'No deal' Brexit will send Budget into €5bn deficit, Donohoe claims

'No deal' Brexit will send Budget into €5bn deficit, Donohoe claims

A 'no deal' Brexit would turn next year's Budget surplus of €1.2bn into a near €5bn deficit, Finance Minister Paschal Donohoe has confirmed.

Mr Donohoe and his officials will prepare this year's budget with two clear and differing scenarios in mind. One in the case a deal is reached and one where Britain leaves the EU without a deal.

He made clear he will make up his mind in September as to which course he will take, but the potential negative impact on the economy of a disorderly Brexit is significant.

Should a deal be reached, Mr Donohoe and his officials estimate that the economy would grow by a healthy 3.3% in 2020.

This, he said, would see the economy operating at “full capacity” and would see him having to take steps to avoid it overheating.

This strategy would see him targeting a small budget surplus of 0.4% or €1.2 billion. This target would allow him to increase spending by €700m for new capital projects; cover €300m worth of commitments from this year; have €400m to cover public sector pay increases; and have €500m for so-called demographic pressures.

But the documents released by the Department of Finance conclude that a 'no deal' Brexit would have a “severe impact” on the economy with output and employment “adversely affected” especially in the short-term.

Should a 'no deal' look likely in September, Mr Donohoe said his strategy would be to run a budget deficit which would allow him to pay for targeted funding for sectors most affected by Brexit and to allow for more social welfare payments and lower taxes due to job losses.

Mr Donohoe also confirmed that a disorderly Brexit will severely reduce the likelihood for tax cuts in the next Budget.

If a disorderly Brexit does occur and if it is the job of this Government and the Government after that to deal with this, it is absolutely still the case that across the lifetime of dealing with that, that tax reform and tax reduction will be possible.

"It is important to emphasise that in the early phases of dealing with Brexit, we will be mobilising all of our resources to support the economy and to support the hard-working families that you are referring to in ensuring their jobs are there,” he said.

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