Cowen said Ireland must cut €2 billion (US$2.6 billion) from this year's budget as a first step - and faced four more years of even steeper cuts, simply to aim for a balanced budget by 2013.
"The difficulty in achieving this cannot be overstated," he told a sombre Dail Eireann, the Irish parliament, following weeks of day-and-night negotiations with business and labor leaders seeking a solution to Ireland's debt crisis.
Union chiefs abandoned those talks early Tuesday, protesting that Cowen was going too far, too fast.
The premier said Ireland must impose new levies on the paychecks of 350,000 government-paid employees who, until now, have received guaranteed pensions without making contributions themselves.
Those being targeted include police, nurses and teachers.
The new charges would deduct seven per cent, on average, from workers' salaries.
Previously negotiated pay rises also would be set aside through 2010.
New levy
Paychecks throughout Ireland's two million-strong workforce already face a new levy of one per cent to three per cent in Ireland's budget unveiled in October - an emergency measure that already has been overtaken by events.
Cowen said Ireland had no choice but to lower workers' standard of living further - because the alternative was national bankruptcy.
He told a news conference that Ireland expects to collect "at best" €37 billion in taxes this year, versus expenses of €55 billion. "So in ordinary persons' language, we are borrowing one-third of day-to-day expenditure for this country," he said. "That is not a sustainable position. For every man, woman and child in Ireland this year, we'll be borrowing €4,500."
Cowen said overseas aid donations would be cut by €95 million annually, or 11 per cent - reversing Ireland's longstanding pledge to lead Western governments in increasing support to developing countries.
"Ireland can't stand on the world stage saying one thing and get the plaudits for it, and then take it away when no one is looking," said Tom Arnold, chief executive of Ireland's Concern Worldwide aid agency.
Among Cowen's other cuts, he said the rates the government pays private lawyers and other professionals will be cut by eight per cent, saving €80 million annually, while €140 million will be trimmed in yearly childcare benefits.
The latest tax figures published Tuesday illustrate Ireland's suddenly dire straits. After more than a decade of budget surpluses fuelled by an unprecedented property boom, that bubble has burst and unemployment has soared - rendering recent tax forecasts wildly optimistic.
The Finance Department said tax collections for January were €900 million lower than in January 2008, a 19 per cent drop. This helped create a monthly deficit of €747 million versus a €660 million monthly surplus a year ago.
Higher charges may come
Cutting the newfound deficit is critical to lowering the costs of Irish borrowing on international markets. Ireland today is being charged the highest rates on its debts throughout the 16-nation euro zone - and could suffer even higher charges if agencies lower their credit ratings as feared.
Last month, the New York-based Moody's and Standard & Poor agencies warned they could downgrade Ireland's AAA credit rating - the top mark awarded to governments and businesses with ample resources to pay their bills - unless the government took swift corrective action on its ballooning debt.
Business leaders said Cowen's imposition of pension charges on state employees was just and overdue.
The Irish Business and Employers Confederation (IBEC) said private-sector workers had borne the brunt of the recession, suffering mass pay cuts and unemployment, while state-paid workers enjoyed job security and market-leading, guaranteed pensions.
"To meet the challenge facing Ireland, every citizen must make sacrifices," said IBEC director-general Turlough O'Sullivan, whose group negotiates with the government and unions on behalf of 7,000 employers nationwide.
- AP