Ireland preparing to lift austerity measures

Ireland is moving closer to a switch away from deep austerity measures as it prepares for a key budget -- the first since the eurozone nation emerged from a massive international bailout.

Minister for Finance Michael Noonan is predicting the Irish economy to do better than expected this year, meaning fewer cutbacks to state spending and a reduction in tax rises.

The government had forecast in April that a two-billion-euro ($2.69 billion) adjustment was required in October's budget, to reach a deficit target of 3.0 percent of gross domestic product (GDP) in 2015.

But Ireland's strong growth recovery means a smaller package may now be enough.

"We'll get under 3.0 percent now by making less cutbacks and less tax increases," Noonan said last week.

"It won't be two-billion-(euros). It'll be something less."

Debt-plagued Ireland became the first of the bailed-out eurozone nations to exit an EU-IMF rescue programme last December -- three years after seeking help to keep its economy from collapsing completely.

As part of the rescue deal, Ireland agreed to painful austerity measures including spending cutbacks, state asset sales and tax hikes.

Since 2008, there have been tax increases and spending cuts in seven consecutive budgets amounting to almost 30 billion euros as the government sought to bring outgoings in line with income.

Speculation is growing that Dublin will ease the tax burden for low- and middle-income families, who have borne the brunt of the tax hikes including controversial new property and water taxes.

- Growth recovery -

With tax receipts ahead of target, the number of workers claiming benefits falling and strong economic expansion in the first three months of the year at 2.7 percent, analysts expect the government to revise its growth forecasts.

"Really the big question we're asking ourselves given the strength of short-term indicators -- which are probably the best in Europe at the minute -- is whether the economy can grow even quicker than 3.0 percent," Conall Mac Coille, chief economist at stockbroker Davy, told AFP.

Irish GDP came in at 2.7 percent in the first quarter, while the government has forecast expansion of 2.1 percent for the whole of 2014.

"From our point of view, this budget is a chance for the government to give something back to consumers and put some disposable income back in their pockets," said Gerard Brady, an economist at business lobby group Ibec.

"It's not just about the size of the adjustment but how they do it as well. If they do it right it could give a boost to the consumer economy, which we badly need," he added.

Outside of Ireland however, there are calls for Dublin to stick by its two-billion-euro fiscal adjustment.

Both the International Monetary Fund and the European Commission -- which provided the bulk of Ireland's 85-billion-euro bailout -- have called on Dublin to maintain the status-quo.

But with Dublin adamant that a smaller adjustment is needed to meet the deficit target, budget day on October 14 could finally mark an important turning point in a six-year battle to repair the embattled economy.

- Political shake-up -

In the midst of the crisis in 2011, Prime Minister Enda Kenny's centre-right Fine Gael party swept to power as the senior partner in a coalition with the centre-left Labour.

Despite Ireland exiting the bailout and signs of recovery, both parties suffered heavy losses in May's local elections -- causing the Labour leader and deputy prime minister, Eamon Gilmore, to resign.

That in turn has led Kenny and the new Labour leader, Joan Burton, to reshuffle the cabinet with 18 months until Ireland must hold its next general election.

"Apart from austerity-fatigue, there's a lot of talk about the economy improving but people aren?t feeling it in their pockets," concluded Mary Regan, political editor of the Irish Examiner newspaper.

Ahead of elections, "it is recognised that there is a political imperative not to impose as much austerity", she told AFP.