THE GOVERNMENT’S €3.5 billion budget gamble today saw every worker hit with at least an extra 1pc in income tax levy.

The Cabinet this morning signed off on a doubling of the 1pc levy – introduced only last January – for ordinary workers earning less than €100,000.

However, the increasing number of people in receipt of the dole have been spared cuts in their payments by the toughest budget in Irish history.

There had been intense speculation that Finance Minister Brian Lenihan would reduce unemployment benefits and other social welfare payments in light of falling prices.

But despite the massive pressure on the public finances, it was decided to leave them untouched.

The news will come as a relief to the 372,800 people currently receiving unemployment benefits, but also to nervous backbench TDs.

It is hoped that by saving benefits the Government will be able to avoid sparking a reaction similar to the medical card fiasco last October.

But the early childhood supplement, introduced when the country was awash with cash, was expected to be halved to €500.

And in a move that goes against the majority of other countries, Minister Lenihan focussed on tax hikes as a way of bringing us out of the recession.

Mr Lenihan will risk his reputation by tipping the balance in favour of extra taxation rather than spending cuts.

It is thought that more than €2bn of the necessary €3.5bn will be made up through increased income levies and other existing taxes.

International markets were focused on Ireland today as world news agencies led with stories on the crisis budget.

The BBC reported that Ireland was ignoring conventional wisdom that has seen other countries "spending billions and cutting taxes as a means to economic recovery".

As well as doubling the recently introduced income levy for ordinary workers, the rates paid by higher earners was also increased.

The levies will remain in place until the end of the tax year, at which stage they will be dropped and replaced by higher income tax rates.

Details of how a number of tax reliefs that allow big earners legally lower their tax requirements were also expected to be included in today's budget.

Hundreds of millions of euro will be saved by cutting some road and rail developments. The most labour intensive projects are likely to be spared.

METRO

Transport Minister Noel Dempsey has indicated that the much-hyped Metro North project will go-ahead. It will cost around €40m this year.

As first revealed in the Herald, the Government is set to announce plans to sell off billions of euro worth of bad debt to a "toxic agency".

The move is aimed at drawing a line under the economic crisis by freeing banks of their non-performing loans.

The State will take on the written-down value of billions of euro in bank property assets and sell them on the open market through a state-run asset management company (AMCO).

The exact details of the plan will not be unveiled until later in the week.

Minister Lenihan last night circulated an email to his Fianna Fail supporters in which he promised not to shirk his responsibilities.

"Our strategy for recovery is based on everyone making a contribution," he said.

"It [the budget] strikes a balance where everyone contributes a share to getting the country back on track."

The Taoiseach has already announced that all 20 junior ministers will resign on April 21, but 15 will be reinstated the following day.

The move is being seen as politically astute by Mr Cowen as it dampens the possibility of an internal rebellion.

The Ministers and those hopeful of a promotion will be on best behaviour over the coming weeks.

Among the ministers thought to be under threat are Sean Haughey, Maire Hoctor, Noel Ahern, Mary Wallace, Michael Kitt and the Taosieach's own constituency partner John Moloney.

However, cynics see the ministerial cull as nothing more than a PR stunt aimed at softening up the increasingly agitated public.

Labour's Joan Bruton told the Herald today that the cut in junior ministers needs to "be part of a wider effort".

She also called for a salary cap of €200k for TDs, heads of State bodies and agencies.

EXPENSES

Ms Bruton said there is "enormous room to row back on expenses" which have become like a "runaway horse".

Overseas Aid is likely to take another chop. It has already been reduced by €155m over the last year and a half, but faces a cut of at least half that again.

The "old reliables" will be hit to some degree but the Minister wants to avoid encouraging cross border trading and smuggling.

He is expected to add a few cents to the price of petrol and diesel, as well as increases in alcohol and tobacco.

kdoyle@herald.ie