Written answers

Thursday, 26 November 2020

Department of Finance

Brexit Preparations

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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215. To ask the Minister for Finance the extent to which he remains satisfied regarding the adequacy of actions to date to combat the economic impact of Brexit; and if he will make a statement on the matter. [39464/20]

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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216. To ask the Minister for Finance his plans for further Brexit-related economic interventions; and if he will make a statement on the matter. [39465/20]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 215 and 216 together.

My Department has been preparing for Brexit since before the UK referendum in 2016, and this work has intensified ahead of the end of the transition period on 31 December.

The central scenario underlying Budget 2021 assumes the transition period ends without agreement. The macroeconomic projections underpinning Budget 2021 have been developed with reference to several assessments of the macroeconomic impact of Brexit that my Department has funded and produced, including research into the inter-relationship between Covid-19 and Brexit on short-term economic prospects.

Brexit, in whatever form it takes, will have a negative economic impact on the Irish economy and living standards: there is no good Brexit. Regardless of the outcome of the Future Partnership negotiations, the UK will be outside the Single Market and Customs Union from 1 January 2021. This will have significant and lasting implications, particularly for businesses moving goods to, from or through Great Britain. Any future trading arrangement that is different to the existing arrangement will represent a permanent shock to the Irish economy.

What we can do, and what we have been doing, is take appropriate action to mitigate these negative effects. Overall, Budget 2021 provides €340 million for measures to prepare for Brexit through the continuation of existing measures as well as a number of new supports. This is on top of more than €700 million of measures in successive Budgets since 2017. Budget 2021 also includes a number of enhancements to existing tax-based measures in support of sectors and enterprises likely to be most affected by Brexit.

Further,Budget 2021includes provision for a €3.4 billion Recovery Fund, the equivalent to c. 1.7 per cent of GNI*. The purpose of the Fund is to provide maximum flexibility to allow Government respond swiftly and decisively to the evolving public health and economic situation, including the fall-out from the ending of the transition period.

The Recovery Fund was designed to be flexible and is a deliberate effort by Government to allow, within the budgetary framework, for the unprecedented level of economic uncertainty that currently prevails. The uncertainty relates to both the trajectory of the Covid-19 pandemic and to the form that the post-transition trade with the UK takes.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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217. To ask the Minister for Finance if Ireland is adequately protected from the worst aspects of Brexit; and if he will make a statement on the matter. [39466/20]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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My Department has been participating in whole of Government preparations for Brexit since before the UK referendum in 2016 and, in line with the Government’s overall approach, has intensified work ahead of the end of the transition period on 31 December in order to minimise the impact of Brexit on Ireland.

Without prejudging the outcome of ongoing negotiations between the EU and the UK, the central scenario underlying Budget 2021 assumes the transition period ends without agreement and that a widespread vaccination for Covid-19 will not be available before the end of next year.

On this basis, Budget 2021 focussed on providing support to the economy through this challenging period, with regards to prioritising management of the Covid-19 crisis and the threat of a ‘no trade deal’ Brexit. Budget 2021 provides €340 million for measures to prepare for Brexit, through the continuation of existing measures and new supports for sectors and enterprises likely to be most affected. This comes on top of over €700 million in successive Budgets since 2017. In addition, the Recovery Fund of €3.4 billion will allow specific, targeted measures to be introduced when and where the need arises in response to both Brexit and Covid-19. Budget 2021 targets an improvement in the headline fiscal position while allowing deficit-financed spending to continue in the short term to ensure that our economy and the most affected sectors and households are adequately supported.

Regarding financial services, my Department is working closely with the Central Bank of Ireland and the NTMA to ensure the sector is adequately prepared to cope with the possible effects of Brexit, with as little disruption for consumers, investors and markets as possible. On the basis of its work and engagement across the sector, the Central Bank has been able to assure me that, while some level of market disruption is inevitable, the financial system as a whole should be resilient enough to withstand a hard Brexit and that the most material ‘cliff edge’ financial stability risks arising from Brexit have been largely mitigated.

Regarding preparation for the customs checks that will be necessary for goods travelling between Ireland and the UK, excluding Northern Ireland, at the end of the transition period, the Revenue Commissioners are undertaking an extensive body of work including stakeholder communications and training, staff recruitment and systems and infrastructure enhancements.

Finally, my Department is continuing to make Ireland’s position on the €5 billion Brexit Adjustment Reserve known to the European Commission. The publication of a proposal from the Commission is expected in the coming days and Ireland will then begin negotiating with other Member States to ensure we receive a significant share of the Reserve to support and enhance the steps which I have outlined above.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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218. To ask the Minister for Finance if, in the context of Brexit, the full extent of its negative impact on Ireland is fully recognised, appreciated and provided for in the short and medium terms; and if he will make a statement on the matter. [39467/20]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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My Department has been to the fore in producing and funding a number of assessments of the extent of the economic impact of Brexit, looking at both the short and medium term impact of Brexit in different scenarios.

For example, joint research with the ESRI, published in March 2019, broadly captured the range of possible future relationships between the EU and the UK. Under these scenarios, over the medium-term (i.e. 5 years) the level of GDP would be between 2 and 3 1/4 per cent lower, compared to a situation where the UK remained in the EU.

More recently, and in light of developments related to COVID-19, joint research was undertaken by my Department and the ESRI examining the impact and interrelationship of Brexit and the pandemic on the short-term economic prospects. The research found a limited overlap in the sectors exposed to the respective shocks.

Further to this, joint analysis my Department and the ESRI published in the ESRI’s Autumn 2020 Quarterly Economic Commentary incorporated these findings to examine the impact of Brexit on the recovery path of the economy post COVID-19. The results were broadly in line with previous Department of Finance/ESRI analysis in 2019.

This research, and earlier analysis carried out and published by my Department identifying Ireland’s trade exposure relative to our EU partners in both exports and imports terms, show that Ireland is an outlier among EU member States in terms of our trade exposure in both goods and services to the UK.

In the context of the research outlined, Budget 2021 was based on the prudent assumption of a disorderly end to the transition period between the EU and the UK at the end of this year and the projected impact of that scenario.

Under this scenario, a decline in GDP of -2 ½ per cent is projected for this year, and growth of 1 ¾ per cent is expected in 2021; this is around three percentage points below a counterfactual scenario, where a trade deal between the euro area and UK is reached.

I include a list of the published research and joint research on Brexit by my Department for reference:

- Department of Finance and ESRI 2016. Modelling the Medium to Long Term Potential Macroeconomic Impact of Brexit on Ireland

- Department of Finance. UK EU Exit: Trade Exposures of Sectors of the Irish Economy in a European Context

- Department of Finance. 2018. UK EU Exit – An Exposure Analysis of Sectors of the Irish Economy.

- Department of Finance. 2018 Brexit: Analysis of Import Exposures in an EU Context.

- Department of Finance and ESRI. 2019. Ireland and Brexit: modelling the impact of deal and no-deal scenarios

- Department of Finance and ESRI. 2020. Examination of the sectoral overlap of COVID-19 and Brexit shocks

- Department of Finance. 2020. Trade Costs and Irish Goods Exports

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