Income tax cuts are in budget plans next year if Brexit crisis can be defused, says Donohoe
FINANCE Minister Paschal Donohoe says that the pattern of income tax cuts could resume next year if the UK strikes a Brexit deal.
However, he has ruled out a supplementary budget regardless of whether the UK crashes out, or a less chaotic scenario arises.
Mr Donohoe was speaking at the Independent News & Media Budget 2020 breakfast in the Merrion Hotel, Dublin, where he said he was “absolutely committed to continuing the work that I’ve done in the other two (previous) budgets”.
Those budgets contained personal tax cuts and increases to social welfare including the much-vaunted €5 on the State pension.
The Finance Minister acknowledged that Brexit overshadowed everything this year but that he would like to resume that pattern.
“If I do get the opportunity to serve as Finance Minister into the end of next year, there will only be one other budget, and that will be this time next year,” Mr Donohoe told the audience. “Because the path that we have set for this budget is the right one for Ireland for next year.”
When asked whether an agreed Brexit would allow the Government to reduce income taxes in Budget 2021 as featured in his past two budgets, Mr Donohoe agreed.
“I’m absolutely committed to continuing the work I’ve done in the other two budgets.”
He said cuts in personal taxation required an environment of sustainable national finances, and the profound uncertainty of Brexit meant such cuts had to be put on hold in Budget 2020.
“If we do get an agreement and if we work our way through the no-deal risk, this economy will be in a strong place,” he said, cautioning that Ireland does face other strategic uncertainties, including a potential global slowdown and the risk of corporation tax losses from OECD reforms.
Nonetheless, he said, if the UK and EU reach an accord on an orderly Brexit, Ireland’s budget next year could be positioned for a surplus somewhere between €1.2bn and €1.6bn with the economy growing at a steady 3pc pace.
That scenario, he said, would “open up big decisions to be made next year”.
He said the Government must keep preparing for a crash-out Brexit even though hopes are rising after Thursday’s meeting between Taoiseach Leo Varadkar and UK Prime Minister Boris Johnson.
He called that meeting “a really, really important day”, but declined to go beyond the Taoiseach’s description that they had identified “a potential pathway” to agreement.
Despite Ireland facing into an election year, Mr Donohoe said he was determined in Budget 2020 to avoid the kind of give-aways associated with governments seeking to stay in power. “Few people would have thought we’d get to a fourth budget,” he said.
“Anybody who did think we’d get to a fourth budget certainly didn’t think we were going to get a budget like this – where the kind of things you would normally associate with Budget Day were not in it.
“Being careful and a bit more focused about choices now will put us in a very different place for next year.”
He emphasised that Budget 2020’s commitment to spending an extra €1.2bn primarily on business supports – to be used only in the event of a no-deal Brexit – would drive Ireland unavoidably back into a deficit. “Because that €1.2bn is money that we would have to borrow,” he said.
Ireland’s current path of 3pc to 4pc annual growth “is the way to go”, he said, whereas spurring faster growth would create “pent-up issues” that often end in policy U-turns.
Budget 2020’s 11pc increase in public capital spending must happen even in the face of a global slowdown, he said, because waiting for that slowdown to happen before “pulling the lever” of increased investment would be “too late”.