Ireland has slashed public pay and welfare in a bid to halt a soaring deficit and set it apart from other struggling euro zone states.
Cuts of 1 billion euros in public sector pay and 760 million euros on welfare spending, announced in the Budget, brought screams of protest from unions and opposition deputies, though commentators said the Budget looked set to pass in a series of votes starting later.
Market analysts were encouraged, however, that the government had made good on cuts it must make to halt growth of its deficit at almost 12 percent of gross domestic product (GDP) and adjust to the collapse of a property-fuelled economic boom.
They also cautioned, though, that Finance Minister Brian Lenihan looked too optimistic in saying that this was the last of the difficult budgets, given the government's promise to cut another 4 billion off budgets in each of 2011 and 2012.
"This was a genuinely encouraging start," said Eoin Fahy, Chief Economist with KBC Asset Management in Dublin.
"Unfortunately this is only the beginning of a multi-year process, and we are faced with the prospect of another four or more budgets as tough as this one before we get even close to budgetary balance."
The impact on Irish pockets of the financial crisis has been as dramatic as anywhere in the euro zone, with unemployment doubling in 18 months and house prices halving as many families struggled to meet still high mortgage payments.
OPTIMISM
Lenihan's forecasts were slightly more optimistic, saying unemployment would prove lower than earlier forecast, the deficit would fall next year to 11.6 percent and the economy would shrink only 1.25 percent in 2010. Earlier he had forecast a 1.5 percent contraction.
"Our plan is working, we have turned the corner," Lenihan said. "The effort demanded of every citizen in this Budget is substantial, but it is the last big push of this crisis."
The finance ministry also said its funding needs for next year would fall to below 20 billion euros from 35 billion this year, good news for bond markets who have punished smaller euro zone states this week after a debt ratings downgrade for Greece.
"(The budget delivers) all that had been flagged and a bit more," said Rossa White, Chief Economist at Dublin brokerage Davy. "They made the difficult decisions, the cuts in public sector pay and social welfare. The bond market will like it because it is focused on spending rather than on tax."
The premium investors demand to hold 10-year Irish bonds rose to 195 basis points versus benchmark German Bunds on Wednesday after a ratings outlook cut for Spain further undermined sentiment.
THIN MAJORITY
The budget also provided for a new 15 eur per tonne tax on carbon emissions as well as signalling a switch to a simpler income tax system with just two charges on wages.
It left corporate tax -- a draw for foreign investors in Ireland over the last decade -- at 12.5 percent and said it would stay there.
"The minister has based this on wishful thinking," said opposition party Fine Gael's finance spokesman Richard Bruton.
"People will look at this and say it is simply not fair. Ministers are taking a pay cut ... but the cleaners in their offices will be taking a bigger cut," he told public TV.
Analysts expect the government to get the support of the handful of MPs it needs to pass the budget although two have threatened to withdraw support in the past week.
Failure to pass the budget would lead to a snap election that would almost certainly be won by a coalition led by the centre-right Fine Gael.
Two independents, though, declared they would support Wednesday's measures, needed just to halt the rise of Ireland's deficit at 12 percent of GDP, four times the EU limit.
"I am supporting the government," independent deputy Jackie Healy-Rae told RTE radio. "It will be tough but what is the alternative: do we want the IMF taking over the finances of the country?"