I propose to take Questions Nos. 155 to 158, inclusive, together.
Budget 2020 was presented on the basis of a disorderly exit by the United Kingdom (UK) from the European Union (EU). Given uncertainty around the manner and timing of the UK’s departure this was the correct approach to take.
Should the UK leave the EU on an orderly basis, Ireland’s fiscal position will, inter alia, improve with increased revenues and lower expenditure than forecast at Budget 2020. The Summer Economic Statement (SES), published in June 2019, is instructive in this regard.
The SES was based on the assumption of an orderly exit of the UK from the EU and, as such, the economic impact was minimal. The path for the headline deficit, which involved tax reductions of €600 million each year and an increase in current spending of 3¼ per cent each year, is set out in table 1. As the economy is in broad balance over this timeframe, the headline balance broadly corresponds to the structural balance.
Table 1 – SES ‘orderly’ baseline
|
|
2020
|
2021
|
2022
|
2023
|
2024
|
|
GGB (orderly baseline)
|
0.4
|
0.6
|
0.8
|
1.0
|
1.2
|
|
Indicative tax package
|
|
600
|
600
|
600
|
600
|
|
Voted Current exp @ 3.25% y-on-y increases
|
|
2000
|
2000
|
2100
|
2200
|
|
Voted Capital exp
|
|
600
|
300
|
600
|
600
|
|
Available resources
|
|
3,200
|
2,900
|
3,300
|
3,400
|
The term “available resources” used in table 1 is defined as the quantum of taxpayers money that could be used to finance additional public expenditure and/or taxation reductions. In defining available resources in this way, it moves away from the concept of ‘fiscal space’ which, as I highlighted in the Summer Economic Statement 2019 (SES), is “clearly inappropriate for the Irish economy at this point in the economic cycle”
On this basis, available resources amount to a total of c.€12.8 billion over the period 2021-2024, the equivalent of c.€3.2 billion per annum. Some of these resources have been pre-committed for demographic change and other factors. Table 2 outlines a summary of pre-committed expenditure in the years 2021 and 2022.
Table 2 – Pre-committed Expenditure 2021 – 2022 (€bn)
|
|
2021
|
2022
|
|
Demographics
|
0.5
|
0.5
|
|
PSSA
|
0.3
|
|
|
Budget 2020 Carryover
|
0.2
|
|
|
Capital Expenditure
|
1.0
|
0.3
|
|
Total
|
2.0
|
0.7
|
Since publication of the SES, there has been a deterioration in the global economic environment. Consequently, the Department of Finance revised downwards its forecast for economic growth in 2020 under a ‘deal’ scenario, from 3.3 per cent to 3.1 per cent. Lower economic growth will have knock-on impacts on the projected fiscal position, irrespective of an orderly exit deal being agreed between the UK and EU.
