Two scenarios, one Budget. The difference between those two scenarios is €30bn. The Summer Economic Statement, which was published yesterday, made for pleasant enough reading if a Brexit deal is reached by the end of October — or seriously grim reading should a ‘no deal’ Brexit come to pass.
At the launch, Finance Minister Paschal Donohoe emphasised the positive, as is his prerogative. Record employment, record tax revenues and a budget surplus for the first time in a decade are all welcome signs of an economy running at full capacity.
But the running of the economy by Donohoe and his officials in recent months has been the subject of stinging criticism from various quarters, most notably from the independent Fiscal Advisory Council, which said his projections for the years ahead are simply “not credible”.
All going well, the economy will grow by 3.3% next year and, as a result, Donohoe is committed to running a budget surplus of 0.4%, or €1.2bn in cash terms. But a no-deal Brexit would, according to Donohoe’s own numbers, turn that surplus into a near €5bn deficit.
Worse still, as estimated by the Department and by Fianna Fáil’s Michael McGrath, the overall cost of a no-deal to the economy by way of likely borrowings is between €25bn and €30bn. That borrowing would be used to fund measures to help those most affected by a no-deal and to take account of lower tax revenues.
Donohoe’s stark assessment was that as many as 85,000 jobs are at risk over the next four years or so should a no-deal be realised, but he argued that the country still expects to grow — just at slower rate than would otherwise be the case.
“So I am formulating my budgetary strategy against an unusually complex and uncertain economic background,” he said.
He is not wrong. It is virtually impossible to know what is likely to happen come the October 31 Brexit deadline, so planning for the two eventualities is the correct course of action. But he has raised eyebrows by being so definitive in ruling out a second budget in the event of a disorderly Brexit.
McGrath and other opposition TDs have said Donohoe has left himself open to making himself a hostage to fortune by being so explicit. He insisted that by committing to one budget, it would send a strong message that he and the Government are in control of Ireland’s economic narrative.
It would seem a bit strange to commit yourself totally to one course of action when his budget will be delivered three weeks before the October 31 deadline. Another interesting feature of yesterday was Donohoe’s watery commitment to Fine Gael’s promise to raise the entry point to the higher rate of income tax to €50,000 over the next five years.
He said that should a no-deal occur, the priority would be to protect the current living standards of families. For Donohoe, having had his mantle for fiscal prudence severely damaged this year, there was as much politics as economics in what he announced yesterday.
Fine Gael, having looked so secure for so long in Government, are now on the back foot when it comes to the formation of the next administration. Donohoe indeed faces a difficult balancing act.
Since taking office, he has made it his calling card that he will not allow a repeat of the boom-and-bust policies which ruined this country a decade ago. One suspects that if left up to him, he would steer the prudent course — but he is under significant pressure from all of his ministerial and party colleagues to spend, given that a general election is reasonably likely within the next 12 months or so.
But those seeking to have the purse strings loosened must heed the scale of the impact a no-deal Brexit will have. If they don’t, we will have learned nothing.