Ireland braces for toughest budget in history of the state

Dublin - Ireland was Wednesday bracing itself for what is expected to be the toughest budget in the history of the state, aimed at making savings of around 4 billion euros (5.9 billion dollars). Minister for Finance Brian Lenihan is expected to announce cuts in public sector pay, capital spending and social welfare including children's allowance.

Few changes are expected to the tax system apart from the introduction of a carbon tax.

The 2010 budget comes amid threats of industrial action by public sector workers over pay cuts, with even the police force taking the unprecedented and illegal step of threatening to hold a ballot on industrial action.

Up to 250,000 public sector workers could have their salaries cut by between 5 per cent and 6 per cent, with higher earners possibly facing higher cuts.

The public sector unions have warned that they will engage in a "long and sustained" campaign of industrial action if pay cuts are introduced.

There was no indication of what form that industrial action would take or when it would begin.

Public sector workers, including teachers and nurses, already held a one-day strike on November 26.

Talks aimed at reaching agreement on reducing the public sector pay bill by 1.3 billion euros next year collapsed last Friday.

Doubts had been raised about the ability of the coalition government of Fianna Fail and Green to get the budget through parliament.

Several independent members and backbenchers had threatened to withdraw their support for the deeply unpopular government. However, some last-minute deals are said to have been enough to avert a government defeat.

Ireland has gone from economic boom to bust in less than two years due to the bursting of its housing bubble, the global recession and alleged mismanagement of public finances by successive Fianna Fail governments.