Monday 16 September 2019

Richard Curran: 'The crystal ball for 2019 can't tell us what Brexit outcome will be'

Housing Minister Eoghan Murphy is in charge of a portfolio which has dogged the Government. Picture; Gerry Mooney
Housing Minister Eoghan Murphy is in charge of a portfolio which has dogged the Government. Picture; Gerry Mooney
Richard Curran

Richard Curran

There is a bright, shiny new year just around the corner - well, maybe. That depends on whether you are an optimist or pessimist. The fundamentals of the Irish economy appear solid enough for now but, equally, a close look around and if you are that way inclined, there are lots of things to be worried about.

Here are a few stories that may well shape the headlines in 2019.

1 Brexit: This is the biggest story of them all. A good outcome will feel like we got out of jail. A bad outcome will be very difficult for many sectors and jobs, not to mention those living along the Border.

Each month we appear to be just weeks away from finally finding out how it will end, only to find nothing happened as expected and we still don't know.

Britain's Work and Pensions Secretary Amber Rudd. Photo: Getty Images
Britain's Work and Pensions Secretary Amber Rudd. Photo: Getty Images

The temptation is to say that 2019 will deliver definitively on whether Brexit happens or not and, if so, what shape it will take. Unfortunately, that may not actually be the case. Theresa May's Brexit deal, if passed (very unlikely), would still require a lengthy period of negotiation beyond 2019 on the future trading relationship.

A no-deal crash-out at the end of March would certainly deliver an answer to the question of what is going to happen. However, it could lead to such political and economic turmoil that further twists and turns would arise in the Brexit plot.

A chaotic no-deal Brexit, if it happened, would also reshape the British political landscape, possibly resulting in a permanent breakaway split from the Conservative Party.

A second referendum could only happen if the British government stops the clock on Brexit. Equally, if a general election is triggered there may be a need to delay things beyond the end of March.

The situation is so fluid it is possible that at the end of March we still won't know what will happen with Brexit.

Just before Christmas, pensions secretary Amber Rudd floated a possible second referendum which annoyed some of her Cabinet colleagues. She may well be positioning herself as the new non-Brexiteer leader of the party who will call for that referendum to take place.

If Theresa May doesn't get her deal passed by the end of January, she won't be sticking around. There won't be time for another crack at it.

2 Housing: The housing crisis has been the biggest thorn in the side of Leo Varadkar's Government. As the first housing minister, Simon Coveney survived the portfolio despite not fixing the problem. Eoghan Murphy practically disappeared from the airwaves from about November onwards. It isn't that the minister isn't working hard at fixing the problem - it may have come after Fine Gael focus groups on whether he was annoying too many voters.

The housing crisis is likely to get slightly better in 2019 if things stay as they are. With no external shocks - which would affect confidence, fundamentals in the economy and house values - more houses will be built this year.

It won't be enough, though. And of course there is the problem of external factors. If a hard Brexit or a Trump trade war forced a significant economic dip, house values could level off or even fall in places.

This wouldn't be anything like the 2008 crisis, not least because current house prices are not built on the sand of over-extended borrowings. The Central Bank limits have prevented much of that.

However, a wobble in the property market, caused by something out of left field, could undermine the business case for building in a hurry.

Next year will also test the contribution likely to be made by the State's new Land Development Agency. It won't fix anything in 12 months but we should have a reasonable idea of whether it is going to make a difference to development land values and activity levels.

3 Apple's Tax Appeal: It is now about two-and-a-half years since the European Commission found that Apple had received what it described as illegal State aid from the Irish Government, resulting in a €13bn tax bill.

The money has now been collected and is resting in an escrow account on behalf of the State pending a European Court of Justice appeal by both Apple and the Irish Government.

There was some expectation that the appeal might be heard in late 2018 but it will be interesting to see if it takes place in 2019.

There is €13bn at stake but, unfortunately, Ireland is unlikely to get to keep any of it. Even if it loses the cases and the money is paid over, there may well be additional claims on the cash from other countries.

4 Quinn v IBRC: When it comes to court cases, the mother of all legal battles is due to kick off in March 2019.

Members of Sean Quinn's family are suing the State and IBRC in relation to around €3bn in losses from trading in Anglo CFDs. The family argue €1.2bn lent to them to finance the trades from Anglo was given illegally.

IBRC has its own raft of legal actions against members of the Quinn family in relation to their alleged attempts to put assets beyond the reach of the IBRC liquidators.

The Quinn case is being taken by Sean Quinn's five children. His wife Patricia is no longer involved following a €121m judgment made against her in the courts in November.

This massive legal action has been on ice pending the outcome of all outstanding criminal actions in the Anglo Irish Bank collapse. It is due to kick off in the spring. It will be a massive case, unless of course a decision is made to settle. Previous talks between both sides did take place but no settlement was reached.

If it goes ahead it will be one of the biggest legal battles in Irish court history and will inevitably dredge up a lot of material, new and old, from the 2008 collapse of Anglo.

The case also stands in the way of the IBRC liquidators completing the liquidation process which is expected to yield some further returns to the State.

5 Vat and Hospitality: In October, Finance Minister Paschal Donohoe ended the special 9pc Vat rate granted to the hospitality sector by his predecessor in the dark days of the recession.

The lower Vat rate was about kick-starting the hotel, restaurant and tourism sector and, according to Donohoe it had done its job.

The industry was enraged. Not only did they not want to see the Vat rate move back to 13.5pc but they decried the minister's decision to go ahead from January 1, 2019, rather than have a longer lead-in period.

Lead-in periods can cost the exchequer money and, given that the minister was hiking up spending in areas like health, he wanted to get this paying back as soon as possible. The increase is expected to deliver an extra €400m next year.

For hotels it is a tale of Dublin against much of the rest of the country. Dublin hotels have been hiking prices on the back of huge demand.

Outside the capital it is a more mixed picture.

Some restaurant owners in Dublin blame hotels for milking it too much and bringing this down upon the whole industry.

Figures published just before Christmas show that revenue per room for Dublin hotels increased another 11pc in the year to November in what one broker described as "Christmas coming early".

New rules to control professional short-term letting of apartments in Dublin on Airbnb could also boost Dublin hotels in 2019. The tourism sector is concerned that the loss of these short-term rental properties will impact on tourist numbers.

It seems Dublin hotels won't really be hit by the Vat changes, but this year will reveal a lot for the wider industry outside the capital.

Sunday Independent

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