Friday 18 October 2019

Richard Curran: 'Paschal can still do soft Brexit election budget ahead of May poll'

Minister for Finance Paschal Donohoe. Photo: Gerry Mooney
Minister for Finance Paschal Donohoe. Photo: Gerry Mooney
Richard Curran

Richard Curran

Finance minister Paschal Donohoe made the right decision by presuming the worst about Brexit in framing next month's budget. Why go for tax cuts and higher spending increases when things could really start to get hairy by the beginning of 2020.

The temptation to go for some kind of election budget was resisted. Or was it just postponed?

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Taoiseach Leo Varadkar effectively fired the starting gun on the next election last week by saying it would be held in May. This gives the Government plenty of time to judge what way Brexit is playing out and for Donohoe to introduce some new budgetary measures in the New Year if Brexit goes our way.

If a deal is done on the backstop by January 1, nothing will have changed on the island of Ireland. A two-year transition period will have begun and the EU and UK will start the long difficult process of negotiating their future trading relationship.

This outcome would provide a boost to consumer confidence, the stock market, investment, employment and just about everything else. It would change the political tone and the economic environment going into 2020.

Could Donohoe leave himself room in his budget speech next month to flag the possibility of a supplementary budget or additional measures in the New Year, should circumstances around Brexit go better than expected?

He most certainly can.

Meanwhile, the situation around how the Border might operate after a no-deal Brexit remains highly fudged - and it needs to be. Tánaiste Simon Coveney has gradually and delicately teed up Border communities for the idea of some kind of Border checks.

The truth is that anybody who lives close to the Border has been aware since the day after the referendum that some kind of checks would be inevitable.

The Government has had the difficult task of fudging this issue at home while trying to negotiate the best arrangement possible with the EU. It now appears that the EU will be as flexible as possible, at the start anyway, to ensure there isn't a major political crisis on November 1.

It appears nothing will change immediately and then technology and pre-checks will be used for most business traffic. However, there have to be checks somewhere and sometime to ensure the system is working.

Random mobile checks close to but not at the Border would help assure Brussels but for how long? The goal for the Irish Government, as confirmed for the first time by Coveney last week, is to reach an agreement with Brussels on the minimum level of checks to ensure the integrity of the single market while not creating political and community tension.

The EU is saying Ireland will not get a legal derogation of the law in the event of a no-deal but Brussels will be flexible on the level of enforcement of the single market.

Brussels will want formalised review measures and site visits to ensure the minimum level of checks agreed are actually taking place.

So, if there is a no-deal Brexit, the Border situation is heading into what I have believed for a long time was inevitable territory.

We will agree to a minimum level of checks and every now and again some MEP from France or Germany will stand up in the European Parliament and complain that the Irish Border, and hence the single market, is wide open with no checks and massive levels of smuggling.

The Irish Government will then deny this, and ensure there are multiple visible checks in place for the following weeks, until they gradually fade back again.

It could become a game of cat and mouse, with Brussels as the cat and Ireland as the mouse.

Sadly, it would end up as a classic clichéd Irish solution to an Irish problem. This is not how the country should be run. But in the event of a no-deal, we may have little choice.

Our best hope remains a Northern Ireland-only backstop.

Timing is everything at Cairn

The founders of house builder Cairn Homes have great timing. Michael Stanley, Kevin Stanley and Alan McIntosh bagged around €22.7m from selling shares back in April.

They sold for €1.34 per share and the share price tanked nearly 8pc on the day. Roll on to September and last week the company announced a very solid set of results.

Revenues jumped by 48pc to €192m in the first half of the year compared with €130m for the same period the previous year. Operating profits for the six-month period rose by 51pc to €27.3m.

Despite the strong performance and the announcement that the company will pay its maiden dividend of 2.5c per share, the stock was trading around €1.07 last Thursday.

So if there are more shares to be sold off, now might not be the best time to do it. The share sell-off back in April took investors by surprise and the share price was punished for it.

All three men agreed not to sell their remaining shares for a period of six months, subject to certain customary exceptions.

Stanley and McIntosh might not see the need or even want to sell off any more stock just yet anyway.

They stand to benefit from the dividends in the meantime. At 2.5c per share Michael Stanley will receive over half a million euro (€526,000) in dividends. McIntosh's family will receive almost a million euro (€991,000) in dividends through the trust New Emerald Limited Partnership.

They have done extremely well from the early success of Cairn. Michael Stanley's remaining shares in Cairn are worth a further €25m, while McIntosh and his family have a stake worth €46.4m.

Makhlouf can ride out house price 'soft landing'

A penny for the thoughts of new Central Bank governor Gabriel Makhlouf on the latest house price figures.

New data from the Central Statistics Office showed that residential property prices in Dublin eased on a yearly basis for the first time since 2012 in July, while the rest of the country saw a 4.8pc increase.

Residential property prices in Dublin decreased by 0.2pc in July, with house prices down by 0.5pc while apartment prices rose by 0.9pc.

The CSO noted that the highest house price growth in Dublin was in South Dublin at 3pc, while Dún Laoghaire-Rathdown - the location of the most expensive homes in the country - saw a decline of 6.3pc.

Makhlouf is likely to come under increased pressure to ease up on the mortgage lending rules introduced a few years ago to prevent another housing bubble.

On a positive note, these figures show what might be described as a perfect and ordinarily elusive "soft landing".

Alternatively, it could be the case that with more expensive houses beginning to fall in price in Dublin, it is only a matter of time before the rest follow.

But you have to ask, is a fall in house prices of 5pc to 10pc bad news for the banks and therefore bad news for the Central Bank, which wants to maintain financial stability? It isn't really, given the tightened lending practices of recent years.

First-time buyers might be pleased with a fall. Home owners would be annoyed. It is hard to see Makhlouf rushing in to help home owners or politicians with lighter mortgage caps any time soon.

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