Ireland: 2020 budget prepares for a no-deal Brexit
October 22, 2019
On 8 October, Finance Minister Paschal Donohoe unveiled the draft 2020 budget to the lower house of Parliament, preparing for a worst-case Brexit scenario. Overall, the budget amounts to just over EUR 2.9 billion, reflecting an expected 3.5% rise in spending from this year, along with tax changes, to adequately respond to the challenges stemming from Brexit given the country’s close trade links and land border with the UK. Notably, the government projects a deficit of 0.6% of GDP in the event of a no-deal Brexit, although there is wide margin of error around this due to heightened uncertainty surrounding what shape Brexit will take. This would mark a significant shift from an estimated budget surplus of 0.2% of GDP this year. Moreover, the government forecasts that growth will stall next year to 0.7% in a no-deal scenario.
Over EUR 1.2 billion, excluding EU funding, has been set aside to respond to a no-deal Brexit. From this, EUR 200 million will be made available next year and will be allocated across a number of departments and agencies to increase the level of staffing, upgrading infrastructure at ports and airports, and investing in IT and facilities management. In the event of a no-deal Brexit, EUR 650 million in contingency funding has been earmarked to support the key sectors of agriculture, enterprise and tourism, as well as to aid the most affected regions. In particular, EUR 220 million would be released immediately, with half of these funds to be directed to help vulnerable firms adjust to the challenges triggered by a no-deal scenario.
To finance the extra spending, targeted tax changes to the net value of around EUR 300 million will be implemented. This includes an increase in the carbon tax and higher excise duties on cigarettes and fuels.
Author: Nihad Ahmed, Economist