A DISORDERLY BREXIT would cause higher spending, growing unemployment and rising debt, adding to the vulnerability of the Irish economy over the next decade, according to a new report by three Central Bank economists.
The report, published today, also contains a stark warning about how a loss of corporation tax and a global economic slowdown, would impact Ireland.
“A disorderly Brexit or a loss of corporation tax revenue accompanied by a slowdown in the international economy would both result in a material increase in the government debt,” the analysis by Thomas Conefrey, Rónán Hickey and Graeme Walsh warns.
Brexit
As fears grow of a no-deal Brexit on 31 October, the government has issued repeated warnings of the impact it would have on the Irish economy.
Both Taoiseach Leo Varadkar and Tánaiste Simon Coveney have upped their warnings in recent months about what a disorderly Brexit will mean for Ireland.
The paper, while not an official Central Bank document, suggests that government debt would rise significantly as consumer spending drops, imports and exports are disrupted due to new tariffs and unemployment grows.
Crucially, the report predicts that a disorderly Brexit will have a long-term, damaging impact on Ireland’s public finances over the next decade – and ultimately leave the economy more vulnerable.
The authors write that a disorderly Brexit, such as a no-deal, would reduce the level of output of the Irish economy by 4% in the short-term and 6% over 10 years.
It also predicts that the unemployment rate would rise by two percentage points in the long-term.
The report warns that by 2025 the debt-to-income ratio would grow by 17 percentage points, with debt €22 billion higher than the alternative case if Brexit didn’t happen.
Larger deficits and a growing government debt would leave the Irish economy open to “further shocks” in the years to come, the authors warn.
Corporation Tax
The analysis also contains a sober warning about the Irish economy’s reliance on corporation tax.
Between 2014 and 2018, corporation tax revenue in Ireland grew by 125%, contributing 40% to the overall growth of tax revenue. However, concerns have grown that the country is becoming too reliant on corporation tax receipts.
In June, the Irish Fiscal Advisory Council warned that Ireland needs to “wean itself” off its reliance on corporation tax.
The authors warn corporation tax may “not be sustainable over the long term”.
A reduction in tax revenue, combined with a much-feared global economic slowdown, could have damaging consequences for the country and contribute to a rise in government debt.
The report also warns that if a disorderly Brexit and a corporation tax revenue drop were combined “the effects on the economy and public finances would be magnified”.
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