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Ireland to present four-year austerity budget to secure bailout

The Irish government is likely to make £8.5bn of spending cuts

The Irish government will present a four-year austerity plan on Wednesday in order to facilitate a €80bn-€90bn rescue package from Ireland's European Union partners and the International Monetary Fund.

The plan is expected to maintain Ireland's low tax rate, cut the €8.65-an-hour minimum wage by 12 per cent and cut €800m from the welfare budget.

The government has no choice but to raise taxes and cut spending as this year's budget deficit has been running at 11 per cent of gross domestic product. The government aims to bring the budget deficit down to the target of 3 per cent of GDP by 2014.

The Irish government is likely to make £8.5bn of spending cuts and collect an additional £4.2bn in taxation between 2011 and 2015, as part of the austerity measures.

The four-year plan, a precondition for the financing by the EU and IMF, is expected to include income tax increases, deep cuts in social welfare expenditure and a reduction of 10 per cent or more in the minimum wage.

However, financial markets were concerned that the fiscal consolidation could adversely affect the real GDP.

The austerity measures may prove self-defeating and worsen the deficit, causing tax revenues to fall, increase unemployment benefit payments, and mount losses at the state-guaranteed banks.