No-deal Brexit could ‘cost Irish economy a percentage point of growth next year’

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A no-deal Brexit would be a “significant shock” to the booming Irish economy, the finance minister warned.

Paschal Donohoe said if the UK “crashed out” of the EU the Republic’s productivity would continue to grow, but only by 2-3% rather than 3-4%.

Ireland would also face “exceptional swings” in the value of sterling, which would cause many difficult consequences for trade, the minister added.

Ireland’s well-developed financial sector would be impacted in areas like money flow and insurance contracts by a disorderly Brexit, he said.

Mr Donohoe warned: “It would be a very significant shock for our economy.”

The UK is Ireland’s main trading partner. Around a third of the Republic’s exports head there.

The future of trade across the Irish land border with Northern Ireland and the position of the backstop if no deal can be struck is one of the most vexed issues still facing EU and UK negotiators ahead of next March’s Brexit.

Mr Donohoe gave evidence to the Irish Parliament’s select committee on budgetary oversight.

He repeated his estimation that the impact of a no-deal Brexit in the medium-term could be worth 3-3.5% of growth points over the coming years.

The minister added: “It is likely that our economy would still grow but at a significantly lower rate.”

He predicted “major structural change” in Ireland’s economic relationship with the UK after the divorce, adding: “There will be many new obligations on Irish, European and British companies.”

He repeated that more customs and agriculture officials will be required.

The minister said the risk of a more adverse Brexit outcome than expected was one of the principal reasons that the Government has put in place prudent measures in the case of a failure to reach any agreement.

These include:

– Targeting a balanced budget, including using windfall receipts to reduce public debt

– Measures to rebuild fiscal buffers, including the establishment of a rainy day fund

– Increasing capital expenditure to enhance the productive capacity of the economy

– Measures to support small and medium-sized businesses, as announced in previous budgets

Ireland’s budget 2019 will be published early next month.

Mr Donohoe added: “Reducing our public debt and its servicing costs remains a key priority.

“Our current debt level equates to 42,000 euro per capita and is the third highest in the developed world.

“This Government is steadfast in its commitment to the pursuit of sound budgetary policy.”

On Tuesday the Government survived a Sinn Fein no-confidence motion linked to its handling of homelessness.

Mr Donohoe recognised housing supply and affordability constraints and outlined a range of measures previously taken to address the issue.

At the end of August, 32.4 billion euro tax revenues were collected – up 1.6 billion euro (5%) on the same period last year, and broadly on target.

The minister said that highlighted that the fiscal position was continuing to improve.

The Taoiseach voiced similar sentiments during Leaders’ Questions in the Dail.

Leo Varadkar said the Irish tax system was much more broadly based now than it was a decade ago when it relied heavily on tax receipts from the property sector.

“If people think that what we had in Ireland 10 years ago was normal we are heading for another crash,” Mr Varadkar said.

The Taoiseach said taxes would not be slashed and spending would not be ramped up in the upcoming Budget as the Government wanted to ensure there was no repeat of past mistakes.

But he said the Government did want to reduce taxes for average earners.

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