Reuters International

Irish Prime Minister Enda Kenny speaks to the media at the general election count centre in Castlebar, Ireland February 27, 2016. REUTERS/Clodagh Kilcoyne

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By Padraic Halpin

DUBLIN (Reuters) - Ireland's proposed minority government will use at least twice as much available resources on spending increases over tax cuts, an agreement between the country's two main parties seen by Reuters showed on Tuesday.

Acting Prime Minister Enda Kenny's Fine Gael party moved towards breaking a nine-week, post-election deadlock on Friday by securing the support of the country's second largest party, rival Fianna Fail, to facilitate a minority administration.

The parties met separately on Tuesday to ratify the final text of the agreement, which sets out ground rules for an arrangement that is scheduled to run until the end of 2018 and entails Fianna Fail abstaining in key votes.

The seven-page document includes a broad policy framework such as targeting income tax cuts on low and middle income earners, reviewing public sector pay levels and building up a contingency fund as a buffer against fiscal shocks.

"To address unmet needs, (the government will) introduce budgets that will involve at least a 2:1 split between investment in public spending and tax reductions," the document states.

Ireland, which began unwinding years of deep austerity cuts last year, is in a position to introduce further expansionary measures thanks to its fast-growing economy. It is expected to focus that room for manoeuvre on spending in areas such as health, housing and infrastructure.

The parties also agreed to increase infrastructure spending from 2017 when its current plan is due to be reviewed. 

The reference to a public sector pay review arises from the fact that after six years of almost unbroken peace, labour-management relations in Ireland are starting to fray as economic recovery has led to contested wage demands and strikes.

The document further says that the government will "take all necessary action" to tackle high variable interest rate mortgages, stopping short of suggesting new laws to allow Ireland's central bank to intervene in the market.

Acting Finance Minister Michael Noonan of Fine Gael last year threatened to penalise banks if they did not act, though he decided against doing so after lenders cut their rates. Fianna Fail campaigned in the February election to bring in new laws.

Central Bank governor Philip Lane reiterated last week that he did not wish to be given the power to set interest rates.

Kenny needs the support of just six more lawmakers outside his party to reach the 58 required to form a minority government and is in talks this week with 14 independent lawmakers to reach that target and set out a more detailed set of policies.

A number of the independents involved in the talks said on Tuesday that discussions would likely run until next week.

(Editing by Mark Heinrich)

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