Dáil Éireann Debate, Tuesday - 6 November 2018
187. Deputy Lisa Chambers asked the Minister for Finance his views on the recent publication from the Parliamentary Budget Office (details supplied); the reason such sensitivity analysis has not been provided; and if he will make a statement on the matter. [45010/18]
View answerThe Department’s Budget forecasts incorporate, as a central scenario, that the UK will make an ‘orderly’ exit from the EU. This involves a transition period being agreed until end-2020, and a free trade agreement being agreed thereafter. The impact of this scenario is to lower the level of GDP by almost 2 percentage points over the 2021-2023 period relative to a no-Brexit baseline. This feeds through to the fiscal projections underlying the Budget. The macroeconomic forecasts underpinning the Budget were endorsed by the Irish Fiscal Advisory Council as is legally required.
The text on policy strategy in the Economic and Fiscal Outlook, published as part of Budget 2019, is almost entirely about the risk of a disorderly exit and outlines that the policy response should be to enhance the resilience of the economy. Chapter 6 of the same document, on Risk and Sensitivity Analysis, includes Box 5 on alterative Brexit scenarios. This shows that over the medium-term (i.e. after five years) the impact of a disorderly Brexit would be to reduce the level of GDP by around 3¼ percentage points compared with a no-Brexit baseline. It explicitly states that this should be seen as a minimum not a maximum effect.
Using the ESRI’s COSMO model, Budget 2019 also provides a sensitivity analysis to simulate the impact of a 1 per cent deterioration in global demand on our public finances, as measured through the general government balance. This specific external shock could arise through a number of channels, including through Brexit.
The measures introduced in Budget 2019 continue the process of ensuring that Ireland’s economy remains competitive and resilient against the backdrop of heightened uncertainty, including from Brexit. Eliminating the deficit is part of the policy response, as is achieving the Medium-Term Budgetary Objective, the avoidance of pro-cyclical policies, putting the debt-ratio on a downward path and establishing and resourcing the Rainy Day Fund. This is complemented by our longer-term economic strategy for investing in the productive capacity of our economy, especially through Project Ireland 2040.
The Government is working hard with the EU Taskforce and our EU partners to ensure that an agreement between the EU and the UK is reached. While it is still Government’s view that a ‘no deal’ outcome remains unlikely, we are planning for all scenarios.
