DUBLIN (Agencies) – Ireland is set to provide a four-year budget plan to the European Commission in the next few days following this week’s bank bail-outs, as Dublin seeks to avert another debt crisis in the new year.

While Dublin has cancelled debt auctions for October and November, traders say the crunch point will come in January when it seeks to return to the market.
Alan McQuaid, bonds analyst with Bloxham stockbrokers, said Brian Lenihan, the finance minister, had “bought Ireland some time to get its fiscal house in order, but that will be just a stay of execution unless he can come up with a credible four-year plan in November to get the budget back under control”.
Ireland will next year have to borrow the equivalent of 10% of gross domestic product to finance public services and pay public sector salaries.
Although the Irish do not have another government bond redemption until November next year, investors say they will need to start borrowing in the market at the start of 2011 or sentiment might deteriorate.
They add that the Irish banks do not see any big bond redemptions until 2013, which should also take the pressure off the country. But political problems afflicting Brian Cowen, the prime minister, are increasing. On Friday an Irish Times opinion poll suggested 61% of voters want Cowen to step down before the next election, not due before May 2012.
Separately, the European Commission signalled that Ireland would have to consider much higher taxes to meet its fiscal consolidation target of bringing the deficit below 3% by 2014.
Lenihan said Thursday that the Irish government’s budget deficit will rise to 32 % of GDP this year due to the soaring cost of supporting the nation’s stricken banking system.
Lenihan acknowledged this week that taxation would contribute to stabilizng the deficit, although Irish ministers insist the 12.5% corporate tax rate will remain.
But economists say if Ireland’s fiscal position deteriorates and it has to seek support from Brussels, under the European Financial Stability Facility, its low tax rate could be part of the bargaining process.
----Portugal austerity package
Portugal’s center-left prime minister, Jose Socrates, announced Wednesday new measures for reaching deficit-reduction targets, including 5% cut in the public sector wage bill and a two percent point increase in the value added tax to 23%.
The new package of austerity measures is designed to reassure market that Portugal will meet ambitious debt reduction targets and no seek emergency funding in a Greek style crisis.