Ireland braced for swingeing Budget cuts

Ireland was bracing itself today as Cabinet ministers met to sign off on what is feared will be the toughest Budget in living memory.

The massive 4 billion euro (£3.6 billion) cost-cutting package designed to steady the country's perilous finances is expected to slash social welfare, including unemployment and child benefit payments.

Swingeing cuts to public sector pay as well as health and education spending will also spark controversy.

In an attempt to cushion the country from the hard-hitting measures, Finance Minister Brian Lenihan is expected to reduce the price of a pint and introduce a car scrappage scheme.

The Government has been under pressure to cut excise duty on alcohol to counter a mass exodus of shoppers from the Republic into Northern Ireland for cheaper beer, wine and spirits.

Car industry representatives have also been lobbying hard to reverse the collapse in sales since the start of the recession.

Hundreds of thousands of public and civil servants are expecting pay cuts ranging between around 4 per cent on the lowest wages and as much as 20 per cent for the top-earning elite.

The exact details of the salary reductions will be pored over by public sector unions who have threatened long and sustained industrial action after last week's talks failed.

The Government has already signalled it will not make too many changes to taxes, apart from the introduction of a carbon tax expected to raise the price of petrol, coal and peat briquettes.

Yesterday Transport Minister Noel Dempsey reiterated the Government mantra of recent weeks and months that no-one would escape unscathed from the cutbacks.

"Everybody has to take a hit," he said.

"It's a tough Budget, it's going to be difficult. We have tried to be as fair as we possibly can to everybody but I think, a bit like last year, it's those who can afford most will pay most.

"We are going to try and protect the vulnerable as much as we can but we cannot say that anyone is going to escape."

Fine Gael leader Enda Kenny claimed that half of the required savings for the crisis Budget - 2 billion euro (£1.8 billion) - could be found if social welfare fraud was properly tackled.

"In a draconian Budget, because of Government incompetence, you are going to take away money from people who need it," he said.

But Mr Cowen defended his anxiously-awaited cutbacks as necessary to protect social welfare recipients into the future, adding that they come after years of benefits rises against dropping prices.

"We have an unsustainable public finance position and, if we are to protect the most vulnerable in our society, as we must and seek to do, we must do so in a way that provides a sustainable way forward," he said.

In a sensational claim last night, adding to the woes of the embattled premier, it was claimed that Mr Lenihan was hatching a planned coup.

Labour leader Eamon Gilmore said a near deal with public sector unions on 1.3 billion euro (£1.2 billion) of the cutbacks was purposely scuppered last week as part of a behind-the-scenes plot against Mr Cowen.

"The bottom line, Taoiseach, is that you have a Minister for Finance who is now so anxious to get his hands on your job that he was prepared to sink this agreement," he said.

In an outburst which drew gasps in the Dail (parliament), the Labour leader accused Mr Lenihan of lacking political loyalty, claiming he had dispatched allies on to the airwaves to jettison the chances of deal once it looked likely.

"It was stupid and it was short-sighted... it is something that I believe we will all regret next year," Mr Gilmore added.

The Labour leader said a deal was within touching distance which would have made the savings needed, reformed the public sector and secured industrial peace.

Rubbishing the suggestion, the Taoiseach insisted the top Fianna Fail pair had stood shoulder to shoulder during the negotiations which dramatically collapsed on Friday, after reports of a deal on pay cuts.

Mr Lenihan appeared with the Budget on the steps of Government Buildings after the Cabinet met for the last time to discuss radical reforms.

"I've made it clear, and the Government have made it clear, we have to secure 4 billion euro in savings and we are going to do that," the minister said.

"And we are going to ensure that is done as fair as possible."

Mr Lenihan added: "This is the most difficult (Budget), and we will enact this Budget."