* Lenihan urges passage, says cuts are "demanding"
* First in series of budget votes passes
* Opposition says budget one of "puppet" government
* Election expected in first quarter of 2011
* IMF to meet Friday to approve Ireland bailout funds (Adds IMF comment)
By Padraic Halpin and Carmel Crimmins
DUBLIN, Dec 7 (Reuters) - The Irish government detailed the toughest budget on record on Tuesday, targeting 6 billion euros in spending cuts and tax hikes, and warning passage was crucial to avert a deeper crisis and free up EU and IMF rescue funds.
In a speech to parliament, Irish Finance Minister Brian Lenihan sketched out austerity measures for 2011 including cuts to child benefit and public sector pensions, but stuck with growth forecasts that some economists -- and even the European Commission -- believe are too optimistic.
Ireland's parliament passed the first in a series of votes on the budget on Tuesday evening, suggesting that enough of the budget is likely to pass to release bailout funds. The budget's success had looked in doubt when independent politicians, on whom the government depends for support, said they might vote against it.
But the steps to pass the budget seemed to satisfy the IMF, which scheduled a board meeting for Friday to consider a 22.5 billion euro loan for Ireland, part of a bigger 85 billion euro joint EU/IMF rescue package.
IMF Managing Director Dominique Strauss-Kahn is set to return to Washington from Europe to chair the meeting.
"We welcome approval of the 2011 budget by the Irish parliament," an IMF spokesman said. "This is a clear sign of Ireland's strong commitment to tackle its problems and harness the impressive growth potential of this open and dynamic economy."
The risk premiums investors demand to hold Irish 10-year bonds instead of German benchmarks fell on Tuesday to their lowest levels in a month, in anticipation that the budget would be approved.
A burst property bubble has transformed Ireland from one of Europe's brightest economic stars to a country that has been forced to seek a bailout from the IMF and the EU to cover its borrowing costs and shore up its banks.
"PUPPET GOVERNMENT"
The bailout, the second in the euro zone after Greece was rescued in May, has stirred outrage in the humbled former "Celtic Tiger." Opposition parties slammed the government for mismanaging the economy and sacrificing Irish sovereignty.
"This budget is the budget of a puppet government who are doing what they have been told to do by the IMF, the EU Commission and the European Central Bank," said Michael Noonan, finance spokesman for the center-right Fine Gael party and a possible future finance minister.
Once all the resolutions underpinning the budget have passed early next year, Prime Minister Brian Cowen -- the most unpopular leader in recent Irish history -- has promised to call an election he is widely expected to lose.
That means a new government, most likely a coalition of Fine Gael and centre-left Labour, will have to oversee the budget cuts.
Both opposition parties have said they will renegotiate the terms of the bailout package agreed late last month, although in practice they will have little room for maneuver, having agreed to the broad targets of the rescue plan. For details, see
Noonan said a new government may also have to bring forward the 2012 budget if targets for next year were not being met.
HURTING THE PEOPLE
The 2011 budget is the toughest in a four-year austerity plan that aims to save 15 billion euros -- nearly 10 percent of annual economic output -- and get the worst deficit in the region back within EU limits by 2014.
Cowen will push through some four billion euros in spending cuts next year, with social welfare benefits, public pensions and capital projects all set for the chop.
"I'm afraid for the future, I'm afraid for the country and everyone around me," said Maeve, 62, a retired lecturer who broke into tears when talking about economic hardship at the Moore Street market in central Dublin.
Tax adjustments will make up another two billion euros with roughly half of the additional revenues coming from lowering income tax bands and tax credit changes, allowing the government to target the 45 percent of workers, on lower incomes, who did not previously pay income tax.
All property-based tax relief is due to be eliminated by 2014, drawing a line under controversial policies that helped fuel the property bubble and prompted accusations of a cosy relationship between the government and real estate tycoons.
Tax breaks, low interest rates and loose lending policies fueled a development binge that saw housing estates, shopping centers and hotels spring up across the country. Now many stand idle or half-built.
At the height of the boom property prices in Dublin rivaled those in Manhattan and Moscow, and thousands of Irish were millionaires on paper. The surge in personal wealth created a champagne lifestyle where helicopters were a favored mode of transport and many ordinary citizens splurged on second homes.
EXTREMELY OPTIMISTIC
Some economists have warned that the budget measures risk tipping Ireland into a prolonged downturn that would make its debt targets even harder to achieve.
"Ireland will not be a pretty place in 2011," said Jim Power, chief economist at financial services firm Friends First.
But Lenihan retained his view that gross domestic product (GDP) would expand by 1.7 percent next year, nearly double the European Commission's forecast of 0.9 percent. The government is forecasting growth of 3.2 percent in 2012, 3.0 percent in 2013 and 2.8 percent in 2014.
Danny McCoy, head of the Irish Business and Employers Confederation said he saw little in the budget to help job creation or restore economic competitiveness. ($1=0.7541 Euro)
reuters.com
