UK Markets closed

Prospect of no-deal Brexit shapes Ireland's 2019 budget

Edmund Heaphy
Finance and news reporter
Irish finance minister Paschal Donohoe. Photo: Reuters

Ten years after being smashed by a financial crisis of mammoth proportions, Ireland has become the fastest-growing economy in the European Union—something that would typically precipitate a triumphant budget.

Instead, the country’s finance minister on Tuesday was forced to announce hundreds of millions of euros in provisions designed to shield the economy from the prospect of a no-deal Brexit.

Paschal Donohoe told Ireland’s parliament that fears that Britain, the country’s closest trading partner, could crash out of the bloc without a deal had influenced the decisions that his government had made about its 2019 budget.

“Brexit is the political, economic, and diplomatic challenge of our generation,” Donohoe said. “We will prepare the economy for the many challenges of Brexit—the best preparation for which is a responsible budgetary policy.”

Some €110m (£96m) will be provided to government departments for Brexit-related measures. This includes an additional €10m for extra customs officials at Irish ports, and €4m for additional food safety, and veterinary inspectors.

His government will also launch a new loan scheme for SMEs and the country’s agriculture sector, which will lend up to €300m (£260m). An additional €300m will be invested in skills training for sectors and regions vulnerable to Brexit impacts.

There will also be an increase in funding for the Northern Ireland peace programme, while a €60m (£53m) fund for Brexit-related supports will be launched “to improve resilience in the farm sector,” he said.

Donohoe also announced the introduction of a “rainy day fund,” designed to augment Ireland’s ability to withstand economic shocks. While an initial investment of €1.5bn will be taken from an existing state fund, the Irish government will contribute €500m annually from 2019.

Even if the UK negotiates a favourable trade deal with the EU, Ireland’s economy will be affected. But the International Monetary Fund has predicted dire consequences if the UK leaves without a deal in March 2019. In the long-term, Irish economic output could be dented by almost 4%, and up to 50,000 jobs could be lost, the fund said in July.

Last month, the Dublin-based Economic and Social Research Institute (ESRI) predicted that Ireland’s economy will grow by 4.5% in 2019, but only if the UK manages to strike a Brexit deal with the European Union.

READ MORE: Bumper forecast for Ireland’s economy is based on Brexit deal optimism

Despite the potential economic consequences, the Irish government is still focused on maintaining peace on the island of Ireland. Donohoe noted that the most important next step was to “conclude the negotiations on the withdrawal agreement, including the backstop to ensure no hard border in Northern Ireland.”

“Once that is concluded, the transition period will be in place until the end of 2020, and negotiations on the future relationship can move ahead.”

Only then will Ireland “press for the closest possible relationship across the UK,” he said.

Though the ESRI said that a no-deal Brexit would see Ireland “confronted by a highly adverse economic shock,” it also advised the Irish government that significant investment was required in areas such as public housing.

READ MORE: Ireland’s ballooning housing crisis

Donohoe on Tuesday announced an additional €30m for homelessness services, €60m in capital funding for emergency accommodation, and said that his government would spend an extra €1.25bn on social housing.

Among the more controversial measures, the special 9% VAT rate for the hospitality sector, introduced in the aftermath of the financial crisis, has been abolished. The hike to 13.5% will raise €466 million, the Irish government said.