Ireland Set for Harshest Budget

Ireland is bracing itself for the harshest budget since the recession of the 1980s as new figures have revealed that for the first time in the Republic's history tax revenues are falling and will be close to 8% lower by the end of the year.

Ireland will also borrow more this year and break the EU's rule on restricting public debt to a small proportion of GDP.

Data seen by the economic adviser to the country's trade union movement showed that income from taxation would fall by 7.8% by the end of this year. The country's budget is announced tomorrow.

Paul Sweeney, an economist working for the Irish Congress of Trade Unions, pointed out that throughout the entire history of post-partition Ireland, only in 1922 did tax revenues fall.

The huge fall in tax revenue will further restrict the Irish government's options in this week's budget as it attempts to push the country out of recession. With the finance minister Brian Lenihan unlikely to raise taxes, this leaves the Fianna Fail-led coalition to raise indirect taxes on products such as alcohol, tobacco and fuel or cut public spending.

Fianna Fail sources told the Guardian the government would concentrate on spending cuts. They said Ireland will break the Maastricht agreement, which stipulates that members of the eurozone can have a debt equivalent to only 3% of their GDP. After a major round of borrowing Ireland's national debt will rise to more than 7% of its GDP.