Thursday 8 December 2016

Brexit 'could cost Irish economy 3bn over the next two years' - wiping out room for tax cuts

Kevin Doyle, Colm Kelpie and Cormac McQuinn

Published 22/06/2016 | 02:30

Michael Noonan, Paschal Donohoe, and Eoghan Murphy launch the Summer Economic Statement. Photo: Tom Burke
Michael Noonan, Paschal Donohoe, and Eoghan Murphy launch the Summer Economic Statement. Photo: Tom Burke
Edinburgh Castle rock is illuminated with a sign to "Vote Remain" in a show of support for the campaign to remain in Europe ahead of Thursday's EU Referendum in Scotland. Photo: Reuters
A truck is driven by Vote Leave supporters through Parliament Square, ahead of Thursday's EU referendum, in London. Photo: Reuters

A Brexit could cost the Irish economy between €2.5bn and just over €3bn over the next two years, potentially wiping out the room for tax cuts and extra spending.

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Finance Minister Michael Noonan has attempted to play down the risk to the future budgets here, saying the reduction in growth would be "containable".

However, working off analysis compiled by the UK Treasury and a British government think tank, the Department of Finance estimates a 'Leave' vote tomorrow could cost Ireland up to around €3bn between 2017 and 2018.

This is more than the €2.2bn the minister has predicted will be available to increase spending and tax cuts during this period.

It comes as Fianna Fáil leader Micheál Martin criticised the Government's lack of a 'Plan B' for a Brexit, saying: "There would appear to be a lot of prayer going on and a lot of hope that it goes the right way as opposed to any considered contingency planning."

Taoiseach Enda Kenny said he does not want to set out a strategy that suggested the Government believes that the UK will vote to leave.

He said that should a Brexit occur there is a "full scale contingency programme" that can be considered by ministers from 5am on Friday morning if necessary.

As he unveiled the Summer Economic Statement yesterday, Mr Noonan indicated he expects to have €1bn for increased spending and tax cuts in Budget 2017.

Edinburgh Castle rock is illuminated with a sign to
Edinburgh Castle rock is illuminated with a sign to "Vote Remain" in a show of support for the campaign to remain in Europe ahead of Thursday's EU Referendum in Scotland. Photo: Reuters

This will increase gradually to €1.2m for 2018 and to around €3bn each year between 2019 and 2021.

However, the document also revealed the worst case scenario of a Brexit would involve a hit of 1.6pc to Gross Domestic Product over two years, which equates to around €3bn.

Mr Noonan moved to quell fears about the impact of such an outcome, suggesting it wouldn't affect the amount of spare cash that the Government will have to spend.

"That's containable within the figures. There are a lot of moveable parts within the figures.

"We're pointing out that there's a risk from Brexit, but it's not a risk that would damage the general thrust of what we're saying today," he said.

Asked later on RTÉ if the money available for Budget 2017 would "vanish", Mr Noonan said "nothing would happen immediately".

"We could carry it immediately. But certainly it would have to be allowed for. All these figures are the figures as we see them now, and then individual governments in individual years out to 2021 would have to make the budgetary decisions."

The Government anticipates having around €670m extra for spending and €330m worth of tax cuts in October's Budget. That's around double the original prediction made last year.

Over the next five years, Mr Noonan said the so-called 'fiscal space' would be €11.3bn, taking demographics, the Lansdowne Road Agreement and capital plans into consideration.

And he said that from 2019, €1bn per year will be put into a 'Rainy Day Fund' to help mitigate against another crisis.

Capital spending is also to be topped up by another €1bn, meaning an extra €5bn has now been set aside over and above what was allocated to the €42bn capital spending plan last year.

Public Expenditure Minister Paschal Donohoe said the mid-term review of the Capital Plan will be brought forward from late 2017 to early next year.

"We won't repeat the mistakes of the past by committing to unsustainable spending increases without regard to the huge damage caused to our economy, our public services and every household by a spending policy driven by the boom-bust cycle," he said.

Mr Noonan said that the Fiscal Council had yet to see the figures, although he believes it would have no problem with the Department of Finance's assessment.

Meanwhile Taoiseach Enda Kenny told the Dáil a Brexit plan has been designed but will not be revealed in advance of the referendum.

"[The plan] would be about the economy, trade, about jobs, investment, whether or not Sterling would remain strong or whether it would collapse and if so for how long," he said.

It also covers how agencies dealing with small and medium enterprises can support the diversification of their export markets.

Mr Kenny said the Government would work with the EU and the UK "to protect Irish interests, including co-operation between North and South, as far as possible."

His remarks came as he told the chamber the migration crisis and a range of economic issues will also be discussed at a meeting of the European Council next week.

Fianna Fáil's Micheál Martin said that whatever the result, there will be a need for "cool heads". He said if there is a 'Remain' vote that there should be a "moment of reflection" among EU leaders.

Irish Independent

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