The Brexit vote will not affect Budget 2017 but its longer term effect on Ireland could be serious depending on what deal the UK agrees with the EU, Minister for Finance Michael Noonan has said.
The tax streams for 2017 are relatively fixed at this stage and contingencies for the initial impact of the Brexit result have already been worked out, Mr Noonan said. Beyond that it will depend on what sort of new arrangement the UK agrees with the EU.
If the UK remains in the single market "then the impact [on Ireland] will be quite low," Mr Noonan told the Select Committee on Finance, Public Expenditure and Reform, and An Taoiseach on Thursday. But if a more distant relationship emerges involving tariffs and border posts, "the impact would be bigger… it would be serious."
Shares rose
The Minister’s comments came as Irish and other European shares rose for a third straight session as they continued to claw back some of the ground lost in the imediate aftermath of the UK referendum. The Iseq added 1 per cent, while the FTSE 100 gained 2.3 per cent in London. Meanwhile, the market interest rate, or yield, on the Government’s 10-year bonds fell to a record low of 0.509 per cent as investors continued to speculate that the European Central Bank will add stimulus to limit the fallout from Brexit.
Mr Noonan said post-Brexit market movements have been bad for the UK in terms of exchange rates and stock exchange values, with the international expectation being that the UK will become a weaker economy. He said the UK quitting the EU presents potential economic and foreign direct investment (FDI) advantages for Ireland, though if the British government feels it is losing out “they’ll probably adjust policy to forestall that.”
Meanwhile, Mr Noonan said the UK vote may delay the EU’s decision on whether iPhone-maker Apple’s tax dealings in this country breached state-aid rules. While he said it had been rumoured that the EU would deliver its final ruling on its case against Ireland in July, the possibility of an adverse finding and large tax bill for “an American company operating in Europe” next month is now less likely, following the the referendum.
Enda Kenny
Also speaking to the committee, Taoiseach Enda Kenny insisted that the best thing for Ireland would be if the UK retains access to the single market. But he added that for this to happen the country must accept the key principles of the EU, including the free movement of people.
He said the new British prime minister, due to be in place by September 9th, will be given a short period of time to work out their strategy before they will be expected to initiate formal exit negotiations.
The process should last about two years, after which a short extension may be granted. However, if the UK and EU fail to reach an agreement, then World Trade Organisation rules will come into effect. Mr Kenny said he hoped this didn’t happen.
Mr Kenny also said he has made the EU aware that Ireland’s interest are in maintaining the common travel area between Ireland and the UK, protecting the peace process, maintaining the open border between the Republic and the North and maintaining trade links between Ireland and the UK.
