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Ireland imposes 6th straight austerity budget

Shawn Pogatchnik, Associated Press

DUBLIN (AP) -- Ireland's government unveiled plans for €3.5 billion ($4.5 billion) in new taxes and spending cuts in the debt-burdened country's sixth straight austerity budget.

Finance Minister Michael Noonan told a hushed parliamentary chamber that Ireland must keep slashing its deficits down to the eurozone limit of 3 percent of GDP and it "still has a long way to go." He said Ireland expects to report deficits of 8.2 percent this year and 7.5 percent next year, but only if the country can deliver stronger economic growth in the face of deepening cuts.

Noonan vowed that the government would "lead this country out of the despair and despondency and lack of self-worth in which we found ourselves in March 2011," when the government gained power.

His 2013 budget includes plans for a new property tax; higher taxes on the incomes of pensioners who receive more than €60,000 ($78,000) annually; and €2 billion in cuts to government spending, including on state-subsidized medical care and payments to parents based on the number of children they have. The cost of buying and keeping vehicles, already exceptionally high by European standards, was due to increase again.

He also raised taxes on alcoholic and tobacco products, a significant factor in Ireland's household average. Each pint of beer and standard measure of whiskey will cost 10 cents (13 U.S. cents) more as of Thursday, bottles of wine €1 ($1.30) more, each pack of 20 cigarettes 10 cents more.

Ireland has endured increasing austerity since 2008, when a decade-long property boom fueled by access to cheap eurozone credit went spectacularly bust. The previous government was forced to nationalize five banks and, in late 2010, Ireland become the second eurozone country after Greece to negotiate an international bailout.

Ireland's European and International Monetary Fund loans are due to run out next year, by which time the government hopes to have reassured global investors enough to resume the normal sale of bonds at affordable rates. Its treasury has already mounted several successful bond sales since July.

Speaking after Noonan, Minister for Public Expenditure and Reform Brendan Howlin spelled out a cavalcade of 2013 cuts, benefit by benefit, service by service — but maintained that the worst was already over for this country of 4.6 million.

"When I took office last year I couldn't be certain that we would, as a nation, make it through this crisis. I no longer hold that fear," Howlin told lawmakers. "What the people of Ireland have endured has been tough, almost without precedent in the developed world. That we will come through it — and we will — is a significant shared achievement for our people. In time, future generations will be proud that we as a people tackled this crisis head on."

The property tax looms as the most difficult measure to enforce in a country where home ownership has long been viewed as a birthright. Today, around four-fifths of households own rather than rent — and many are now trapped in negative equity mortgages.

Noonan said property owners would be expected to declare each property's estimated worth and pay 0.18 percent of that annually in tax starting in July. Those in homes valued over €1 million would pay 0.25 percent above that threshold. That suggests an annual average payment of €315, given Ireland's median price for homes and apartments is around €175,000 — half the level from just four years ago.

Noonan defended the rationale for introducing a subjective property tax, rather than raising income tax rates, which he left unchanged. He said taxing property was "better for the protection and creation of jobs" whereas taxes on paychecks "increase the costs of employment."

Ireland also unveiled its latest jobless figures Wednesday. Unemployment fell to 14.6 percent in November versus 14.7 percent the previous month, its best level since mid-2011. The figure would be far worse but for four straight years of emigration estimated at 60,000 to 80,000 job-seekers annually.

Noonan said the government was sticking by its economic forecasts of 1.5 percent growth in GDP next year, 2.5 percent in 2014 and 2.9 percent in 2015 despite imposing more cuts that suck money from the real economy. Economists say it's difficult to make such predictions for Ireland, which hosts nearly 1,000 high-tech multinationals and is exceptionally exposed by European standards to economic trends in Britain and the United States, its two major trading partners.

Ireland has experienced little of the social or labor upheaval experienced in other debt-struck countries in part because of a government-brokered agreement between unions and employers, but that 2009 pact appears to be fraying at the seams, with many employers resisting unions' demands for scheduled pay increases.

About 500 socialist and Irish republican protesters marched Wednesday night on the parliament, some carrying placards declaring "Boycott the property tax" and "General strike now." A minority scuffled with 40 police officers at the parliament's wrought iron gates, mostly exchanging shoves and harsh words. Police lifted several protesters by the limbs off the roadway and set them down on the sidewalk, but reported no arrests or serious injuries.

As usual, Ireland did not touch its 12.5 percent rate on company profits, a key factor for more than 500 U.S. companies that have made Ireland their eurozone base. France and Germany have repeatedly complained that the Irish tax rate, less than half their own, poaches jobs from other eurozone members.