Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I thank the Chairman and the committee for the opportunity to be here today. The budget will build upon the parameters outlined in the summer economic statement. Regarding the economic backdrop, the Irish economy continues to grow at a robust pace. Gross domestic product, GDP, growth of 8.2% was recorded in 2018 while growth of 3.9% is forecast for this year. We have one of the fastest-growing economies in Europe, the public finances have significantly improved and last year, the country had an underlying surplus for the first time since 2006.

This year a general Government surplus of 0.2% of GDP is projected. The general Government debt-to-GDP ratio is expected to fall further to 61% by the end of 2019, bringing it below the euro-area average of 86%. We are close to full employment, with the unemployment rate at 5.2%. However, some significant risks remain, including the increasing likelihood of a no-deal Brexit. There is also increasing evidence of a global economic slowdown, with the decline in growth of advanced economies occurring at a more rapid pace than previously anticipated. As Ireland has a small open economy, with a high degree of integration in the world economy, any further escalation in trade protectionism would also have a strong impact on Irish growth forecasts. There are also vulnerabilities in the public finances arising from the high concentration of corporation tax receipts. Furthermore, there is a domestic economic risk related to overheating as the economy approaches full employment. In summary, the economy is positioned between possible overheating, on the one hand, and the very real possibility of economic disruption, on the other. Framing the budget will, therefore, be more challenging than usual. The appropriate budgetary strategy is to build up resources that can be deployed in the event of a slowdown. We will aim to build on what has gone well in recent years, but we are doing so at a time of real change.

Earlier this year I outlined two budgetary approaches, while last Tuesday I decided that the budgetary strategy should be formulated on the assumption of a no-deal exit of the United Kingdom from the European Union at the end of October. Consistent with the fiscal projections published in the Stability Programme Update, SPU, the framework for the budget involves a budgetary package of €2.8 billion for 2020. Of that budgetary package, €2.1 billion is already pre-committed, with an expenditure reserve of up to €200 million, with the capacity to accommodate funding requirements for the national broadband plan and the national children’s hospital. That leaves €700 million to be allocated specifically in that part of the budget. In the event of a no-deal Brexit, the Government has stated t will provide counter-cyclical support for the economy through social protection payments occasioned by higher unemployment and, on the revenue side, lower tax collections. The Government has also indicated that it will introduce timely, targeted and temporary measures for the sectors most exposed. Brexit contingency support may also be needed to address specific issues in the event of a "worst case scenario" of a disorderly Brexit. This may lead to a deficit in the order of 0.5% to 1.5% of national income next year, amounting to a negative swing in the headline balance of up to €6 billion. In that context, the scope for budgetary measures, outside the Brexit-support package, needs to be constrained. As such, all Departments need to ensure expenditure this year is managed within the allocations agreed by the Government and voted by Dáil Éireann and, where expenditure pressures emerge, that mitigating measures are put in place.

At the end of August gross voted expenditure of €42 billion was 0.6% below profile, with gross current expenditure 0.3% below profile and gross capital expenditure 3.7% below profile. Year-on-year expenditure growth was 6.5%, with current spending up by 5.1% and capital spending by 25.5%. The year-on-year increase of 6.5% at the end of August compares to the budgeted for full-year increase of 5.8%. Health current expenditure has a budgeted for full-year increase of 5.8%. At the end of August health expenditure was up by 6.7% year on year.

Given the priority placed on ensuring the delivery of sustainable improvements in the health service, with an overall allocation of €17.1 billion this year compared to expenditure of €14.1 billion in 2016, it is crucial that health expenditure, which was within profile at the end of August, continues to be proactively managed with all the necessary measures implemented to mitigate the risk to the public finances from an overrun this year. This is why it is critical the expenditure position for budget 2020 is managed within the parameters set out in the mid-year expenditure report. Departments are all required to reprioritise and manage spending to ensure offsetting measures can be put in place to mitigate the impact of emerging expenditure pressures and proposed new policy priorities.

We have always been clear that the UK's exit from the European Union will have a detrimental impact on our economy and public finances, whatever form it takes. Work on a no-deal Brexit has the highest priority across government. From a budgetary perspective for Ireland, which is the member state that will be most directly affected, it means ensuring we are as prepared as we can be for whatever outcome emerges. We have taken steps in our national finances, capital investment plan, work on the rainy day fund and broadening the tax base. We have also taken specific steps, including publishing two comprehensive contingency action plans, holding more than 1,200 stakeholder preparedness events in key sectors throughout the country, enhancing physical capacity at our ports and airports, providing training and financial supports to increase our customs capacity, recruiting additional staff in key areas and supporting additional dedicated measures to get Ireland Brexit ready in the budgets for 2017, 2018 and 2019.

Budget 2019 included an allocation of €115 million in a number of areas, including increased resources of €25 million in a range of Departments, a €71 million package for the Department of Agriculture, Food and the Marine, an increase of €14 million to the current allocation for the Department of Business, Enterprise and Innovation, €5 million for the Department of Foreign Affairs and Trade and €13 million to support the opening of new markets and a higher international profile though our Global Ireland 2025 strategy.

Budget 2019 also put in place a longer-term loan scheme for terms of up to eight to ten years to provide a longer-term scheme facility of up to €300 million to support strategic capital investment for a post-Brexit environment. This will be jointly funded by the Departments of Business, Enterprise and Innovation and Agriculture, Food and the Marine.

Further work is under way. The Getting Your Business Brexit Ready – Practical Steps campaign focuses on the nine steps every business should take to help prepare for Brexit. Revenue has issued tailored letters to more than 90,000 companies. Work is also under way to issue targeted letters to approximately 10,000 traders who traded with the UK in the first quarter of 2019 and who are either new operators or in businesses that are newly trading with the UK. We have launched the Clear Customs initiative. The Department of Business, Enterprise and Innovation has had direct engagement with more than 200,000 businesses via a tailored email issued by the Companies Registration Office. Through LEOs, Enterprise Ireland is encouraging businesses to avail of the Prepare Your Business for Customs workshops. InterTradeIreland's Bitesize Brexit campaign covers quick and practical steps for cross-Border traders.

On fiscal vulnerabilities, the high concentration of corporation tax receipts continues to represent a more vulnerable revenue stream. This is why I stress that public spending must be financed on revenue that is predictable and sustainable. Work is under way to examine the future sustainability of tax receipts in this area.

The management of the economy means that Ireland is facing the challenge of Brexit from a position of strength. However, I am under no illusion about the challenges that could approach. Our job now is to build on the progress made to date. In the forthcoming budget, we will use a well-run economy and the progress we have made in recent years to support and protect our people at a time of unprecedented uncertainty.