Donohoe monitoring impact of Tory leadership race on Irish economy

Finance Minister says changes in Britain's economy can have an effect on Ireland's national economic prospects

Rishi Sunak and Liz Truss will learn on Friday which of them will become the new leader of the British Conservative Party. The winner, tipped to be Ms Truss, will take over as prime minister from Boris Johnson. Picture: Stefan Rousseau/PA

The Finance Minister says that he is "closely monitoring" the British Conservative Party leadership race in case it impacts the Irish economy.

The ballot of Conservative Party members closes on Friday, with the winner to be announced on September 5. Liz Truss is tipped to beat Rishi Sunak to become successor to Boris Johnson as party leader and UK prime minister.

The race has seen both candidates promise tax cuts and spending increases amid warnings of a deep British recession which some analysts have suggested could see the pound reach parity with the US dollar.

Speaking at Government Buildings, Paschal Donohoe said whatever measures the British prime minister chooses to take is a matter for that country, but added that he is acutely aware of the external impacts on the Irish economy.

"Whoever is the next prime minister of the United Kingdom and whatever economic policy decisions they make is a matter for them. 

But we are a small open trading economy. And it matters to us what happens in Washington, Brussels, London, across the European Union. 

"Our key trading partners are within the European Union [and with] the United Kingdom and the US.

"Any change in their economic performance, of course, is something that can have an effect on our national economic prospects, on our forecasts regarding growth for the Irish economy. So it is something that I'm closely monitoring. 

"It is something that will be an ingredient in the planning that we do for our budgets. But, all that being said,  the resilience and strength within the Irish economy at the moment does put us in a position, I believe, to be able to respond back to changes and developments that are taking place later on this year."

Minister for Finance Paschal Donohoe was speaking to the media at Government Buildings in Dublin, following the publication of the Annual Taxation Report. Picture: Gráinne Ní Aodha/PA

Asked if he would stick to the broad parameters of the summer economic statement in this month's budget, Mr Donohoe said he would "deliver a budgetary package consistent" with that document. He said he and Public Expenditure Minister Michael McGrath will make decisions in the coming weeks about what to do with additional money from corporation tax in the Budget. 

However, he said the Government must take measures to support those who don't earn enough to be "insulated" from energy price hikes or qualify for social protection. Mr Donohoe said that while targeted measures will be important, "we are facing a broad challenge".

He said the Government is "not currently spending" excess corporation taxes as yet and will look at "how we can build resilience in the national finances".

Asked about capping energy prices, Mr Donohoe said he has "not been convinced that we would be able to implement a price cut in an economy of our size without quickly creating other problems for ourselves". 

He said any such move needs to be done on an EU-wide basis but that a windfall tax on hyper-normal profits is being considered.

"I'll be considering along with the Government what that intervention could be and what impact it could have on our economy and prices here in Ireland."