The Importance of Self Preservation

Oct 07, 2019

Sunday Business Post, 6 October 2019

I spent some time in Europe this week, and it was something of a relief to get away from the never-ending cycle of Brexit and budget commentary in the Irish press. 

Of course business people in other EU member countries are not nearly as concerned about the impact of Brexit as we are on this island.  Even industries where it has been well flagged that the disruption could be greatest seen almost nonchalant about the impending change.  One executive in the automotive industry told me that his organisation were far less concerned about Brexit than about the advent of electric vehicles.  The finance leader in a chemicals company suggested that the weather, rather than political climate, was of far more consequence to them when projecting sales and business prospects.

In an increasingly fractious political world, it is in some ways reassuring to be reminded of the focus on self-preservation.  The willingness of the EU to accept or even contemplate any Brexit proposals from Britain should be viewed through a lens of how any such proposals will impact on the EU's own capacity for self-preservation.  Losing one member country may be regarded as a misfortune, but to lose two (as Oscar Wilde nearly said) would look like carelessness. 

It seems that the EU institutions will not contemplate any future arrangements with UK which might see Britain benefiting from its decision to leave, thus tempting eurosceptics in other European capitals.  On the other hand, they will be wary of any proposals which could result in the remaining states being at a disadvantage by virtue of being a member of the European Union.  It is perhaps this latter imperative that bolsters the support from Brussels against any notion of a land border on the island of Ireland.  The stability and security of an EU member country cannot be prejudiced by the decision of another EU member country to leave.  Were that permitted, there could be a domino effect. 

Ireland currently has no difficulty collecting taxes.  Since the great depression of 2008, Ireland has rebalanced its tax base and moved away from a dependence on capital taxation, which is vulnerable to falls in asset value, to a dependence on income taxation, which is vulnerable to unemployment. 

There are strong arguments that we could do better managing how those taxes are spent.  But for 2019 at least, the Government’s income sources look secure.  Employment growth has met or exceeded any reasonable expectations, securing income tax receipts, VAT receipts (because VAT is largely a consumer tax) and the Social Insurance fund (because there is less of a draw on social welfare payments and stronger PRSI receipts). 

Furthermore, the changes to the international corporation tax regime in recent years which many saw as threatening the Irish corporation tax yield, have instead boosted it significantly.  On that topic, the process of adopting of the EU anti-tax avoidance directive which restricts the capacity of multinational groups to manage their tax bills continues.  More corporation tax anti avoidance measures will be announced on budget day.  Compare that kind of planning with the situation in the UK, where the political system is so chaotic that even the date for their next budget day hasn't been set yet.

The greatest risk to the Budget arithmetic on Tuesday lies within this chaos, and the threat it presents to employment and business profitability in Ireland.  The worst Brexit outcomes put future Exchequer receipts at risk, just as surely as the property bubble did a decade ago.  The EU can be as supportive as it wishes with regard to not having a hard border on the island, but if and when the UK crashes out, a border will inevitably be created.  Speaking to the BBC on Tuesday, Boris Johnson said that “a sovereign united country must have a single customs territory… one of the basic things about being a country is you have a single customs perimeter and a single customs union”.  

This sounds quite like the aspiration of a statesman.  However it is also informed by Johnson’s need to have a clearly defined single customs perimeter before any future trade deals can be struck with any other country.  The outline backstop replacement plans this week appear to confirm that.  Future UK trade deals independent of the EU was one of the great selling points of Brexit, but they won’t happen unless the British create their own customs border.  Brexit itself is a decision by Britain to diverge from the standards and norms of the EU, and that includes customs.

How far will the EU look aside from its own rules to ensure there is no Border on the island of Ireland?  How much support would be available from the EU for Ireland to help manage faltering tax receipts?  How far will the UK go to separate itself from the Customs Union?  In the next few weeks we will learn a lot about how far self-preservation extends.

 

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland.