Ifac warns over ‘cliff-edge Brexit’

State bud­getary watch­dog ques­tions Govern­ment’s Brexit as­sump­tions Big re­ver­sal in UK growth likely to have dis­pro­por­tion­ately larger im­pact on Ire­land

The Irish Times - Business - - BUSINESS NEWS - EOIN BURKE-KENNEDY

A cliff-edge Brexit next March could have a far greater im­pact on the Repub­lic than pre­vi­ously thought, the Govern­ment’s bud­getary watch­dog has warned.

The Ir­ish Fis­cal Ad­vi­sory Coun­cil (Ifac) said there were a num­ber of ques­tion­able as­sump­tions un­der­pin­ning the Govern­ment’s Brexit fore­casts, in­clud­ing the as­sump­tion that the UK was a typ­i­cal or av­er­age trad­ing part­ner.

The Govern­ment fore­casts that Ir­ish eco­nomic out­put could be hit by as much as 7 per cent in the case of a hard Brexit and by about 3 per cent in the case of a soft Brexit.

Ad­dress­ing the Oireach­tas Com­mit­tee on Bud­getary Over­sight, mem­bers of the coun­cil said a big re­ver­sal in UK growth was likely to have a dis­pro­por­tion­ately larger im­pact on Ire­land than on other coun­tries.

This was es­pe­cially true for cer­tain labour-in­ten­sive indige­nous in­dus­tries here, such as food and farm­ing, given their reliance on UK trade, econ­o­mist and Ifac mem­ber Martina Law­less said.

Last week the Bank of Eng­land warned that a no-deal Brexit with Britain crash­ing out of the bloc could have worse con­se­quences for the UK econ­omy than the 2008 fi­nan­cial cri­sis with out­put fall­ing by 8 per cent, the pound tum­bling by up to 25 per cent and house prices fall­ing by 30 per cent.


The bank’s night­mare sce­nario is based on se­vere de­lays at UK bor­ders and a run on the pound. Ms Law­less said the cur­rent suite of Ir­ish fore­casts had not as­sumed the same level of dis­rup­tion.

The cur­rent rule of thumb is that if UK gross do­mes­tic prod­uct (GDP) falls by 1 per cent, Ir­ish GDP con­tracts by be­tween 0.3 and 0.8 of a per­cent­age point.

In his open­ing ad­dress to the com­mit­tee, coun­cil chair­man Sea­mus Cof­fey re­peated the coun­cil’s crit­i­cism of Govern­ment’s cur­rent bud­getary stance, not­ing it was out-of-kil­ter with the long-run growth tra­jec­tory of the Ir­ish econ­omy.

The Govern­ment’s “re­peated fail­ure” to rein in un­planned spend­ing has left the State ex­posed to fu­ture shocks and rep­re­sent a “re­peat of the pol­icy mis­takes of the past”, he said.

Not con­sis­tent

Mr Cof­fey said “within-year spend­ing in­creases”, par­tic­u­larly in the area of health, were not con­sis­tent with pru­dent bud­getary man­age­ment.

He said Bud­get 2019, which al­lows for a €4.5 bil­lion spend­ing in­crease next year, was €1.1 bil­lion above what the coun­cil con­sid­ered ap­pro­pri­ate and above the tar­get the Govern­ment it­self set down only four months ear­lier in its sum­mer eco­nomic state­ment.

“It is clear that re­cent rev­enue growth has been sup­ported by short-term cycli­cal de­vel­op­ments and a pos­si­bly tran­sient surge in cor­po­ra­tion tax re­ceipts,” he said.

Ex­che­quer re­turns for Novem­ber, pub­lished on Tues­day, showed the Govern­ment net­ted a near record €2.7 bil­lion cor­po­ra­tion tax take in Novem­ber.

Mr Cof­fey said the Govern­ment’s fu­ture bud­getary plans “lack cred­i­bil­ity” and are based on “un­re­al­is­tic as­sump­tions”.

The coun­cil said the Govern­ment’s spend­ing fore­casts would barely cover the costs of main­tain­ing cur­rent ser­vice lev­els, given de­mo­graphic and price pres­sures.

Mr Cof­fey also said the State’s debt bur­den was still among the high­est in the OECD and that “the bur­den is un­der­stated by stan­dard GDP com­par­isons.”

Newspapers in English

Newspapers from Ireland

© PressReader. All rights reserved.