Ireland boosts spending as Brexit looms
Budget day package almost doubled to 1.5 bln euros
DUBLIN, Oct 9, (RTRS): Ireland’s finance minister boosted the country’s budget day spending for the second year in a row as the government warned of economic “carnage” if neighbouring Britain crashes out of the European Union without a divorce deal.
Having already pre-committed 2.6 billion euros on increased public sector and planned infrastructure spending for next year, Paschal Donohoe, in Tuesday’s annual budget speech, almost doubled the remaining pot to 1.5 billion euros to dish out on further tax cuts and spending increases.
The state’s fiscal watchdog warned ahead of the budget that the booming economy did not need such additional stimulus.
But with an election potentially looming and the fast growing economy exacerbating deficits in areas such as housing, a scrapping of a reduced VAT rate for the hospitality sector primarily funded the extra 700 million euro of spending.
That allowed the government to keep giving workers a small annual tax break it has promised to continue in future budgets, reverse welfare cuts imposed during a series of savage austerity budgets a decade ago and boost infrastructure spending.
“The shared progress we have made is real. However the risks and challenges that we now face are equally real,” Donohoe told parliament in a speech that went long past the allotted hour as he reeled off measure after measure but also struck a tone of caution with 25 different mentions of “Brexit”.
Donohoe said the government’s “central case” was that a Brexit deal would be reached in the coming weeks between Britain and the European Union, but that the possibility of a no deal outcome had influenced the financial decisions made.
Foreign Minister Simon Coveney later warned of economic “carnage” if Britain crashed out of the bloc without a divorce deal, though he said that would mostly be felt by Britain with Ireland likely to benefit from “huge solidarity” from fellow member states.
A further round of “Brexit-proofing” measures, which have had mixed results to date, were announced in the budget, including a 300 million euro loan scheme for small and medium sized businesses and the agriculture and food sectors to invest in future growth.
Donohoe said the best preparation for Brexit was responsible budgeting and he intended to balance the state’s books for the first time in more than a decade next year, an improvement on the tiny deficit originally planned but still not the surplus the central bank says should already be running.
The state’s independent fiscal watchdog, set up in response to the years of reckless spending that left the Irish exchequer massively exposed when the 2008 financial crisis hit, voiced concerns ahead of the budget over what its chairman has called the “not very good budgetary practice” of recent years.
It is particularly worried by successive years of spending coming in over budget, with this year’s 700 million euro or 4.5 percent estimated overrun in the health service equivalent to almost the entire budget day spending package laid out a year ago.
Hotel and restaurant owners were also unhappy at their return to the standard 13.5 percent VAT rate from the 9 percent rate introduced in 2011 to boost the then struggling sector. In a report in July, Ireland’s finance department said the lower rate had become a “significant deadweight”.
“#Budget19 will be known as an election budget paid for by the tourism industry,” Adrian Cummins, head of the Restaurants Association of Ireland, responded on Twitter.
Ireland’s betting tax was also doubled to 2 percent, hitting the country’s largest operator, Paddy Power Betfair, which said it would have cost it 20 million pounds this year. Its shares closed down 5 percent.
The budget will be the last before the next parliamentary election if Donohoe’s Fine Gael-led minority government cannot agree an extension to its “confidence and supply” deal with the largest opposition party, Fianna Fail.
Fianna Fail leader Micheal Martin said that he would seek to open talks on the expiring deal later on Tuesday and aim to conclude them by Christmas.