Govt should consider supplementary Budget to respond to Brexit – ESRI
The Economic and Social Research Institute has said the Government should consider a supplementary Budget in the New Year to respond to Brexit.
Next month’s Budget will be drawn up on a “disorderly Brexit” scenario.
In its latest Quarterly Economic Commentary, the think-tank warns that a no-deal Brexit may be worse than thought. It could push the economy into recession.
Also, if Brexit does not happen, it could prompt a rebound from consumers and investors, adding fuel to an economy already bursting at the seams in some areas.
For both scenarios, the ESRI is advising that the Government treats October’s Budget as a “draft” and revisits it in the New Year depending on what transpires over the next few months.
Minister for Finance Paschal Donohoe has said certain sectors exposed to Brexit will get targeted support.
In a report to be published later, the Dáil Committee on Budgetary Oversight will call for clarity on what these supports will be and how much they will cost.
The committee will also formally ask Mr Donohoe to clarify if the Rainy Day Fund can be used in the case of a hard Brexit.
The ESRI forecasts that the economy (GDP) will grow by 3.1% next year, which is down slightly on its forecast three months ago.
It notes indicators like consumer sentiment – at its lowest level since 2014 – and business confidence are down. Growth in retail sales has slowed.
This, the ESRI claims, is evidence of the impact Brexit is already having on the economy.
It has revised downwards its forecast for new house completions in 2019 from 23,500 units to 21,500 units.
It also blames this partly on Brexit but also on prices in some parts of the country reaching the limits of affordability.
However, it says it would be a “…serious mistake…” if Central Bank rules on lending were relaxed.
If this were to happen, the ESRI believes it “…would ultimately result in higher house prices along with higher levels of personal and household debt…”
It quotes a European Commission study which shows, when adjusted for size, house prices in Ireland are among the highest in the European Union.
The ESRI has repeated calls for the vacant sites tax to be increased to remove the factor of speculation from the price of land and make the construction of new homes cheaper.
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