Minister Donohoe updates Budget 2020 forecasts & makes provision for changes in corporation tax receipts

9th January, 2020

Potential for disorderly Brexit in 2020 now subsided allowing for growth figures to be updated to more accurately reflect economic position

  • GDP to grow by 3.9 per cent this year, averaging 3 per cent per annum in the first half of this decade;
  • Forecasts are predicated on a free-trade agreement between the EU and UK that mirrors existing arrangements or the agreement of an extension to the transition period;
  • Improved growth allows Minister Donohoe to target a budget surplus of 1 per cent at quicker pace – by 2021, subject to continued economic growth;
  • Implementation of OECD BEPS initiative will likely result in a decline in corporation taxation receipts, making the need to account for reduced revenue essential;
  • General Government surpluses remain the first line of defense against potential risks to economy and public finances.

The Department of Finance has updated its growth forecast for 2020 to take account of the extension to the Brexit timeline.  GDP is projected to grow by 3.9 per cent this year, and to average around 3 per cent over the 2020-2025 horizon (assuming a Free Trade Agreement is negotiated between the EU and UK or an extension to the transition period). 

The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD, has updated the Government’s medium-term fiscal strategy, with a budgetary surplus of 0.7 per cent of GDP now projected for this year.  This improvement naturally feeds into the following years and the forecast now is that a budget surplus of 1% of GDP can be reached at the earlier time of 2021, improving incrementally to 1.3 per cent of GDP by 2025.

Where corporation tax receipts are concerned, from 2022 onwards, implementation of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative is assumed to reduce corporation tax receipts by an incremental €500 million per annum. While there is some uncertainty surrounding this figure, it is the Department’s best assessment, based on ongoing work being carried out by the Revenue Commissioners, that the overall risk from BEPS-related changes could be in the range of €800m to €2 billion.

The overall unallocated spending over the period 2021-2024 remains unchanged from the orderly Brexit scenario of the Summer Economic Statement at €8.6 billion.

Updating the medium term fiscal strategy, Minister Donohoe said: ‘Running budgetary surpluses in good times is the best way of de-risking our economy and our public finances from the shocks that – as a small open economy – are likely’.

“Changes to international taxation are on the way: we have no control over this and we must prepare for this.  This is why we need surpluses.  At the same time, we are maintaining capital expenditure at high levels in order to address the bottlenecks that exist and to ensure that the infrastructure that is needed for a growing economy and society are in place.  We are also providing for further improvements in public services over the medium term to support the development of our economy and, more importantly, our people”

Medium-Term Fiscal Strategy Slide Deck