A no-deal Brexit budget, with spending significantly curtailed, is emerging as the most likely tax and spending plan to be tabled by Minister for Finance Paschal Donohoe in October.
Senior figures in both the Government and Fianna Fáil, whose support is needed to pass budgets, are preparing to introduce a much tighter package than initially envisaged just weeks before Britain is due to leave the EU.
Mr Donohoe will in the coming weeks outline the budget resources available in the case of an orderly Brexit and a disorderly crash-out on October 31st.
One senior Government source, however, said it would be “hard to frame a budget for both, so we’ll have to decide on one”.
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Taoiseach Leo Varadkar, Mr Donohoe and Ministers will have to choose by September at the latest which scenario to base the October budget on.
Numerous Government sources said a no-deal budget was emerging as the likelier option since there was unlikely to be clarity on Brexit by September, when budget preparations and negotiations would intensify.
A senior Fianna Fáil source cautioned that the limited resources available in a no-deal scenario would make any tax cuts unlikely, adding that Micheál Martin’s focus will be on spending on services.
“If the State has to prepare for a hard Brexit, you can’t do both,” the source said of tax cuts and spending increases.
Differing views
Discussions are already taking place in Government circles on what policy approach to take in a no-deal budget, such as whether there should be any income tax cuts, with some suggestions new measures could be restricted to welfare increases. There are understood to be differing views on opting for tax cuts in a no-deal budget.
Accelerated health spending is also causing significant concern that another supplementary estimate will be needed for the Department of Health. Last year health services were given an extra €700 million to get through 2018. The rate of spending increases in May was a third ahead of the anticipated annual growth for the year.
A much tighter budget would, say sources, provide Ministers with a number of stark choices, such as whether to provide the Department of Health with a supplementary estimate or increase the supports available to the agriculture sector in a no-deal scenario.
“Do you bail out agriculture or do you bail out health?” said a Government figure.
The memory of the 2008 budget – when the Fianna Fáil-Green Party government increased spending on the eve of the economic crisis – is also said to loom large. “That budget was dead on arrival,” said one senior source.
The prospect of a new British prime minister, such as Boris Johnson, who is prepared to allow Britain leave the EU without a deal at the end of October, has increased the likelihood that Mr Donohoe will opt for a cautious budget.
Brexit deadline
Mr Johnson has pledged to take Britain out of the EU by the next Brexit deadline on October 31st. The last European Council meeting before then will be held in Brussels on October 17th and 18th.
Budget day this year is on Tuesday, October 8th, meaning Mr Donohoe and Fianna Fáil’s finance spokesman Michael McGrath are likely sign off on the budget without any Brexit certainty.
Mr Johnson has called for the existing Brexit withdrawal deal to be renegotiated and the backstop, the insurance policy to avoid a hard border, scrapped. These suggestions have been repeatedly dismissed by the EU.