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Budget will be based on the assumption of no deal Brexit, say ministers

Budget 2021 will be no windfall but will target those sectors impacted the most.

IRELAND NOW HAS no choice but to assume the UK and EU will fail to strike a trade deal, Minister for Public Expenditure Michael McGrath said today.

The UK Government’s attempt to override elements of the Withdrawal Agreement through domestic legislation has increased the likelihood of a no deal, acknowledged McGrath.

It was a view shared by Finance Minister Paschal Donohoe as the pair outlined their Government’s strategy for next year’s Budget, which will be announced on 13 October.

The economic impact of the UK exiting on World Trade Organisation trade terms and the ongoing cost of the Covid-19 pandemic are both factored into a Budget outlook.

It projects a deficit of up to €19 billion – or 5.5% of GDP – in 2021.

McGrath said Budget 2021 will allocate significant resources to those sectors set to be worst hit by a no deal.

But he added: “There isn’t anything that the Irish Government could do that would come close to matching the scale of the disruptive impact on our economy of a no trade deal Brexit.

“So we sincerely hope that sense will prevail, and that there will be a deal done, but from the point of view of framing a budget, the only prudent assumption to make at this point in time is that a no trade deal will be done in the next number of weeks.

“It’s in everybody’s interest that that scenario is avoided but it’s not directly within our control, and given the events of the last week or two in particular I don’t think we’ve any choice but to assume that there won’t be a deal.”

Donohoe said the prospects of a no deal has increased as a result of the move at Westminster.

“My view in relation to the likelihood of this has changed in recent weeks and indeed days,” he said.

“Particularly given and since the internal market legislation was published in the House of Commons. Of course that’s been a very significant event.

“And it is our view that the appropriate and safe thing to do, from an Irish point of view, is now to be ready to deal with the consequences of a no trade deal Brexit.

“And as great as those consequences will be I’m absolutely certain that our economy has within it the ability to deal with those consequences and rebuild itself over time.”

The ministers said Ireland’s good reputation on international markets would enable the Government to borrow billions of euro to make up next year’s deficit.

The impact of the pandemic has already left the country facing a deficit of up to 30 billion euro this year.

The State has so far spent around €24.5 billion on Covid-19 support measures, including a wage subsidy scheme and enhanced unemployment benefits.

In the spring, the Government will also publish a medium-term plan to reduce the deficit.

The Government is not planning any broad-based increases in income tax next year to boost the public coffers, insisting such a policy would be “counter-productive”.

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The budget will include details of a major recovery fund to deal with the ongoing impact of Covid-19.

In line with the programme for government agreed by the Fianna Fail, Fine Gael and Green Party coalition administration, the sectoral priorities in Budget 2021 will be health, housing and climate change.

Like last year, carbon tax will be increased by six euro per tonne, with part of the money generated diverted back into communities impacted by the transition away from fossil fuels.

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