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A cautious Budget 2020 will reaffirm Ireland’s stability

Sep 29, 2019

A no-deal Brexit Budget 2020 is inevitable. Susan Kilty recommends a cautious approach to the minister in the run-up to Budget Day.

In recent years, Ireland has enjoyed strong economic growth. Despite this, Budget 2020 arrives just three weeks shy of an unprecedented challenge to the economy in the form of Brexit. Minister for Finance, Paschal Donohoe, is facing the unenviable task of setting a budget and making a series of complex and challenging economic choices for the year ahead with no clear certainty on what may arise both in the run-up to, and post, 31 October.

On foot of this uncertainty, the Minister has announced that he will frame the Budget on the presumption of a worst-case scenario: a no-deal Brexit.

In this regard, Minister Donohoe recently outlined his priorities for Budget 2020 at PwC’s Tax Summit 2019: to deliver certainty to businesses and individuals on the Government's preparedness for a no-deal Brexit, to safeguard the hard-won progress of recent years in stabilising the public finances, and to avoid making decisions in the Budget which may need to be reversed in the near future.

A cautious approach

The need for Budget 2020 to deliver a cautious approach is also evident from the broader macroeconomic landscape. In its Summer 2019 Economic Forecast, the European Commission reported that Ireland's economic outlook remains "clouded in uncertainty", particularly when it relates to the terms of the UK's withdrawal from the EU and changes in the international tax environment. With employment levels at their highest ever rate and production nearing capacity, the Commission is predicting that Ireland’s GDP growth may see a decline in the coming years.

While Brexit, and the political uncertainty in the UK, hangs large over Ireland's economy in the run-up to Budget 2020, what is beyond doubt is that Brexit has the power to undo the economic progress Ireland has made in recent years. Although Ireland’s public finances are now back to surplus, the Rainy Day Fund will likely be further bolstered come Budget Day.

This bolstering has the knock-on impact that personal and income tax changes will be minimal and targeted. While any wider tax or spending changes will need to be considered in the context of how significantly a no-deal Brexit will impact particular sectors and the economy as a whole, provisions will need to be made to ensure that the most impacted industries and businesses—such as agrifood and SMEs who trade with the UK—are protected.

A priority in achieving these goals will be to continue to focus on the competitiveness of the economy and to reaffirm Ireland as the place to do business. The theme of the National Economic Dialogue this past June may have been "Building on Progress at a Time of Change", but in this time of economic headwinds, strengthening foundations is perhaps a more appropriate theme for this Budget. Ireland needs both stability to face the future and certainty that our economic progress does not change. It is with this backdrop that the Minister ensures the country is ready for every eventuality.

Susan Kilty is a Partner in PwC.

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