Ireland Raises Taxes, Cuts Spending as Output Shrinks

Ireland raised taxes on everything from incomes to gas and cut public spending to restrain the budget deficit, threatening to worsen its first recession in a quarter century. A 1 percent tax will be added to all personal incomes, rising to 2% on earnings over 100,000 euros ($136,390), the Finance Minister said in his budget speech as he announced the first income-tax increase since 1984. The government will also double betting tax to 2%, increase the sales tax rate and levies on gas, cigarettes and wine and introduce an air travel tax. The clampdown comes against the bleakest economic backdrop in 25 years as house prices tumble and the financial crisis threatens to engulf economies around the world, and Lenihan risks a popular backlash. The Irish economy, the first in the euro area to enter a recession, will contract at least 1.3% this year and 0.8% in 2009, according to the government forecasts announced recently. Unemployment will rise to 7.3% next year from 5.8%.