Potential for disorderly Brexit in 2020 now subsided allowing for growth figures to be updated to more accurately reflect economic position
The Department of Finance has updated its growth forecast for 2020 to take account of the extension to the Brexit timeline. GDP is projected to grow by 3.9 per cent this year, and to average around 3 per cent over the 2020-2025 horizon (assuming a Free Trade Agreement is negotiated between the EU and UK or an extension to the transition period).
The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD, has updated the Government’s medium-term fiscal strategy, with a budgetary surplus of 0.7 per cent of GDP now projected for this year. This improvement naturally feeds into the following years and the forecast now is that a budget surplus of 1% of GDP can be reached at the earlier time of 2021, improving incrementally to 1.3 per cent of GDP by 2025.
Where corporation tax receipts are concerned, from 2022 onwards, implementation of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative is assumed to reduce corporation tax receipts by an incremental €500 million per annum. While there is some uncertainty surrounding this figure, it is the Department’s best assessment, based on ongoing work being carried out by the Revenue Commissioners, that the overall risk from BEPS-related changes could be in the range of €800m to €2 billion.
The overall unallocated spending over the period 2021-2024 remains unchanged from the orderly Brexit scenario of the Summer Economic Statement at €8.6 billion.
Updating the medium term fiscal strategy, Minister Donohoe said:
Notes to editors:
Department of Finance economic and fiscal projections are normally updated twice yearly, in the autumn with the Budget and in the spring with the Stability Programme Update. However, Budget 2020 was based on the assumption of a disorderly Brexit at end-October 2019. As this has not materialised, a technical update is being published.
The macroeconomic forecasts are a technical update; they are not submitted to the European Commission and, therefore, not subject to endorsement by the IFAC.