Prudent Paschal puts €500m in rainy day fund as Brexit looms
With Brexit looming, Finance Minister Paschal Donohoe sought to bolster his reputation for prudence by allocating €500m in 2019 - half the amount originally planned - to a "rainy day" fund to supplement €1.5bn from the Ireland Strategic Investment Fund so as to deal with severe economic shocks.
The rainy day fund would be used in the case of the activation of the "unusual event" clause in the EU's Stability and Growth Pact to boost government spending - aimed mainly at so-called "shovel ready" labour-intensive projects, for which read construction - to stop the economy going into freefall.
So, the decision isn't all down to the Government - it needs the EU to declare an emergency - and the rules around the use of the fund and how it would be ring-fenced are still being worked out.
Despite stressing that the Government's central case for Britain's departure remains for a negotiated deal in coming weeks, Mr Donohoe used the word Brexit 25 times in his speech, according to the official transcript, far more than any other. "Social", by contrast, merited only 14 mentions.
"Brexit, the outcome of which is still unclear, edges closer each day. Increasing trade barriers are raising the spectre of protectionism and the international tax landscape is changing rapidly," Mr Donohoe told the Oireachtas.
He justified the funding for the rainy day fund as part of his "prudent" planning, even as he unveiled extra social and infrastructure spending. Despite stressing prudence, his Budget plans effectively placed the responsibility for reducing the country's debt in the hands of the next government, with elections due by 2021 at the latest.
The Government earlier pushed plans to reduce public debt to 45pc of gross domestic product, or 60pc of gross national income beyond the next decade, after major capital projects have been completed. That leaves the debt burden at €42,000 for each person living here, one of the highest levels in the world.
The Irish Fiscal Advisory Council had urged the Government to use additional revenues for the rainy day fund and to reduce debt, noting that much of the improvement in Government finances had come from short-term cyclical developments and one-off tax revenues, which were unlikely to be repeated.
Despite the improved fiscal position, Ireland's debt burden was equivalent to 96pc of gross national income, it said, the fourth highest ratio in the Organisation for Economic Cooperation and Development (OECD) grouping of rich nations, after Portugal, Italy and Japan.
By the end of this year, Government coffers will have been filled with two consecutive years of stronger than expected company tax receipts.
Those revenues are now at risk as tax cuts in the US could crimp investment flows, while Brussels is hatching plans for a Europe-wide digital tax, which is opposed by Dublin, and there is continued pressure globally to ensure uniformity in tax treatments.
The International Monetary Fund noted in its recent assessment of Ireland's economy that corporate income tax accounted for 11pc of total revenue in 2017, of which two-fifths is paid by the top-10 taxpayers, many of which are affiliates of US multinationals
Then there is the known unknown of Brexit.
A no-deal exit could chop 4.5pc to 7pc off long-term output according some estimates, straining Mr Donohoe's backstop funds.
Business at a glance
Share option tweaks
- The KEEP programme, which provides share incentives to SME employees, sees small changes designed to increase take-up.
Brexit loan programme
- New long-term loan scheme introduced for SMEs and agri-food sector designed to provide loans at competitive rates.
- Employment and investment incentive scheme to be made "more efficient" after many of its users faced delays in getting tax clearance.
No change on capital gains tax
- Hopes that there might be a reduction in the amount of tax paid on selling a business were dashed - the UK regime is more favourable.