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

My Department’s budget 2019 macroeconomic forecasts, endorsed by the Irish Fiscal Advisory Council, IFAC, incorporate, as a central scenario, that the UK will make an orderly exit from the EU with a transition period until the end of 2020. Moreover, the impact of this assumption is to lower the level of GDP by almost 2 percentage points. This in turn feeds through to the fiscal projections underlying the budget.

My Department recently prepared a preliminary holding assessment, issued on the 29 January, based on an initial application of the most recent estimates. An update prepared by the UK’s National Institute of Economic and Social Research, doubled the projected impact of Brexit there. For Ireland, the no-deal impact is now assessed to be an economy of the order of 4.5% smaller than the 2019 forecasts and of the order of 6% lower than a no-Brexit scenario.

The assessment by my Department shows that on an aggregated level there would be a sharp deterioration in the public finances as measured by the general government balance. This top-down analysis incorporates the combined impact arising through both the expenditure and revenue channels. Accordingly, the budget balance is currently projected to turn to a deficit of 0.2% of national income with a further decline in 2020 from a surplus of 0.3% of gross domestic product to a deficit of 0.5%.

My Department is currently working with the Economic and Social Research Institute, ESRI, on a new assessment of the economic and fiscal impact of Brexit on Ireland. The ongoing ESRI exercise will estimate the tax and expenditure implications of a no-deal Brexit. However, as an indicative approximation of the revenue impact, the traditional estimated long-run relationship between nominal gross domestic product growth and tax revenue is a unitary elasticity. Accordingly, for every one percentage point change in nominal gross domestic product this is reflected in a similar relative change in tax receipts.

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