€200m more pain in Budget as rate of growth down

The Government's economic review confirmed a whopping €3.8bn adjustment in the 2012 Budget, rather than the predicted €3.6bn.

Ireland's economic growth rate for next year has been revised downwards but it will still be stronger than other eurozone countries.

The Government admitted confidence was an important missing ingredient and it hoped today's figures will help bring the certainty and confidence needed to encourage business and consumer spending.

Medicine

The review reveals a growth rate for 2011 of 1pc which turned out to be a marginal improvement on earlier estimates.

Today's announcement is believed to be a first step in a 'softening up' process for later announcements about the tough medicine taxpayers will have to swallow.

Under-pressure families will be hit with extra taxes and deeper public service cuts next year as part of the €3.8bn Budget adjustment.

There will be €1 in extra taxes for every €2 cut in government spending next year as part of the painful Budget measures.

The Cabinet finally signed off last night on the total amount of cuts and taxes to be implemented from 2012 to 2015.

The Government is committed to reducing borrowing to 8.6pc of economic output next year -- and to bring the deficit down to 3pc of gross domestic product by 2015.

Over the next four weeks, the Government will publish four separate documents outlining its plans for the December 6 Budget Day.

Taoiseach Enda Kenny will make a state of the nation address the week before.

The existing forecast that economic output will go up by 2.5pc next year was expected to be slashed by almost 1pc. And the estimates for tax revenue and employment were also expected to fall.

Dreadful

Finance Minister Michael Noonan said the Budget measures would have been 'far harsher' if the EU had not agreed to cut Ireland's interest repayments by €900m.

The country would be "in dreadful difficulties" were it not for the cut, he said.

Without the interest rate cut agreed over the summer, Mr Noonan would have had to slash spending and raise taxes by at least €4.5bn.

The Department of Finance admitted it collected less income tax and VAT this year than projected.

Detailed forecasts are needed to restore consumer confidence which has plunged in recent years, Mr Noonan said.

"Many people actually think things are worse then they are. The missing ingredient in Ireland is confidence," he said.

The Government had sent detailed plans to the European Commission on ways to chop as much as €20bn off the deficit before returning to bond markets in 2013.

The minister wants changes to the way the State pays for promissory notes that add €3bn to the Government's borrowing every year to pay for the wind-down of Anglo Irish Bank.

But he admitted changes to the promissory notes may not be accepted.

Mr Noonan said Irish banks had seen deposits rise again in October following September's small gains.

Banks have also been able to borrow at 4pc on the money markets.