Thursday 18 July 2019

Next budget is 'all but certain' to be based on Brexit disaster

Finance Minister begins planning for 2020 with two different sets of numbers

Surprise: Finance Minister Paschal Donohoe has ruled out a second budget regardless of what happens with Brexit. Photo: Gerry Mooney
Surprise: Finance Minister Paschal Donohoe has ruled out a second budget regardless of what happens with Brexit. Photo: Gerry Mooney
Kevin Doyle

Kevin Doyle

Finance Minister Paschal Donohoe's next budget is "all but certain" to be based on a disorderly Brexit, his ministerial colleagues believe.

The minister will tomorrow take the unprecedented step of publishing two economic outlooks on which Budget 2020 could be based.

His Summer Economic Statement (SES) will present one set of figures for dealing with an orderly Brexit and another for a 'doomsday scenario'.

However, senior Government sources say if Brexit continues on the current timeline, Mr Donohoe will have little option but to base his budget on "the disaster".

"Ultimately he will have to decide in September which set of figures to use on Budget Day. At that stage it's unlikely we'll have clarity on Brexit so you'd have to work off the worst-case scenario," the source said.

Under normal circumstances Mr Donohoe is expected to have in the region of €2.8bn for budget measures.

However, a substantial portion of this is already committed for increased capital expenditure, public sector pay and demographic changes.

Mr Donohoe indicated last week that he also hopes to introduce a fresh round of income tax cuts - although any changes look set to be minimal and would have to be funded by revenue-raising measures in other areas.

He is under pressure to act conservatively amid fears the economy could either overheat or suffer a shock because of Brexit. However, Fine Gael sources said they must also "be conscious" that this will be the last budget before a general election.

Latest projections are for the economy to grow by 3.3pc next year but this will be rapidly revised downwards if a no-deal Brexit seems likely.

The two contenders to be the next British prime minister have said they are prepared to take the UK out of the European Union on October 31 with or without a deal. Mr Donohoe is due to introduce his budget on October 8 based on whichever scenario he believes to be most likely.

Ministerial colleagues have privately expressed surprise that he has ruled out a second budget if events play out differently from expected.

One noted that Brexit was cited as a reason for not increasing the carbon tax this year but there is now a widely held expectation that it must go up in 2020 in order to show the Government is serious about its Climate Action Plan.

Fianna Fáil's finance spokesman Michael McGrath said Mr Donohoe should "try to chart a middle course, but he will have to hold reserves back".

He said politicians need to be "very honest" with people because Brexit could be "catastrophic".

"The stakes could not be higher coming into this budget in October," he said.

Minister of State at the Department of Finance Patrick O'Donovan said tomorrow would see "the first salvos being fired on what is the budgetary process for 2020".

Speaking on RTÉ's 'The Week in Politics', he denied the next budget would be formed with a general election in mind. "Last year was supposed to be a pre-election budget because Confidence and Supply was about to run out," he said, adding that there were "no shocks" on Budget Day anymore.

Irish Independent

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