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Cuts span the minimum wage to top government salaries; corporations spared a tax hike.
DUBLIN, Ireland — "The time is out of joint: O cursed spite / That ever I was born to put it right!”
The words of Hamlet might have resonated with Irish Finance Minister Brian Lenihan on Tuesday, as he announced the harshest budget in the 90-year history of the state.
What Lenihan had to put right is a situation that threatens Ireland's financial stability and the future of the euro, the 10-year-old currency designed to unite the European Union.
He has taken the first unpopular steps by laying out a punitive domestic program designed to satisfy the International Monetary Fund, the European Union Commission and the European Central Bank, which put together an 85 billion euro ($113 billion) bailout for Ireland in November.
It seems that by squeezing the Irish for every spare cent, he has won international approval, but sealed the fate of the unpopular government for the next election, expected in January or February.
While about 500 people demonstrated angrily in the snow outside parliament in Dublin, Lenihan’s “last big push” speech was praised by the Financial Times’ influential Lex Column for removing any doubt over the government’s seriousness about reducing its current deficit of 12 percent of GDP, four times higher than EU rules.
Bloomberg noted that more tough times were ahead for the country that five years ago was the wealthiest in Europe after Luxembourg.
Opposition finance spokesman Michael Noonan of the Fine Gael party said Irish citizens were victims of a “puppet government” that was dancing to the tune of its new lenders.
Analysts, however, said that opposition parties will be forced to take similar austerity measures if they come to power.
The time is indeed out of joint in this small country on the periphery of Europe, shivering in a record-breaking freeze and unprecedented snowfalls.
It is “a traumatic and worrying time” for the citizens, Lenihan admitted to the Irish parliament. His task is to get the country to “work off the excesses of the boom,” he said.
The legacy of irresponsible bank lending and property speculation means that the government will have to extract 6 billion euros ($8 billion) next year from the traumatized and worried citizens, mostly from members of the middle class and social welfare recipients.
The period of austerity will last four years, with similar tough annual budgets, during which time the country will inevitably suffer a steady drop in living standards and a return to large-scale emigration.
Reaction among the population varied from resignation to fury at the harshness of the tax increases and cuts in pay and welfare.
Aware of public anger at the government’s excessive pay levels and perks, Lenihan inflicted some pain on his colleagues.
The taoiseach, or prime minister, Brian Cowen, President Mary McAleese and all government ministers will take significant pay cuts.
Cowen will have his salary docked by 14,000 euros, bringing it down to 214,000 euros — still higher than the 142,000 pounds (167,000 euros or $223,000) that British Prime Minister David Cameron receives.
It is an academic exercise for Cowen himself, as his Fianna Fail party faces an almost certain crushing defeat in the general election.
All salaries in the public service, including those of judges and the president, are to be capped at 250,000 euros ($333,000). A few had been earning three times that amount.
Income tax payments will increase through the narrowing of tax bands, requiring more people to pay higher rates.
Social welfare payments will diminish by 4 percent and job seekers, the disabled and families with children will all have their benefits cut by some 8 euros ($10.66) a week.
A tax of 1 percent will be imposed on all property sales. Duty on gas and diesel will be increased. The list goes on and on.
One measure that will have an impact on immigration is the slicing of a euro off the 8.65 euro ($11.52) minimum wage, a high rate by world standards that made Ireland an attractive destination for economic migrants.
“We are staring down the barrel of a decade of desolation,” said Jimmy Kelly, Irish regional secretary of the trade union Unite, who accused the government of taking a substantial sum from the lowest paid to pay for the “criminal misadventure” of the banks.
Despite opposition from some European countries, Ireland will not increase the 12.5 percent corporation tax, regarded as vital to attracting foreign investment.
“Our economy is still in a weakened condition and our self confidence as a nation has been shaken,” Lenihan said.
But there was hope. Economic activity has stabilized and recovery in the real economy is beginning to take shape.