Economy forecast to surge ahead as risk of hard Brexit in 2020 reduces
The economy is set to surge ahead this year - growing more than five times faster than if there had been a crash-out Brexit.
The growth rate for the Irish economy has been revised upwards to almost 4pc due to the Brexit deal secured between the EU and UK last year. However, global corporation tax reforms will cost the Exchequer up to €2bn over the next five years, Finance Minister Paschal Donohoe has warned.
Mr Donohoe briefed Cabinet on a GDP growth forecast of 3.9pc and an estimated budget surplus of around €2.4bn this year.
He said he updated the growth forecast given that the risk of a hard Brexit - if it were to occur - was more likely to take place at the end of the year or early in 2021.
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Growth had been estimated at 3.1pc under a Brexit deal and 0.7pc if there had been a crash-out. With a deal secured and a better than expected budget surplus last year, the forecast growth has been revised upwards.
"That will mean even further job creation as we move through 2020," he said.
He said that a budget surplus of 0.7pc, or €2.4bn, was expected this year. The expected future fall in corporation tax receipts and the risk that Brexit still poses "is the reason... getting to such a level of surplus for 2020 is important".
He said that 1pc surpluses in the coming years and continued contributions to the Rainy Day fund meant a "budgetary buffer of €4bn can be reached and accommodate the decline in tax revenue of €2bn".
But he also warned there were "significant risks" posed by a likely fall in corporation tax receipts and a possible hard Brexit at the end of 2020.
The Government has been criticised for an over-reliance on corporation tax to plug funding gaps in the health service and other areas.
Mr Donohoe insisted continued economic growth - and not changing budget strategy in terms of unallocated spending in the coming years - would make up for the fall in corporation tax revenues. However, he conceded that predicted growth rates of 3pc per year up to 2025 were dependent on the UK and EU agreeing a smooth trading relationship.
This may not be possible by the end of the year.
Mr Donohoe said he expected a deal on global tax rules to be reached in 2020.
The Department of Finance and Revenue has estimated annual corporation tax receipts will fall by about €500m from 2022 - or as much as €2bn by 2025. Mr Donohoe said this was "clearly a significant change in respect to tax revenue across the coming years".