THIS ARTICLE APPEARED IN THE IRISH EXAMINER OCT 5th 2018
On Tuesday next the Minister for Finance Paschal Donohoe will present his third and very possibly the last budget of the current administration. He has been lucky in the sense that the budgets over which he has presided have been prepared against a positive domestic economic backdrop and the global economy has been behaving itself. As a consequence, he did not have to make the difficult choices faced by his predecessors and really only had to decide where to apportion his largesse. However, the stakes are now rising, as the farcical evolution of the Brexit process in the UK promises to do serious damage to important sectors of the Irish economy.
Some of what we have been treated to over the past few days in relation to Brexit should worry us. Arlene Foster’s bizarre comments about the Good Friday Agreement should worry everybody on this island, and particularly those who make their living around the Border region. The stance being taken by Boris is even more bizarre and with every day that passes, the possibility of a very dangerous Brexit outcome is becoming more real.
Paschal Donohoe needs to ‘Brexit proof’ those parts of the economy and those regions that are most vulnerable. Increasing the VAT rate for the hospitality sector would be pure and utter folly and would not take account of business conditions and employment in rural Ireland and the risks they face from Brexit. Between the second quarter of 2011 and the second quarter of 2018, employment in the Accommodation and Food Services sector has increased by 60,400 and the sector now employs 177,100 people, many of whom live in rural Ireland, and particular in the very vulnerable Border counties. To increase the VAT rate for a sector that is so vital to the competitiveness of the Irish tourism product does not make sense. Furthermore, to increase the VAT rate on newspapers would just be another nail in the media coffin.
Michael Noonan and the late great Brian Lenihan have left a strong legacy from their periods in Merrion Street. Whether one agrees or disagrees with the policies they pursued, it is a fact that they presided over the most difficult set of circumstances in modern Irish history and incredibly difficult decisions had to be taken. It is also a fact that the Irish economy today is in the best place for over a decade, and both men should take at least some credit for that. There are obviously many more problems to overcome, but at least we are moving firmly in the right direction.
It remains to be seen what the legacy of Paschal Donohoe will be, but I strongly suspect that it will be a positive one, that is unless he is tripped up by Brexit. I am sure his budget speech next week will contain at least one reference to ‘Brexit proofing’ the Irish economy, and if it doesn’t, then it certainly should. Brexit potentially represents the most significant challenge faced by many sectors of the Irish economy since the crash, and we need to ensure that in the event of a bad outcome, the economy will be as resilient as possible.
Maintaining the special VAT rate at 9 per cent in a sector of the economy that has been so successful in delivering jobs, and one which is now facing immense challenges from Brexit, would make a very positive statement about a real conviction to ‘Brexit proof’ the economy. Any increase in this VAT rate would not be good for the profitability and employment in the hospitality or newspaper sector and would just serve to exacerbate the challenges posed by Brexit. The special VAT rate is a key element of the competitiveness of the Irish tourism sector and should not be sacrificed to trade unions and other interests who seem to have a significant problem with a sector of the economy that supports so many jobs and which is integral to the health and wellbeing of rural Ireland. Of course, an increase in the VAT rate would in the near-term help the public sector unions in their push to increase the public sector pay bill. Please Minister, do the right thing on Tuesday!