The Government could face a bill of almost €1 billion in extra unemployment benefit over the next decade in the event of a disorderly Brexit, the Parliamentary Budget Office has warned.
In a pre-budget submission, the Oireachtas watchdog said a no-deal Brexit could result in a €6.5 billion hit to the Irish exchequer. This deterioration would arise from lower tax revenues and increased spending on Brexit and other social supports, it said.
The report estimated expenditure on jobseekers’ benefits alone could be as much as €104 million in 2020, increasing to €925 million cumulatively by 2029.
The Parliamentary Budget Office was set up in 2017 to provide independent analysis and costings of proposed budget measures on foot of warnings from the Organisation for Economic Co-operation and Development that the Cabinet here exercised too much control over the budget.
In this year’s submission, it welcomed the Government’s central assumption for Budget 2020 of a no-deal UK departure from the EU.
However, it warned the Government may need to raise additional revenue – over and above what has been built into its €2.8 billion projected budget day spend – to bolster industry and maintain vital public services if the UK crashes out.
“Funding for these supports should come from existing resources,” it said.
Reliance on multinational receipts
The office also devotes a significant portion of its submission to the precarious nature of the Republic’s corporation tax base, which relies heavily on a handful of big multinationals.
It estimated that Government revenue could fall by approximately €440 million “if a typical large multinational” left the State for any reason.
This loss is roughly the same as a €20 increase in the carbon tax (costed at €430 million) or a one percentage point increase in the higher rate of income tax (costed at €347million), said the watchdog.
About 40 per cent of business tax receipts in the Republic are generated from a handful of companies, understood to include tech giants Apple, Microsoft, Dell, Google and Oracle.
The highly concentrated nature of the corporation tax base leaves the public finances exposed to changes in the international business environment, warned the report.
“These receipts are volatile and possibly unsustainable,” it said. “They should not be used to fund permanent spending as has been the case in recent years,” it added. Instead the additional revenue should be diverted into the Government’s so-called rainy day fund, or to reduce the level of public debt.
"Given these risks, Budget 2020 should focus on sensible policy measures that safeguard the public services needed for a growing population," said office director Annette Connolly.
“We should ensure the capital investment needed to deal with capacity constraints is protected now and into the future,” she said. “This will allow for the continued delivery of important services during a downturn and reduce the risk of a return to the large-scale cuts seen during the last economic and fiscal crisis.”
In its submission, the Parliamentary Budget Office said that, in the event of an orderly Brexit or an extension beyond the upcoming October 31st deadline, current economic growth indicators point to an economy that may face a risk of overheating in the short to medium term.
It said the Irish economy continued to grow strongly, noting gross domestic product grew by 6.6 per cent in the first half of 2019 while wages grew by 3.3 per cent.
