FINANCE Minister Brian Lenihan yesterday chose to avoid new income taxes by instead slashing social welfare payments and public sector pay.
But he insisted "the worst is over" after delivering his third Budget in 14 months.
However, there is plenty more pain to come as Mr Lenihan last night revealed plans to achieve €2bn more in cutbacks in 2011 through water charges, a property tax and public sector reforms.
The Government is also planning a radical overhaul of the PRSI, income and health levy system, which will also widen the tax base.
Mr Lenihan cut €4bn from spending in Budget 2010 and introduced carbon taxes and stealth charges in the health sector.
But his Budget was branded as lacking fairness as it hit those on low incomes in the public sector and those dependent on social welfare.
The salaries of Taoiseach Brian Cowen and his ministers were reduced by 20pc and 15pc respectively -- but this included the previous 10pc voluntary cut a year ago.
As a result, the opposition parties claimed the ministerial pay cuts were "a sham", with ministers taking the same 5pc cut as the "cleaner in their offices".
The pay cuts in the public sector will be tiered upwards, with a reduction of 7.5pc on the next €40,000 of salary and a cut of 10pc on the next €55,000. Higher-paid public servants will be hit with salary cuts of up to 15pc.
The decision not to exempt any lower-paid public sector workers from the cuts was seen as particularly harsh, as a pay cut of 5pc will apply to the first €30,000 of salary.
Mr Lenihan said the country could not tax its way out of a recession.
"The worst is over. The international economy has exited recession. Recent indicators suggest that economic activity in this country is turning the corner, and my department is now expecting a return to positive growth within the next six to nine months," he said.
The main points of the Budget were:
- Child benefit cut by €16 a month, with a compensation top-up for welfare-dependent families.
- Social welfare payments reduced by 4pc, except for the old age pension which wasn't touched.
- The job-seekers' allowance was reduced for under-25s.
- Tax exiles will have to pay €200,000 a year, if their assets in this country are above a certain level.
- A carbon tax seeing petrol rise by 4c a litre and diesel by 5c a litre last night.
But the minister added in some sweeteners:
- VAT reduced to 21pc.
- Excise duty on alcohol was reduced by 12c on the pint, 14c on a spirit shot and 60c on a bottle of wine.
- A car scrappage scheme with €1,500 tax relief on new fuel-efficient cars in return for trade-ins of bangers at least 10 years old.
- Measures to encourage first-time home buyers to enter the market, by setting a deadline for claiming mortgage interest relief.
Taoiseach Brian Cowen said he was "confident enough" the Government could get through the Budget vote. And last night, it appeared he was well able to count on a majority.
Before TDs go home to their constituencies for the weekend, crucial votes will be called today and tomorrow on the more controversial measures, such as the child benefit cuts and the slashing of public servants' wages.
Environment Minister John Gormley said the introduction of the carbon tax was a "proud day" for his party as he defended the Budget.
"Given the difficult choices we had to make, I believe this Budget was by and large fair. It also creates 14,000 jobs in water service and house insulation projects," he said.
Fine Gael accused the Government of presenting a "jobless and joyless" Budget, which would prolong the recession.
The party's finance spokesman Richard Bruton said the draconian plan forced those who had no hand in creating the current crisis to bear the brunt of the pain.
Rebellious TDs who put a price on their support last night rowed in with the Government. The Coalition easily won the first in a series of Budget votes by a comfortable margin of 88 votes to the opposition's 75.
The sizeable majority was owed to the support of independent TDs Michael Lowry and Jackie Healy-Rae, independent Fianna Fail TDs Eamon Scanlon, Jimmy Devins and Jim McDaid, and former Progressive Democrats TD Noel Grealish.