DUBLIN, Oct 14: Ireland’s economy will contract by 0.8 per cent next year, Irish Finance Minister Brian Lenihan said on Tuesday as he delivered his budget for the recession-hit country.

Lenihan also said he would have to raise close to two billion euros ($2.7 billion) in taxes to stay within Ireland’s fiscal targets.

“The forecast of my department is that GNP (gross national product) will contract next year by one per cent with GDP (gross domestic product) contracting by about three quarters of a per cent,” he said.

According to the government, GDP will decline by 1.3 per cent this year, and 0.8 per cent next year before growing by 2.7 per cent in 2010.

In July, the government had forecast growth of 0.5 per cent this year and 2.25 per cent in 2009.

Ireland last month became the first eurozone member officially to fall into a recession, after shrinking in the first and second quarters of 2008 since the US subprime home loan crisis sparked a global economic slowdown.

The country’s annual budget is normally given in the first week of December but was brought forward due to the severity of the current downturn.

After more than a decade of the so-called Celtic Tiger’s economic growth which placed it among the richest nations in Europe, Ireland has been hammered by a series of blows.

It has been hit by the international credit crisis, a severe property and construction industry downturn, falling consumer spending, rising unemployment, increased oil prices and export difficulties caused by currency fluctuations.

Lenihan said on Tuesday that Ireland faces “the most challenging fiscal and economic position in a generation” but said that ignoring those challenges would have “grave consequences for the future of this country”.

“The soft option would risk all the economic and social advances we have secured in recent years,” he said.

In his speech, he warned that while Ireland’s comparatively low rate of corporation tax would not be raised, so as to preserve the country’s “economic brand”, other taxes would have to be increased to help meet fiscal targets. Lenihan introduced an income tax levy of one per cent on earnings up to 100,100 euros, with a two per cent levy on the balance of all income above that level.—AFP