Dáil Éireann Debate, Thursday - 28 February 2019
1. Deputy Michael McGrath asked the Minister for Finance the anticipated impact in monetary terms on tax receipts in 2019 and 2020 of a no-deal Brexit; the status of preparations for all Brexit scenarios; and if he will make a statement on the matter. [10145/19]
Amharc ar fhreagraThis question relates to the issue of Brexit. The Minister has provided updates on the potential consequences of a no-deal Brexit in the context of employment, economic growth and on deficit. Will he clarify the figure to which his Department is working in the context of the hit on tax receipts for 2019, in particular, and 2020? We have had a discussion on the Bill during the week and I ask the Minister to take this opportunity to update the House on the preparations for all Brexit scenarios.
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 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.
I thank the Minister for his reply. Will he spell out in nominal terms what the impact is expected to be in accordance with calculations by his Department and Revenue on tax receipts? He has explained that the surplus projection is expected to go to a deficit in the current year, which means his Department does have those figures. Can he spell out what it means in the context of tax receipts in nominal terms? Will he take this opportunity to update the House as to where we stand, from the perspective of his Department and the agencies under its aegis, particularly Revenue, on the question of Brexit preparedness in the context of customs officers, infrastructure developments at ports and so forth? Will he reassure the House that while, thankfully, a no-deal Brexit is looking less likely now than it was some weeks ago, it is still a scenario for which we have to be prepared and that we must prepare for all contingencies?
Regarding the Deputy's first question, the figures I have available to me are very provisional because we are only approaching the end of February. For me to be able to give the Deputy an exact read on how I believe tax revenue for this year will decline on the basis of a disorderly Brexit is very difficult to do, but I will be in a position to do this when the ESRI has completed its work.
On the Deputy's second question, I reconfirm that with respect to the figures I gave him on the Revenue Commissioners having 400 staff in place by the end of March, we will deliver that and we will be in a place to quickly recruit a further 200 afterwards. From a preparedness point of view, while the events of Tuesday were very significant, we still have to plan for the worst. From a land acquisition and infrastructure perspective, we are on track to be as best prepared as we can be for the end of March.
I ask that the Minister come back with the figures I am seeking at the earliest opportunity. His Department must have a rough approximation, otherwise he would not be in a position to say that we are going to go from a certain surplus to a predicted deficit, and he has put those figures on the record. I could work them out myself but I do not want to make a stab at doing so. It would be better if the Department gave us the actual figures. The Minister can come back to us on those.
In the context of the Brexit Bill we have been discussing this week, have the taxation measures, which are a very significant component of it, been cleared with the European Union in the sense that from a corporation tax point of view we are hoping to continue to treat the UK as a member state? Essentially, it would be tantamount to a member state such that the existing status quo provisions will continue, whereas other member states will not have a similar relationship with the UK in a post-Brexit scenario if it actually leaves the European Union. Can the Minister confirm that the taxation elements of that Bill have been cleared fully with the European Union?
Yes, they have been. The Department of the Taoiseach and the Department of Finance provided briefings to parties and Independent Deputies on the Brexit Bill last week. On Tuesday, the Cabinet agreed two further amendments I proposed to the Bill on the operation of duty free and the VAT refund scheme. That and all the other tax changes have been cleared by the Commission. I will make available to Deputies Michael McGrath and Pearse Doherty an official briefing on those two new amendments in order that they will be in a position to understand them fully before we debate them in the House next week, particularly as the version of the Bill on which they were originally briefed would not have contained them. I will make contact with both of them and other Deputies to ensure they are briefed on them before we debate them in the Dáil next week.
