Pensioners and young unemployed asked to shoulder burden of yet another austerity budget, with cuts totalling €2.5bn

Ireland's recovery is well under way, according to the country's finance minister, but its government asked pensioners and the young unemployed on Tuesday to shoulder the burden of yet another austerity budget.

Michael Noonan announced cuts totalling €2.5bn (£2.1bn) even though growth is projected to rise to 2.7% in 2014.

For the first time in years Irish pensioners will feel some pain in the budget. One in 10 of the over-70s will lose their full medical card entitling them to free healthcare. A subsidy of €114 per year to pay pensioners' telephone bills will be scrapped and an €850 death grant to pay for funerals will be abolished. The move on pensioners could be a major political gamble given that they are one sector of the population guaranteed to get out and vote in elections.

Noonan risked further alienating pensioners, who make up a large proportion of savers, over his decision to increase tax on interest from savings – the so called DIRT tax rate – which is to be raised to 41%.

The young unemployed will also bear the brunt of cuts, with jobseeker's allowance being slashed from the current €144 per week to €100 for under-25s. The age of eligibility for the full social payment of €188 (still one of the most generous in the whole of the EU) will be raised to 26.

Noonan imposed ten cents extra on the price of a packet of cigarettes and the same figure of excise duty on pints of beer and cider. He added 50 cents on a bottle of wine.

In defiance of criticism from the German SPD, Noonan told the Dail there would be no change in Ireland's relatively low corporation tax rate.

"The tax rate is settled policy. We are 100% committed to the 12.5% corporation tax rate. This will not change," he said.

The SPD in coalition talks with Angela Merkel has demanded the next German government led by her must ask the EU to review the Republic's corporation tax rate. The Social Democrats have argued that the low rate puts Ireland at an advantage over other EU states in terms of attracting foreign direct investment.

Finishing on an upbeat note Noonan said:"The recovery is underway but there are still risks. We are well along the recovery path."