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Ireland to cushion tough COVID-19 restrictions with budget billions

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DUBLIN (Reuters) - Ireland’s government will offer in its budget for 2021 on Tuesday more support to those most impacted by some of Europe’s toughest COVID-19 restrictions and will also try to prepare for the added threat of a no trade deal Brexit.

Like other countries, Ireland has spent aggressively to contain the pandemic crisis with billions of euros in emergency jobless benefits, wage subsidies and business loan guarantees, turning last year’s budget surplus into a forecast deficit of 6.1% of gross domestic product (GDP) for 2020.

With the damage to the state finances not as bad as feared, ministers have a much bigger budget pot available. Sources familiar with the process say the spending plan is set to include a multi-billion euro Brexit and COVID-19 recovery fund and a VAT cut for the hard-hit hospitality sector.

The deficit is set to dip to just below 6% of GDP next year as a result of the new measures, one of the sources said.

“This budget will focus on how we can support our country in dealing with the immediate challenges of the COVID-19 pandemic and the consequences of a no trade deal Brexit,” Finance Minister Paschal Donohoe told reporters last week.

“But of course as we focus on those priorities we also have to continue to look at how we can make progress on the other core issues facing the government, that of housing, that of healthcare and that of climate change.”

While Ireland’s central bank forecasts that GDP may fall by as little as 0.4% this year, the relatively robust performance is being driven by the less affected export sector and masks an uneven recovery that has left unemployment stuck at around 15%.

A tightening of lockdown restrictions last week - banning indoor service in pubs and restaurant nationwide - will add to pressure on the domestic economy.

Donohoe and Public Expenditure Minister Michael McGrath are also expected to signal that the temporary wage subsidy and emergency unemployment schemes will not be removed suddenly at the current cut-off of April 2021.

Reporting by Padraic Halpin; Editing by Gareth Jones