Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

No, I am saying that the provision for Irish Water as an institution is already in place but it has to be matched. If water charges are abolished, there will be no funding stream for Irish Water. The intake in terms of water charges was estimated to be €240 million and expenditure in terms of the conservation grant amounted to approximately €100 million. These figures were factored into the multi-annual Estimates, but intake in terms of the charges pencilled in as the revenue flow from Irish Water was not realised. The intake to date for this year is approximately €40 million. As I said, there are many moving parts around money flow. This income stream was expected to result in a one-off €59 million in fiscal space for 2017. As such, there will be a reduction in fiscal space of €59 million. In other words, to keep within the fiscal space figures and the figure agreed at budget time, provision will have to be made for €59 million for Irish Water, which we had not allowed for. The figure for 2018 and 2019 is zero. It is complicated. In the context of a budget of €60 billion, this is not a huge amount and it can be accommodated.

It is the politics of Irish Water rather than the revenue from Irish Water that seemed to be the issue. It will go on the balance sheet. Water has to be paid for, as does the treatment and delivery of water. Now the decision is that it is going to be paid for out of general taxation rather than through specific charges. There will be a possibility of charges for excessive use, as I understand from where we sit at present. We will not have the full picture until we see the legislation coming through. What I have described for the committee is the position on Irish Water, but I am including it only to show that if it is not allowed for in the budget, it eats into any additional resources that may come. It does have a consequence for fiscal space also. As members know, €59 million is not dramatic in a budget of the size we are talking about.

I will do my best not to have any surprises. It is part of the agreement between our parties, the supply and confidence agreement, that there be no surprises and that we do not surprise each other. There are moving parts in the calculation of fiscal space that keep moving right up to the publication of the White Paper on the Friday night before the budget. We are still adjusting until the early afternoon on the Thursday. Sometimes they are chunky adjustments. I am not going to hide anything from members but I want them to realise I can given them the information only when I have it. Rather than giving them a false start, we are not recalculating the fiscal space now as we did last year. We will not recalculate until June, at which time I hope we will be closer to the outturn than we would be if we had a shot at it now.

On the question on Brexit, making an allowance for Brexit will depend on what will happen and the solution. If there is no deal and no free trade agreement between the UK and the EU, and if WTO rules apply and there are tariffs, there will be a 60% tariff on prime steak. One can see what that does to the top end of the beef market. A woman in Manchester can already buy two and a half chickens for the price of a sirloin steak. One can see the divergence in behaviour that would occur, especially when the devaluation of sterling is driving up consumer prices in the British supermarkets by perhaps 4% or 5%. It will depend on where it lands. I hope, and it is our negotiating position, that there will be a free trade agreement between the UK and Ireland resulting in no tariffs, such that we would not have the problems.

Some measures are being taken already. One will be aware that a combination of the Department of Agriculture, Food and the Marine, ourselves and the European Union has been able to deliver €150 million of capital to the farming community at 2.95%. That was to protect the suppliers into the food market from the first hit of Brexit. We do not know where it is going to land, however. It will not be possible to measure the consequences of Brexit until we are further down the road. Based on what the Department of Finance has done with the ESRI, as referred to, there will be a knock of about 4.5%, but that will be at the end of ten years. If a budget is moving at 3% or 3.5% for the decade, amounting to GDP growth of 35%, and it is compounded, because it would be growth on growth, one would not be far from 40%. The calculation is 4.5% off that rather than 4.5% in any given year. It would be front-loaded. Most of the hit would be in the first five years of the decade rather than the second five, but it is not as dramatic as some of the headlines would suggest. Certainly, it would act as a brake on our growth rates and hold us back.

How does one deal with that? One does so by managing the public finances better and continuing to make the economy more competitive rather than by having any specific sectoral intervention, although sectoral interventions might be necessary also. We are considering a measure in the Department, along the lines of the cheap money we made available to the farming community, that would protect SMEs in our vulnerable export sector. This, however, has state aid implications, so we have had to send the heads of what we are talking about to the competition authority in Brussels for state aid clearance. We are planning that piece. We can obtain more information on that for the committee if necessary.

Beyond that, we are pressing everybody and doing everything we can. The members know the issues. They know of the North-South issue, the freedom of movement issues, the possibility of tariffs, the common labour market between ourselves and the UK and the trade implications. Trade worth €1.2 billion crosses the Irish Sea every week in both directions, supporting 400,000 jobs, with 200,000 in each jurisdiction. This is what would be at risk if we got a really hard Brexit but we hope we can negotiate with the European negotiators to get a deal. Of course, our priorities are all the issues affecting the island, both the North and South. In addition, we are unashamedly in favour of the UK getting a free trade agreement with the European Union. If it does so, we will not have tariffs and disruption to our trade. The nearer we can get to that position, the better it is for Ireland. That is where we are but it is going to be a long story. One will notice there has been movement on both sides towards transitional arrangements. These are absolutely necessary but they also lengthen the timeframe. With a negotiation process that takes three to four years and another period of transition before any new regime comes into play, one could be looking at a decade.