* Ireland faces biggest hit from ‘no deal’ Brexit
* Finance minister to allow more borrowing if needed
* Firms want promise of emergency support
* Spending won’t be cut, even after ‘no deal’
By Padraic Halpin
DUBLIN, Oct 8 (Reuters) - Ireland’s finance minister will present a “no deal” Brexit budget for 2020 on Tuesday, detailing how he will keep firms afloat and allow the state’s finances to return to deficit if Britain leaves the European Union in a chaotic manner.
With Britain’s latest scheduled exit from the EU just three weeks away, Minister Paschal Donohoe made the call last month to assume the worst, eschewing the breadth of tax cuts and spending increases of recent years to set aside funds for exposed businesses.
Ireland is considered the most vulnerable among remaining EU members to Brexit due to its close trade links and shared land border with the United Kingdom. The Irish government has warned economic growth could come to a near halt next year, putting up to 80,000 jobs at risk if Britain crashes out of the bloc.
While some British lawmakers think the threat of such a hit will force Ireland into a last minute concession in negotiations, its smaller neighbour is approaching the Oct. 31 Brexit deadline with an economy that has grown faster than any other in the EU each year since 2014.
The main focus when Donohoe speaks at 1200 GMT will be how far the government’s Brexit package meets the demands of firms as set out by Ireland’s main business lobby, which is calling for support for workers who lose their jobs, an enterprise stabilisation fund for firms, and further cashflow and export diversification assistance.
“A ‘no-deal’ exit would deliver a major shock to the rural economy. Those most vulnerable to job losses are already living in areas with fewer opportunities, a lack of other viable employment and lower incomes,” the Irish Business and Employers Confederation’s (IBEC) chief economist Gerard Brady said.
“Decisive and far-reaching government intervention would be required to protect jobs and support vulnerable, but viable, firms from day one.”
In contrast to the savage austerity budgets required a decade ago after Ireland’s financial crisis, Donohoe will stick to the pre-committed 2.1 billion euros of extra spending in areas such as infrastructure projects and increased public sector pay. This will leave him around 700 million for business support and modest tax and spending measures.
With his department forecasting that gross domestic product growth would tumble from 5.5% this year to just 0.7% in 2020 in a ‘no deal’ scenario, the budget package would push the public finances into a deficit of between 0.5 and 1.5% of GDP next year.
It would take up to four years to return to surplus, a swift setback after Ireland recorded its first surplus in a decade in 2018. Borrowing would increase at a time when the national debt is still high at around 100% of gross national income since the financial crisis 10 years ago.
Ireland’s deficit hit double figures during that period.
With the economy approaching full employment - where just about everyone who wants a job has one - many economists see the cautious stance as being wise regardless of the Brexit outcome, given the separate risk of Ireland’s economy overheating.
“Of course, a ‘no-deal’ Brexit may not happen, but the Minister for Finance is using the risk to create political space to rein in spending,” Davy Stockbrokers chief economist Conall MacCoille wrote in a note. (Reporting by Padraic Halpin; Editing by Toby Chopra)