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Brexit may provide cover for a "cautious" budget

Written by Robert McHugh, on 25th Jun 2019. Posted in Financial

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The latest stage in the annual budget process is to be published today in the form of the Summer Economic Statement.

The SES sets out the latest economic and fiscal projections by the Irish government and provides an estimate of the available fiscal space for budget day. According to this morning’s Irish Times, the document is to set out two scenarios – one for a soft-Brexit and one for a hard – with different fiscal outcomes laid out.

Goodbody Stockbrokers believe that in some way the external threat of Brexit may do Finance Minister Paschal Donohoe a favour, by providing an excuse to announce a very prudent package of fiscal measures with the possibility to loosen the purse strings later should a more adverse outcome come to pass.

A hard-Brexit could result in a budget deficit of up to 1.5% of GDP, some two percentage points worse than the estimate laid out in the Stability Programme Update back in April. At that time, the government estimated that additional spending and tax measures could amount to €2.8bn, with €2.2bn already earmarked (capital spending, demographics, public sector pay). An additional €600m was thus available for budget day giveaways.

According to Goodbody Stockbrokers, "A decision on which Brexit scenario to choose is apparently being deferred until September, but it is highly likely that no clarity will emerge until after the Budget on October 8. In this light, the more prudent course is to keep the government’s powder dry. From a fiscal management point of view, that would be the right thing to do anyway for the Irish economy given the risk of overheating, but Brexit gives the political cover to implement it."

Source: www.businessworld.ie

 

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