Irish government, eye on re-election, reverses cuts in budget

DUBLIN (Reuters) - Ireland's finance minister effectively kicked off the government's re-election campaign on Tuesday by using the spoils of a newly booming economy to reduce taxes and reverse unpopular cuts in an all-encompassing budget.

A year after bringing an end to seven years of austerity, Dublin will pump an additional 1.5 billion euros (1 billion pounds) into an economy set to grow by over 6 percent this year. It will come from bringing down personal taxes, offering relief on child care and unwinding cuts imposed during a three-year international bailout.

Ireland will still comfortably cut its budget deficit below the European Union target of 3 percent of GDP this year and Finance Minister Michael Noonan said talk of him introducing an "excessively expansionary budget" were well off the mark.

"These are sensible, affordable steps that will keep the recovery going and bring its benefits to every family," Noonan said in his fifth and final budget speech before elections due early next year.

"But we must not gamble with the future. This Government will not take chances that destabilise the recovery."

Last week Noonan channelled 2015 tax windfalls into a late-year spending splurge. The country's central bank urged against using the fiscal gains to finance long-lasting spending commitments.

By next February or March, when an election is set to be called after speculation of a snap vote was dampened, the government will be hoping voters will start to feel the benefits of Noonan's 2016 tax cuts, public sector wage rises and a hike in the minimum wage.

But with the economy forecast to be Europe's best performing for a third successive year in 2016 and expand by at least 3 percent every year until 2020, Noonan said he would continue to with more of the same if re-elected.

Noonan sought to tackle a severe shortage of housing in urban centres for the third budget in a row, mandating Ireland's bad bank, the National Asset Management Agency (NAMA), to build 20,000 units by 2020 at the cost of 4.5 billion euros.

(Editing by Jeremy Gaunt)