Government has agreed to base Budget 2020 on the assumption of a no-deal exit of the United Kingdom from the European Union at the end of October
The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD, today (Wednesday) secured Government agreement to base Budget 2020 on the assumption of a no-deal Brexit at the end of October.
Three main factors influenced the Government’s decision.
- Firstly, it is important to give certainty to businesses and citizens that the Government is prepared for a no-deal Brexit and stands ready to support the economy in such a scenario.
- Second, it is important to safeguard the hard won progress of recent years in stabilising the public finances. Given the uncertainty and lack of clarity regarding the timing and format that the UK’s exit will take, preparing for a no-deal scenario is the most sensible approach.
- Finally, is the need to avoid a situation in which decisions made in the Budget might need to reversed in future. Assuming a no-deal Brexit ensures the Government has the necessary resources at its disposal to meet the impact of this exceptional challenge, whilst preserving the longer-term sustainability of the public finances.
The Summer Economic Statement 2019 (SES), published in June, set out two scenarios; the first involved an orderly exit of the UK while the second involved a disorderly exit. In both scenarios, the Government committed to a budgetary package of €2.8 billion.
- €2.1 billion has already been pre-committed to expenditure measures as outlined in the SES.
- This leaves €0.7 billion for further allocation.
The Government highlighted in the SES that it would decide in September which scenario would form the basis for Budget 2020. Given (1) the lack of clarity regarding the timing and format that the UK’s exit will take, and (2) that the budget is just four weeks away, a decision was taken by Government today that the budget would be formulated on the basis of a disorderly exit.
The approach being adopted by Government to Budget 2020 involves a ‘twin-track’ approach, namely:
- Funding services and making progress on particular policy areas, and;
- Supporting sectors and regions most exposed to Brexit-related disruption.
In the event of a no-deal Brexit, the Government has previously indicated that it would allow the automatic stabilisers to operate. This allows for a reduced tax-take due to fewer people at work and increased social welfare supports due to an increase in unemployment. The Government will also introduce timely, targeted, temporary measures for the sectors most exposed. In terms of the public finances, this could lead to a swing from a general government surplus of 0.4 per cent of GDP to a deficit of the order of ½ – 1½ per cent of GDP next year.
Budget 2020 will aim to build on the success of recent years. It will be delivered at a time of unprecedented uncertainty but it will be delivered from a position of strength.
Speaking after the Cabinet meeting, Minister Donohoe said: ‘We have a well-managed economy. Our public finances have been placed on a sustainable trajectory and economic growth is steady, robust and broadly-based. Our labour market is exceptionally strong, with more people at work than ever before. However, while the economic situation is relatively healthy at present, there remain a number of significant risks to the outlook, including the increasing likelihood of a no-deal Brexit’.
“A no deal Brexit will have profound implications for Ireland on all levels. These include macroeconomic, trade and sectoral challenges, both immediately and in the longer term. A crucial policy response is to build up our capacity to respond to these challenges. This is why the Government is prioritising reducing public debt, establishing a Rainy Day Fund and avoiding pro-cyclical budgetary policies. While there are risks ahead there are also opportunities; our goal is to position our economy to minimise these risks and to maximise the opportunities that lie ahead.
“Basing Budget 2020 on the assumption of a no-deal Brexit is sensible budgetary strategy and one that the Government intends to follow.”
Work on no deal Brexit preparations has the highest priority across Government. The Government recently published the Brexit Contingency Planning Update which reflects the extensive work which has taken place at EU level and on a whole-of-Government basis, including the Brexit Omnibus Act, to prepare for a no deal Brexit. It sets out the next steps to be taken between now and 31 October.
ENDS