Spending cuts and taxes in Irish plan to save $20bn

Ireland unveiled the harshest budget measures in its history on Wednesday, a four-year plan to claw back 15 billion euros ($20 billion) using spending cuts and extra taxes.

DUBLIN // Ireland unveiled the harshest budget measures in its history Wednesday, a four-year plan to claw back 15 billion euros ($20 billion) using spending cuts and extra taxes. Some 24,000 state employees could lose their jobs and the sales tax could soar to 23 percent.

The plan seeks to cut 10 billion euros ($13.3 billion) from spending and raise 5 billion euros ($6.7 billion) in extra taxes from 2011 to 2014 to combat Europe's worst deficit.

The government's long-awaited austerity plan is a prerequisite for Ireland to get an international loan estimated to total 85 billion euros ($115 billion). The bailout is still being negotiated with experts from the International Monetary Fund and European Central Bank in Dublin.

Ireland hopes its tough medicine will permit its 2014 deficit to fall to 3 percent of gross domestic product, the limit for the 16 nations in the eurozone. Ireland's deficit this year is forecast to reach 32 percent, a modern European record, fueled by exceptional costs from Ireland's unfathomable bank-bailout effort.

In practice, most eurozone nations are exceeding that 3 percent limit already.

Ireland's 140-page National Recovery Plan proposes to introduce property and water taxes, raise sales tax from 21 percent to 22 percent in 2013 and up to 23 percent in 2014, cut the minimum wage by 1 euro to 7.65 euros ($10.20), and cut more than 24,000 state jobs.

Income tax bands will be widened so more lower-paid workers pay taxes, and middle-class workers can expect their annual taxes to rise more than 3,000 euros ($4,000). A raft of welfare payments will be gradually reduced.

Left untouched, to the irritation of other EU nations, is Ireland's exceptionally low 12.5 percent rate of tax on business profits. That rate is less than half the EU average and has helped to lure about 1,000 high-tech multinationals to this country of 4.5 million.

France, Germany, Austria and Britain all have called for Ireland to raise that rate. They argue it amounts to unfair competition at a time when other EU members will have to raise their own debt-fueled borrowings to loan money to Ireland.

But Finance Minister Brian Lenihan told reporters that Ireland would be shooting itself in the foot if it did anything to scare off foreign investment. The foreign companies, including 600 US businesses like Microsoft and Google, generate nearly 20 percent of Ireland's GDP.