Irish government promises tax cuts, spending as election nears

* Irish economy to grow by 4 pct in 2015, 3.8 pct in 2016

* Budget deficit to fall to 2.3 pct in 2015, 1.7 pct in 2016

* Government sees 1.5 bln euros for tax cuts, spending (Adds details from ministers' speeches)

By Padraic Halpin

DUBLIN, April 28 (Reuters) - Ireland (Other OTC: IRLD - news) nudged up its growth forecasts for 2015 and 2016 on Tuesday, setting it up to remain the fastest-growing economy in the EU and prompting the government to promise five years of tax cuts and spending if re-elected.

Rebounding from a debt crisis that forced it into an EU/IMF bailout in 2010, Ireland's economy grew 4.8 percent last year, its strongest performance since 2007.

Finance minister Michael Noonan said he would have up to 1.5 billion euros extra in his next and in each budget that follows to cut income tax rates and spend more in areas such as health and education if the governing coalition is re-elected in 2016.

Data on Tuesday showed retail sales volumes up more than 9 percent year-on-year in March.

Ireland's finance department sees annual economic growth of more than 3 percent for the next six years, predicting 4 percent gross domestic product (GDP) growth this year and 3.8 percent in 2016. It cut this year's budget deficit target to 2.3 percent of GDP, comfortably below the EU's 3 percent limit.

The shortfall is set to narrow to 1.7 percent of GDP next year while gross debt is forecast to fall to 105 percent of GDP by the end of 2015 and below 85 percent by 2020, from a peak of 125 percent.

Unemployment, expected to fall below 10 percent for the first time in over six years when data for April is released on Wednesday, is now forecast to drop to 9.6 percent this year and to 8.8 percent in 2016 when the coalition will seek re-election.

A year ago unemployment was predicted to take until well into 2016 to fall below 10 percent. It hit 15 percent mid-bailout in 2012.

"Such a bright future is not guaranteed and is contingent on a continuation of the policies and reforms introduced and being followed by this government," Noonan told parliament in his spring economic statement, keen to keep the fast recovering economy at the top of the political agenda.

Opposition parties called the announcement an electoral stunt while the Irish Times newspaper described it as updated forecasts with "some tinsel and sparkles."

Noonan's Fine Gael party has a narrow lead in most opinion polls but they show it and junior partner Labour, whose support has dropped sharply, will fall short of being re-elected as a two-party coalition.

Next year's budget would be the second in succession to ease taxes and boost spending, after seven years of tax hikes and spending cuts totaling 30 billion euros or about 20 percent of GDP.

Spending Minister Brendan Howlin also confirmed that talks would begin shortly with trade unions over gradually reversing some of the public sector wage cuts that averaged 15 percent during the financial crisis.

Reversing the measures of that period through a narrowing of the tax base and an extension of universal benefits could mean a return to some of the misteps of Ireland's ill-fated boom year, Goodbody Stockbrokers chief economist Dermot O'Leary warned.

"Further improvement in Ireland's fiscal position is to be welcomed but we would hope that a prudent approach is employed and the mistakes of the past are not forgotten," O'Leary said. (Editing by Janet Lawrence/Ruth Pitchford)