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By Padraic Halpin

DUBLIN (Reuters) - Ireland's social protection minister, Joan Burton, was elected new leader of the Labour Party, junior partner in government, on Friday with the task of arresting a collapse in support that led to a local election hammering. Burton takes over from former deputy prime minister Eamon Gilmore, who resigned in May after Labour were punished by voters for implementing an austerity programme that has put the country's finances back on track.

Burton, the first woman to lead the centre-left party, has said she will stick to EU-imposed deficit reduction targets but believes austerity has reached its limits in Ireland and expects a significant easing of planned budget cuts later this year.

"Now that we have the economy in something of a better place, the critical thing is to move to have as much attention paid by the government to social recovery as has been paid to stabilising the economy," Burton told reporters.

Burton, a qualified chartered accountant who worked with PricewaterhouseCoopers before entering politics, defeated junior minister Alex White in the contest for leader, winning 78 percent of the votes.

Her predecessor Gilmore helped lead Ireland out of an international bailout last year and there have been signs of economic recovery, but the benefits are not being felt by many voters, particularly those in Labour's core support base.

Three years ago, Labour went into government for the first time since the late 1990s on a promise to end the previous administration's adherence to "Frankfurt's Way", an austerity plan the party said was dictated by the European Central Bank.

It angered supporters by pursuing the tough austerity required under the EU/IMF bailout and captured just 7 percent of seats in the local polls, compared with 19 percent in parliamentary elections three years ago.

Prime Minister Enda Kenny, whose party slumped to second place in the local polls, needs the support of Labour to push through a final package of austerity cuts in October's budget and said he and Burton had agreed to see out the coalition's full term to 2016.

Kenny has pledged to reshuffle his cabinet and is likely to announce the changes next week.


Burton, whom Kenny appointed new deputy prime minister, called for an independent body to be set up to assess the appropriateness of Ireland's €8.65 ($11.80) minimum wage and for low and middle-income workers to get a tax break.

Finance Minister Michael Noonan of the senior Fine Gael party wants to reduce the planned 2 billion euros ($2.7 billion) of tax hikes and spending cuts in October's budget. He has said he will have room to do so if tax figures and economic data are sufficiently positive.

Burton told national broadcaster RTE she did not think the cuts would be "anything like 2 billion euros", citing positive economic data released this week.

The data showed that Ireland's economy grew by 2.7 percent in the first quarter and new European Union rules on calculating output significantly increased the size of the economy, raising the chances of Dublin easing its austerity path.

The GDP data, which followed figures on Wednesday that showed Ireland's tax take remained above target at the end of June, came as a particular relief to Labour whose MPs have called for a new leader to be more assertive in government.

"Joan Burton has walked a fine line between staying a constructive member of the government but also at times being quite critical of the direction of the government," said Theresa Reidy, a politics lecturer at University College Cork.

"I imagine that she would continue in the vein. While she might be a more assertive voice, I couldn't see her being somebody that would seek to collapse the government."

(Editing by Andrew Roche)

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