A no-deal Brexit would push the Government towards running an overall budget deficit next year as opposed to a small surplus if the UK leaves the EU in an orderly fashion.
Minister for Finance Paschal Donohoe will outline the consequences of a no-deal Brexit on the State finances alongside forecasts in the case of Britain leaving the EU with a deal when he publishes the summer economic statement on Tuesday, one of the initial steps in the annual budget process.
Government sources said a no-deal Brexit will turn an expected surplus into a deficit in the “range” of “up to” 1.5 per cent for next year.
It is expected there will be roughly €2.8 billion in extra money to spend in the budget, of which some €2 billion-€2.2 billion has already been committed in capital spending, public sector pay rises and demographic changes.
This means there will be limited room on budget day for any additional spending or tax measures beyond those already signalled.
The budget will be delivered on October 8th and the UK is due to leave the EU on October 31st. It is also before a possibly crucial EU summit on October 17th and 18th, which may decide on the Brexit issue.
While Taoiseach Leo Varadkar is expected to make a decision in September on whether a deal or a no-deal exit is more likely, the budget will be framed to fit both outcomes.
Too generous
The Government want to avoid introducing measures that are too generous and would have to be rescinded if Britain crashes out of the bloc.
One source cited the example of the 2008 budget introduced by Fianna Fáil and the Green Party, which contained measures that had to be dropped as the economic crisis hit.
The other scenario Mr Donohoe is said to be keen to avoid is having a second budget, which is seen as sending a signal of uncertainty. The intention is to table a tight budget that would leave money for increased supports in sectors such as agriculture if there is a no-deal Brexit.
Michael McGrath, the Fianna Fáil finance spokesman, who will negotiate the budget with Mr Donohoe, said there was a need to “hold some resources in reserve” and that a “cautious approach” was needed.
He said a no-deal Brexit would require “targeted intervention to support certain sectors of the economy that are most exposed”.
