Donohoe warns economy faces ‘major disruption’ in the event of a no-deal Brexit
FINANCE Minister Paschal Donohoe has issued a stark warning that there will be “major disruption” to the Irish economy if there is a no-deal Brexit.
He told the Oireachtas Budgetary Oversight Committee it could hit national income growth rates by up to 3.5pc in the medium-term if the UK crashes out of the EU without a deal. Mr Donohoe noted that Ireland’s “most important trading partner” will leave the EU in 184 days.
He said an agreement on the future relationship with the UK can only be made once it leaves, and stressed the importance of a “status quo” transitional arrangement.
He said the risk of a “more adverse outcome than expected” means the Government has to bring in measures like targeting a balanced budget, using windfall receipts to reduce public debt, setting up a rainy day fund, and increase capital expenditure.
He insisted the Government was planning for changes that will result from Brexit.
Mr Donohoe also spoke of the challenges of a rise in protectionism and unpredict- ability of the international tax environment and said Ireland is particularly exposed to these risks. “We just need to be careful in our budgetary policies
and try to continue to look after public finances while meeting the needs of our society,”hesaid.
Fianna Fáil TD Michael McGrath asked Mr Donohoe to assess the impact of a no-deal Brexit on the economy. Mr Donohoe said “a Brexit shock in the form of a very hard or disorderly Brexit” would be equivalent to a 0.75pc to 1pc impact on national income growth.
“That is a shock that will materialise over the year as opposed to over a number of years,” he added.
He said it was likely that the economy would still grow but it would be at a “significantly lower rate”.
Mr Donohoe said: “The medium-term impact of a shock like that occurring is that it could be worth 3pc to 3.5pc growth points in the years afterwards.
“So, were that to occur, it would be a very significant shock to our economy.”
He said the Government would have to respond to swings in the value of sterling, which would have “many difficult consequences for our trading economy”.
And he said there would also be risks to the financial sector.
Mr Donohoe said the early phases of the recruitment of new customs officers are ongoing and will be funded in the forthcoming Budget.
Fianna Fáil’s Brexit spokesperson, Lisa Chambers, asked Mr Donohoe to reveal contingency planning for a no-deal Brexit.
Mr Donohoe said care must be taken not to undermine “incredibly sensitive nego- tiations”. He said laying out exactly how the Government manages “worst-case scenarios” in relation to the economy “are best done at a point in which I can absolutely demonstrate that they’re needed”.
He was asked by Sinn Féin’s Pearse Doherty if there would be a change to the €800m expected to be available in the upcoming Budget for new spending and tax measures. Mr Donohoe said any changes, if there are any, “would be around the margins”.
Independent TD Tommy Broughan asked if he is “going down the Charlie McCreevy road” and bringing in a special savings scheme.
Mr Donohoe replied: “No.”