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Taxing Times For Ireland...

Ireland Cuts Spending As Budget Gap Widens...

DUBLIN -- Ireland's prime minister announced €2 billion ($2.57 billion) in public-spending cuts on Tuesday, saying the country desperately needs to shore up its battered public finances. Also Tuesday, the Polish government approved a contingency plan to trim public spending by 19.7 billion zlotys ($5.65 billion). The budget cuts come even as other countries are boosting spending to juice their economies.

Speaking to the Irish parliament, Prime Minister Brian Cowen said the bulk of this year's cuts -- some €1.4 billion -- would come in the form of increased pension levies on public-sector employees. That is effectively a pay cut for those workers. Mr. Cowen also pressed forward with tax increases for higher-income workers and second-home owners.

Though countries around the globe are unwrapping stimulus plans, Ireland is in different straits. Tumbling house prices are gutting property-tax receipts, and Ireland is facing a widening budget gap that threatens its AAA sovereign credit rating and limits its ability to simply borrow more to ride out the recession.

Polish Finance Minister Jacek Rostowski said his country's austerity measures are essential to keep the central-government deficit at its planned level of 18.2 billion zlotys in 2009. Without the steps, he said, Poland risks undermining its financial credibility at a moment when the U.S. and Western European countries are flooding the market with sovereign debt.

Mr. Cowen said Ireland's cuts this year must be followed by €4 billion more in cuts in 2010 and 2011; €3.5 billion in 2012; and €3 billion in 2013.

The Irish premier pushed the measures forward after talks on pay with trade unions ended without success. He said that didn't signal that the overall process had failed, and that the government would continue to engage the unions.

The latest steps come on top of measures in Ireland's 2009 budget, announced in October, that will raise a separate €2 billion, or 1% of gross domestic product, in additional taxation, Mr. Cowen said.

The opposition criticized the cuts. Merely cutting spending will set the country "on a downward spiral that will make the situation even worse," said Labour Party leader Eamon Gilmore.

Ireland was the first euro zone economy to fall into recession last year. GDP contracted in the first and second quarters after a decade-long period of unprecedented economic growth fueled by a booming construction sector and investment by multinationals. In September, Ireland took steps to guarantee nearly its entire banking system, and in December it added a package to bolster banks' balance sheets.

Irish public finances have continued to deteriorate rapidly. Government figures on Tuesday showed a January budget deficit of €747 million versus a surplus of €630 million in January 2008 because of the housing-market crash and weakening consumer confidence.

Those figures provide "further evidence that the deepening recession continues to savage the public finances," said Bloxham Stockbrokers' chief economist, Alan McQuaid. "The good news is that the government has to some degree taken the bull by the horns, implementing public-expenditure savings without the full agreement of the public-sector unions," he added. "The bad news is that the government would still like to keep the social partners on board."

Mr. Rostowski said 10 billion zlotys of the trims to Poland's budget would come from cuts in central government spending, while 9.7 billion zlotys in savings would come from revamping financing of infrastructure projects.



Wall Street Journal Report By QUENTIN FOTTRELL and CHARLES FORELLE
—David McQuaid in Warsaw contributed to this article.

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