Ireland will keep election pledges in budget-minister

Sun Dec 2, 2012 2:35pm GMT

* Budget agreed, exact tax figures yet to be signed off

* High value properties to be hit by "mansion tax" -source

* Minister says budget will depress domestic demand

By Padraic Halpin

DUBLIN, Dec 2 (Reuters) - Ireland's government has agreed on its latest austerity budget to be delivered on Wednesday, and will keep election promises on maintaining social welfare and income tax rates, a senior minister said on Sunday.

Finance minister Michael Noonan will detail 3.5 billion euros ($4.5 billion) of tax hikes and spending cuts in the country's sixth and toughest austerity budget since late 2008 as it attempts to exit an EU/IMF bailout next year.

Dublin has said it will make 1.7 billion euros of the adjustment through public spending cuts, with a further billion coming from fresh tax measures, although transport minister Leo Varadkar said the final tax figures were yet to be signed off.

"The good news is peace broke out at around 10 o'clock last night. We have a budget and the details of that will be announced on Wednesday," Varadkar told Newstalk radio, referring to a cabinet meeting on Saturday.

"We all know the shape of it, but whether it's 1.1 (billion) or 1.2 or 0.9, the detail of that will be kept very tight until Wednesday morning."

The government has already said it will raise much of the revenue through a property tax, and a source close to the budget talks told Reuters that this will include a higher rate, or "mansion tax", on homes valued over 1 million euros.

Varadkar said some income tax exemptions and loopholes would be closed, and in a hint that pensioners may be hit, said a system in which a married couple in their 40s taking home 60,000 euros a year pay far more tax that a retired couple earning the same could be seen as unfair.

The coalition's promise upon entering office at the start of last year not to touch the basic rates of social welfare or income tax still stands, he said. But he questioned whether that would be the case in a year's time.

"The question does arise as to how long we can hold to that commitment of not reducing welfare rates and not increasing income taxes," he said.

With spending cuts and tax hikes worth 25 billion euros already made - equivalent to 15 percent of annual output - and Ireland relying on exports to spur growth, Varadkar said the new measures would inevitably depress domestic demand.

"It's not the biggest or harshest budget we've had, far from it. But it's on top of four or five very difficult budgets, and as a result of that, people will less money in their pockets in the new year," the minister said.