement on Tuesday will overshadow the anniversary and critics will point out that the EU summit on Friday will result in a further dilution of the sovereignty Ireland gained in 1921.