By Padraic Halpin
DUBLIN (Reuters) - Irish prime minister Enda Kenny's ruling party looked set to slump to second place in local elections on Sunday, a surprise result that will complicate an austerity program to be completed this year to cut a still-high budget deficit.
In a warning to other European governments implementing the last of harsh budget cuts, support for Kenny's Fine Gael party fell sharply since its exit from an international bailout in December, when it held a seven percentage point lead in opinion polls.
With first preference votes in 134 of 137 local authorities counted, Fine Gael secured 24 percent of the vote compared to 36 percent at parliamentary elections three years ago to fall a percentage point behind main opposition party Fianna Fail.
Support for Sinn Fein, once the political wing of the Irish Republican Army, also surged to 15 percent as it closed in on a tripling of its local government representation, while junior coalition party Labour saw its vote collapse.
Kenny needs the support of Labour to push through October's budget, for which a further 2 billion euros of tax increases and spending cuts must be found. His junior partner had won just 44 of the 749 seats filled by 2030 GMT.
"We've said on many occasions that 90 percent plus of this adjustment has been made and we have restored stability to the country from an economic point of view, but I know the problem is people don't see that in their weekly lives," Kenny told national broadcaster RTE.
"We've been very clear with the people that there is no pot of gold, but any flexibility available to the minister for finance in this budget will be given back to hard-pressed families. It depends upon the strength of the economy."
Irish consumer confidence and employment have hit post crisis-highs since the start of the year, but strong monthly economic data late last year failed to translate into stronger growth when the economy surprisingly contracted.
Ireland has taken almost 30 billion euros or close to 20 percent of gross domestic product out of the economy since 2008 and the country's finance department said last month a further 2 billion euros of cuts were still needed to reduce its budget deficit to an EU target of 3 percent of GDP next year.
"Even though the amount is smaller than previous budgets, politically this will probably be the most difficult budget for the government to get through," said Theresa Reidy, a politics lecturer at University College Cork.
"This is a very, very difficult situation for the governing parties, it's not the case that they can just park the austerity policies because of a bad election. If there is slippage in targets, it will have knock-on consequences in other areas."
The first results of Ireland's European elections were set to be announced later on Sunday. An exit poll by RTE showed Fine Gael holding its four seats, with Sinn Fein likely to win at least two of the remaining seven and Labour facing a wipeout.
(Editing by Paul Simao)