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Brexit and Budget 2021

Oct 16, 2020

While COVID-19 remains at the forefront of everyone’s minds, Budget 2021 was built on the assumption of a no-deal Brexit. Alma O’Brien reports.

The key objectives of Budget 2021 were to provide supports to those affected by COVID-19 and Brexit. Taking into account recent political developments in the UK and the British Government’s stated intent to disregard parts of the Northern Ireland Protocol, it is not surprising that the Irish Government prudently prepared this year’s budget on the basis that the EU and UK would fail to conclude a bilateral Free Trade Agreement (FTA).

We expected to see several targeted Brexit support measures announced on budget day. Instead, the budget provided for a flexible €3.4 billion recovery fund to be used by the Government to stimulate demand and mitigate the effect of Brexit and COVID-19 on the Irish economy. This demonstrates an acute awareness that the challenges we will face in the months ahead are not best served by rigid strategies but instead by diligent, dynamic and energetic Government responses. The recovery fund should provide the finances required to facilitate this approach.

The Government has committed to access the €5 billion Brexit Adjustment Reserve, announced by the European Council in July 2020. This reserve is designed to support the countries and sectors most impacted by Brexit. Some of the more specific Brexit expenditure items announced in Budget 2021 include €340 million to support the improvement of infrastructure at Irish ports and airports, customs compliance activities and the hiring of 500 additional frontier staff.

In addition to this week’s budget announcement, the Government is due to bring forward the Brexit Omnibus Bill, which seeks to:

  • preserve access to priority services, benefits and reliefs relating to trade between Ireland and the United Kingdom;
  • satisfy several obligations and commitments Ireland has made to the United Kingdom outside of EU membership; and
  • prevent a cliff-edge scenario for Irish people and businesses after 31 December 2020.

It is understood that it will apply regardless of whether or not there is an FTA.

Minister Paschal Donohoe’s Budget 2021 speech contained the word “COVID” 12 times, and the word “Brexit” only five. More thought-provoking, perhaps, is the fact that Minister Donohoe’s Budget 2020 speech contained the word Brexit 41 times. This reminds us that, while this year’s budget may not have included the expected number of targeted Brexit supports, the supports announced must be viewed in light of the extensive suite of measures contained in the July Jobs Stimulus Package, previous budgets, and those to be provided for in the Brexit Omnibus Bill.

Alma O’Brien is Partner and Head of Tax at Baker Tilly.