Dublin - The sufferings of Easter week began Tuesday in Ireland with the announcement of an austerity budget aimed at getting the country's finances back on track.

"We have the capacity and the will to bring this country out of this period of severe economic distress, we can work our way out of our problems," Finance Minister Brian Lenihan said as he delivered the latest financial blow to the Irish people, many of whom are still smarting from the swingeing cuts of last October's budget.

Ireland's economic success had fostered a sense of invincibility, but a lot had changed since then, Lenihan said.

The Irish economy was in the red by 3.7 billion euros for the first three months of 2009 - 10 times the shortfall for the same period last year.

"We are now facing the challenge of this nation's life. We have worked together to build up this economy. We must now work to save it from a downward spiral," Lenihan said as he unveiled measures meant to raise 1.76 billion euros (2.33 billion dollars) in tax in 2009.

Conceding that Ireland's Celtic Tiger economy had been too reliant on construction for growth and tax receipts, Lenihan imposed the doubling of income levies introduced last October to 2 per cent, 4 per cent and 6 per cent.

The thresholds have also been lowered with the lower rate kicking in at 15,000 euros, 4 per cent at 75,0000 and 6 per cent at 175,000 euros.

Emphasizing that the pain would be shared by the government, Lenihan announced a 10-per-cent cut in political expenses, with the abolition of long-term payments to retired members of parliament.

He also ordered a review of top-level public sector pay rates and a new scheme to allow civil servants over the age of 50 to retire.

Prior to the budget, Prime Minister Brian Cowen had announced that the number of junior ministers would be reduced from 20 to 15 to save money.

Having claimed that he would leave social welfare alone, the finance minister announced that there would be no social welfare increases over the next few years.

In a move that provoked groans in parliament, Lenihan announced that the Christmas bonus for welfare recipients would not be paid in 2009 while those under 20 would have their jobless benefits halved.

The commission on taxation would decide on how to raise further money from taxing or means testing child benefit, he said.

Early childcare supplement would be halved from May 1 and scrapped next year. A year's free pre-school education would be provided for the under-5s instead.

Stating that "bold and radical action" was needed to restore Ireland's financial sector, Lenihan announced an initiative to remove toxic loans from the banks.

This would take the form of a new asset management agency to absorb bad loans which is to be backed by a fund worth between 60 and 90 billion euros.

At previous estimates, there is 56 billion euros worth of badly- hit property loans on the books of Irish banks.

The banks will have to sell the majority of the loans to the agency at prices to be decided by local property prices and development prospects.

Opposition Fine Gael finance spokesman Richard Bruton said the government was asking the people to "rescue a failing government through the budget."

A huge structural deficit of 13.8 billion euros has accrued through bad management of the public finances, Bruton said.

"The cruel choices to be faced today are not the product of bad luck, they are the product of bad choices. The tax payer is being asked to bail out the government. The banks bailed out the builders and now the taxpayer is bailing out the banks. But who will bail out the taxpayer?" he asked.

Tuesday's budget was the second since the collapse of Ireland's Celtic Tiger economy.

The October 2008 budget, intended to deal with the financial meltdown following the swift unravelling of the boom, sparked widespread protests over cuts to education and welfare.

With the opposition calling for a general election, Tuesday's supplementary budget may well be the last one delivered by the current government. (dpa)