'Boris effect' threat to jobs, tax cuts and your pension
Minister faces calculated guess on Brexit outcome
Boris Johnson’s elevation to UK prime minister will threaten the annual €5 boost to pension payments and promised income tax cuts.
The frontrunner to take the keys of Downing Street has made a fresh “do or die, come what may” commitment to take the UK out of the European Union at Halloween.
A disorderly Brexit will plunge the Irish economy into crisis and leave the Government scrambling to deal with the impact of 55,000 job losses.
“We are genuinely at a fork in the road as a country from an economic point of view,” warned Finance Minister Paschal Donohoe.
The Summer Economic Statement predicts that if a Brexit deal is secured the country’s finances will remain in the black next year, with €700m available for a tax and welfare package.
However, if the UK crashes out of the EU, our Government plans to borrow billions in order to establish “automatic stabilisers” and help prop up businesses.
Mr Donohoe has compiled two budget scenarios - but will have to make a calculated guess on the direction of Brexit ahead of October 8.
The country is on course to run a surplus of €1.2bn next year. But if Mr Donohoe believes a no-deal Brexit is the most likely outcome he is prepared to borrow almost €5bn.
He said the "first priority will be how we can protect our country".
Fianna Fáil has indicated it will drop its annual demand for a €5 hike to the old-age pension.
Its finance spokesman Michael McGrath said: "Under no circumstances will we put at risk the Irish economy and the public finances."
He also said it would accept an abandonment of the Rainy Day Fund.
"In reality if you have a disorderly Brexit the train comes off the tracks you're not going to be looking at putting money into the Rainy Day Fund," Mr McGrath said.
The likelihood of a no-deal Brexit spiked yesterday as Mr Johnson called on his Conservative leadership rival Jeremy Hunt to commit to leaving the EU on October 31 "deal or no deal".
Mr Johnson said the two men should agree that the revised Brexit deadline must be met "no matter what" in order to keep promises to the British people.
Mr Hunt has suggested he could seek an extension in order to get a better Withdrawal Agreement but this approach is unlikely to be acceptable to the EU.
The Summer Economic Statement warns of competing threats to the current good health of the State's finances.
"On one hand, budgetary policy cannot add 'fuel to the flames' of an economy that is already performing at full capacity… On the other hand, the possibility of a disorderly Brexit presents a clear and present danger to domestic living standards," it says.
There will be an extra €2.8bn available for Budget 2020 but pre-existing current and capital expenditure will eat up €1.9bn of this.
Another €200m will be set aside to accommodate funding requirements for the rollout of broadband and overruns at the National Children's Hospital.
In a best-case scenario, Mr Donohoe plans to run a surplus of 0.4pc of GDP.
However, this will change to a deficit of between 0.5pc to 1.5pc if the new UK prime minister leads it out of the EU without a deal. This amounts to a negative swing in the region of €6bn.
The SES sets out how tax cuts amounting to €600m next year could be achieved with the help of revenue-raising measures similar to this year's tourism VAT hike.
It is the Government's policy to raise the point at which workers start paying the highest rate of income tax from €35,300 to €50,000 over a number of years.
In the Dáil though, Taoiseach Leo Varadkar admitted: "That is not necessarily to say it can be started in the forthcoming budget, which will depend on other factors."
Mr Donohoe said if the Brexit Withdrawal Agreement is approved then there will be scope for tax cuts but if it isn't "we will be mobilising all of our resources to support the economy and to support the hard-working families".
Asked whether householders should start to tighten their own budgets ahead of Brexit, the minister said he believes people already are.
"While we're seeing the spend within the economy is very much in line with our budgetary assumptions, it's also the case that the kind of growth that we're seeing in the economy is lower than it has been in previous years," he said.
Mr Donohoe added that the Government "needs to be even more careful in terms of commitments that are given and expectations that are created".
He reiterated that there will only be one Budget for next year, even if he predicts the wrong scenario.