Minister indicates tax cuts will be delayed in a no-deal Brexit

Budget to feature up to €700m in new spending ‘if there is an orderly Brexit’

Minister for Finance Paschal Donohoe arriving a press conference  at the  Deptartment of Finance  to deliver the Government’s summer economic statement 2019. Photograph: Aidan Crawley/For The Irish Times

Minister for Finance Paschal Donohoe arriving a press conference at the Deptartment of Finance to deliver the Government’s summer economic statement 2019. Photograph: Aidan Crawley/For The Irish Times

 

The Government will have €700 million to spend on new measures in the October budget and will run a surplus of 0.4 per cent of GDP in 2020 if there is an orderly Brexit.

However, a no-deal Brexit would see the surplus turn to a deficit “in the region of -0.5 to -1.5 per cent” of GDP next year, according to the summer economic statement.

Minister for Finance Paschal Donohoe published the statement this afternoon, and outlined how two Brexit scenarios - deal and no-deal - would affect the State finances. Mr Donohoe said a no-deal Brexit would cost 50,000 jobs.

He indicated that tax cuts would be off the agenda for next year if there was a no-deal Brexit, although he stressed that tax reform was still achievable over the lifetime of the next government.

“If the country finds itself dealing with a disorderly Brexit, and if that happens at the end of October, our first priority and the priority of the Government will be how can protect our country and how can ensure that we have the resources in place to ensure that if anyone does lose their job that we have the plans in place to support their business and support them on their journey of getting back to work,” Mr Donohoe said.

“We have outlined that in a disorderly Brexit scenario, we believe across the early part of that, approxiametly 50,000 to 55,000 jobs will be at risk, could be lost. We want to be in a position where we will respond back to that and support those people.”

In a situation where the UK leaves the EU with a deal, a €2.8 billion budget package will be available for 2020, according to the summer statement.

However, €1.9 billion of this has already been allocated for capital projects, public sector pay and demographic changes, with a further €200 million “expenditure reserve” set aside for the National Broadband Plan and the National Children’s Hospital.

“This leaves €0.7 billion to be specifically allocated as part of the budget,” the Department of Finance said.

However, it warns: “Under the disorderly Brexit scenario, this could involve a headline deficit in the region of -0.5 per cent to -1.5 per cent of GDP for next year, depending on the magnitude of the economic shock.

“This would allow for the automatic stabilisers to provide counter cyclical support (i.e. absorb an increase in social protection payments and falling taxes) allowing for a smaller surplus; and temporary, targeted support for the sectors most affected by Brexit.

“A decision will be taken in September, when additional information is available as to which is to be become the central scenario underpinning the economic and fiscal forecasts for Budget 2020. This is the sensible budgetary strategy and one that the Government intends to follow.”

Speaking after the Government statement, Fianna Fáil finance spokesman Michael McGrath indicated his party would not push for substantial welfare increases, such as the additional €5 per week allocated in previous budgets, in a no deal budget.

Fianna Fáil’s support is needed to pass the budget and Mr McGrath said political stability was needed in the period ahead.

He said that “under no circumstances” would Fianna Fáil take action to put the economy at risk.

The issue of limited resources would “apply across the board”, the Cork South Central TD said.

He criticised Mr Donohoe for deciding on a €2.8 billion budget day figure now and said he should have left himself “some flexibility”.

The budget will be delivered on October 8th and the UK is due to leave the EU on October 31st. It is also before a possibly crucial EU summit on October 17th and 18th, which may decide on the Brexit issue.