Broker predicts Government will fall at first budgetary hurdle

Investec suggests Government’s aim to scrap USC puts it on collision course with FF

  Minister for Finance Michael Noonan and Minister for Public Expenditure and Reform Paschal Donohoe at the publication of the Summer Economic Statement . Photograph: Eric Luke / The Irish Times

Minister for Finance Michael Noonan and Minister for Public Expenditure and Reform Paschal Donohoe at the publication of the Summer Economic Statement . Photograph: Eric Luke / The Irish Times

 

Dublin stockbroker Investec is predicting the Government will collapse in October after failing to get its first Budget across the line.

Launching yesterday’s Summer Economic Statement, Minister for Finance Michael Noonan said he was proceeding on the basis the Government would last for at least three years.

However, Investec analyst Philip O’Sullivan said Fianna Fáil’s stated opposition to the Government’s plan to scrap the Universal Social Charge (USC) was likely to prompt a showdown come Budget time.

“The minority Government needs opposition to support to pass a Budget and the largest opposition party, Fianna Fáil, is on record as being opposed to the scrapping of the USC, which is the cornerstone of Government fiscal policy,” he said in a note on the statement.

“Our base case is that the Government will not get its Budget through in October, which would necessitate immediate elections,” Mr O’Sullivan said.

Investec said the Government’s assumptions about the macroeconomic outlook were likely to be revised again later in the year given the high level of uncertainty currently stalking the global economy.

However, it welcomed the plan to establish a rainy day fund from 2019 and the announcement of additional capital investment.

Rival broker Goodbody described the Government’s projections as “prudent overall”.

“With increasing pressure to spend the ‘fruits of the boom’, it remains to be seen whether the situation plays out like this,” Goodbody analyst Dermot O’Leary said.

Merrion’s Alan McQuaid said the statment struck a bullish tone, while noting the Government’s prudent fiscal management of recent years was paying dividend, with the budget deficit expected to be eliminated by 2018.