Govt planning in advance of Budget 2020 aims to ensure that we continue to build on the progress of recent years and that the public finances and our people are protected
The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe T.D., today (Tuesday) published the Government’s Summer Economic Statement (SES).
The SES forms a key element of the reformed budgetary process by providing a policy background for the discussions in the Dáil and, subsequently, at the National Economic Dialogue on 26th and 27th June. The SES sets out the Government’s medium-term economic strategy and updates the parameters ahead of Budget 2020.
Minister Donohoe said “The economic situation is in good health at present: A decade after the financial crisis, the public finances have been placed on a sustainable path, the economy is at full employment, public services are improving and living standards are rising. And with the level of employment moving above the 2.3 million mark, its highest level ever, the overarching objective of Government policy is to build upon the progress we have made in recent years. That said, it is clear that the external environment is becoming increasingly challenging and at this point in time a disorderly Brexit is a real possibility. That is why I am setting out two budgetary scenarios in this SES – the first involves an orderly Brexit occurring, while the second involves a disorderly scenario.”
“Since the UK referendum result in 2016, a number of steps have been taken to build up the resilience of the economy so that we have the capacity to deal with adverse economic shocks. This includes building up our fiscal resources by balancing our books last year for the first time in ad decade, reducing our debt burden and establishing the Rainy Day Fund. The steady increases in public spending implemented in recent years, with a particular focus on public capital investment, play an important role in supporting resilience in the face of Brexit.
“While the sensible economic and fiscal policies implemented over recent years have placed Ireland in a stronger position to deal with challenges, including Brexit, ccontinued careful management of the economy and of the public finances is needed now more than ever in order to chart our way forward through the uncertain times ahead. By approaching the SES in this way, we will ensure that we are prepared for all eventualities so that the public finances and our people are protected in the years to come.”
The SES sets out that:
- The Budget 2020 framework involves a budgetary package of €2.8 billion for 2020.
- This would accommodate a surplus of 0.4 per cent of GDP next year and a budgetary package of €0.7 billion once pre-committed current and capital expenditure is accounted for;
- In the event of an orderly Brexit and given that we are at the top of the economic cycle, the appropriate budgetary policy is to stay within the parameters set out in the Stability Programme Update (SPU) published in April (targeting a surplus of 0.4% of GDP);
- With current and capital expenditure commitments amounting to €1.9 billion (including a €0.7 billion or 10 per cent increase in capital investment) and an expenditure reserve of up to €0.2 billion being established to accommodate funding requirements for the National Broadband Plan and Children’s Hospital, this leaves €0.7 billion to be specifically allocated as part of the Budget.
- Under the disorderly Brexit scenario, this could involve a headline deficit in the region –½ to –1½ 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 become the central scenario underpinning the economic and fiscal forecasts for Budget 2020.
- This is sensible budgetary strategy and one that the Government intends to follow.
ENDS