Donohoe says absolutely no surprises in Budget 2020

Donohoe says absolutely no surprises in Budget 2020

The Minister for Finance has said there will be “absolutely no surprises” in the Budget to be outlined this afternoon.

Speaking as he arrived at the Department of Finance this morning, Paschal Donohoe said all of the main features of Budget 2020 are well known.

He said this was “a particularly challenging budget” because of the need to make some changes before Brexit.

Minister Donohoe also said the expenditure measures that will be announced are broadly in line with what he had expected.

A range of measures aimed at helping the sectors most at risk from a hard Brexit will be included in Budget 2020.

Other measures are expected to include spending increases in healthcare and social welfare, as well as an increase in the carbon tax.

The Budget had been expected to be a package worth €2.8bn, but it is understood that the increase in carbon tax and changes to other taxes, such as the dividend withholding tax, could push it closer to €3bn.

Minister Donohoe concluded his discussions last night with a Fianna Fáil delegation, following talks with the Independent Alliance on its key concerns.

It is understood that some of both parties’ key budgetary demands were met.

An expansion in the medical card scheme for the over 70s and other health and social welfare spending increases are expected.

However, changes in personal taxation beyond adjustments for increases in the minimum wage are unlikely.

In a new development, the Government will also produce a citizen’s guide to the Budget for the first time.

Mr Donohoe is expected to outline details of a contingency fund of €650m that it will have on standby to help prop up sections of the economy most exposed in a crash-out Brexit scenario.

It will also spell out the timelines within which such funding will be made available.

It is understood that Minister for Business Heather Humphreys has secured agreement for a number of schemes and initiatives designed to support vulnerable but viable firms at particular risk from the UK exiting the EU without an agreement.

These would be activated on day one of a no-deal Brexit and the money behind them would become available to qualifying companies immediately.

The schemes include, for example, a new €45m Transition Fund that would be used to support businesses in the manufacturing and internationally traded services sector that need to adapt their business model and adjust their trading arrangements.

It will see supports of between €200,000 and €1m being made available to small or medium-sized firms with ten or more employees.

The funding will be offered either through a grant, loan or equity investment, depending on which is most appropriate.

It is also expected that a range of others schemes will be offered to further vulnerable sectors by other departments in the event of a no-deal Brexit, including in the areas of agriculture and tourism.

The Department of Social Protection looks set to receive additional funding to help with an expected increase in the numbers unemployed in such a scenario.

If there is a hard Brexit, the Exchequer is expected to move into a deficit of between 0.5% and 1.5% of GDP next year.

Some of this will be accounted for by spending on these Brexit mitigation measures. However, the contingency fund will only be used if there is a hard Brexit.

Additional financial assistance is also expected from the European Commission. Yesterday, Ibec said €1.5bn would be required over three years to assist companies most at risk from Brexit.

The discussions on Budget 2020 concluded just before 9pm last night, after more than an hour of talks between Minister Donohoe and a senior Fianna Fáil delegation, led by its finance spokesman Michael McGrath.

RTÉ News understands that some of Fianna Fáil’s key budgetary demands were met, including the recruitment of hundreds of additional gardaí.

It is believed Fianna Fáil has secured one million additional home support hours, at a cost of €45m, and a €25m boost in the budget for the National Treatment Purchase Fund.

One other concern, an increase in staff focused on special needs education, was also signed-off.

Earlier, representatives from the Independence Alliance held talks with the minister and it was agreed that thousands of additional people over 70 would become eligible for a medical card by increasing thresholds.

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Consumer sentiment falls to 6 year low on Brexit fears

Consumer sentiment falls to 6 year low on Brexit fears

Consumer sentiment here fell to a six-year low last month, the third month in a row in which it has fallen.

According to the KBC Bank Ireland Consumer Sentiment Index, Brexit uncertainty continues to drive people’s confidence in the economy and their personal finances lower.

“While the drop in confidence in September was notably smaller than in either of the two previous months, it was still sufficient to push the sentiment reading to its lowest level in nearly six years,” said KBC Ireland’s chief economist Austin Hughes.

“The last time the KBC sentiment index was lower than at present was in November 2013 when the index stood at 71,” he added.

September was also the first time since February 2017 that the survey of a representative sample of 1,000 adults found more consumers felt their household financial circumstances had worsened rather than improved over the last year.

The fall in confidence here contrasts with small improvements seen elsewhere in the globe, including the US, the Euro area as a whole and in the UK, with the differences attributable to two factors according to Mr Hughes.

“First of all, in terms of the factors influencing confidence among Irish consumers at present, it seems that Brexit concerns are not the main issue, they are the only issue,” he said.

“In the same vein, unlike their counterparts in other countries where the mood of consumers is being buffeted by uncertainty, Irish consumers appear now to be almost exclusively on downside risks.”

Consumer thinking here may also reflect scarring from the painful experience of the previous downturn, he added.

The data comes a day before the announcement of Budget 2020, where people traditionally expect some sort of measures to be unveiled that will give their finances a lift.

Three out of four of those questioned in the survey said any change to tax and welfare in the Budget would be important to their personal financial circumstances.

Nearly half of people looking to buy a home said their purchase prospects would worsen if the ‘help to buy’ scheme was ended.

One third of those suggested they would be prevented from buying in such a scenario.

There is a growing expectation that the Government will announce an extension to the scheme in tomorrow’s budget.

Mr Hughes said consumers will likely look for signs from the Budget that the economy and the public finances will not be devastated in the way they were eleven years ago.

He also suggested that consumer sentiment here, along with the economy, could be approaching a pivot point as Brexit negotiations approach decision time.

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Economy on course for over €600m surplus

Economy on course for over €600m surplus

The Government’s pre-Budget White Paper shows the economy is on course to deliver a surplus this year of €609 million.

The White Paper also shows another significant overrun on corporate tax receipts, which are €800m higher than forecast at the start of the year.

The White Paper is part of the architecture of the annual Budgetary process.

It sets out where the public finances would be at the end of the year, if the Minister for Finance Paschal Donohoe did nothing on Budget Day.

So far, the economy is performing stronger than forecast delivering a surplus of €609m this year compared to a broadly break even situation predicted at Budget time last year.

Evidence of this boost can be seen in corporate tax receipts rolling in €800m more than forecast, however, Government spending has also risen more than forecast.

It is running over €400m ahead with supplementary or extra funds required for Health, Justice and Education.

The White Paper also notes that the Irish contribution to the EU Budget is set to increase next year by a billion euro to €3.475bn.

Meanwhile, the returns from customs revenue is expected to almost quadruple from €366mto €1,241m, another indicator of the calculations behind a hard Brexit with potentially a hard border.

Speaking ahead of the publication of the White Paper, Minister Donohoe, said that a planned deposit of €500m into the ‘Rainy Day Fund’ will not be made this year as the Government is expected to have to borrow next year to deal with a possible no-dealBrexit.

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Blanket social welfare increase in Budget ruled out

Blanket social welfare increase in Budget ruled out

Discussions are continuing between Government departments throughout the weekend ahead of Tuesday’s Budget.

There is a particular focus on the Department of Social Protection, where an across the board increase in social welfare payments has been ruled out.

Instead any rise in payments is set to be confined to areas that would help children at risk of poverty and vulnerable elderly people.

This could mean increases in the Living Alone Allowance and the Qualified Child payment.

More home help hours for the elderly is another area that is being closely examined.

The extra revenue available for new Social Protection measures is understood to be around €150 million, which is well down on previous years.

There is also a limited amount of money for tax cuts. However, an increase in the tax credit for the self-employed is expected to be announced on Tuesday.

The Taoiseach has said there will be modest, targeted welfare increases in the Budget.

Leo Varadkar said this Budget has to be different because of Brexit, adding that the country cannot afford tax and welfare packages on the scale of the last three years.

Talks between the Minister for Finance, Paschal Donohoe, and Fianna Fáil are zoning in on ways of delivering more school places and services for children with special needs.

Ahead of the Independent Alliance’s meeting with Mr Donohoe tomorrow, a source close to Minister Finian McGrath said insufficient progress had been made around funding for the planned cystic fibrosis unit at Beaumont Hospital.

The Minister is seeking to have €350,000 released for work to progress on the design of the unit.

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Irish butter, cheese and pork among EU goods to be hit by US tariffs

Irish butter, cheese and pork among EU goods to be hit by US tariffs

A range of goods from the EU are to be hit with new US tariffs including Irish butter, cheese, liqueurs and pork products.

Irish whiskey made in Northern Ireland is on the list of products but Irish whiskey made in the Republic of Ireland appears to have been spared.

The new tariffs will take effect from 18 October and are likely to hit well-known Irish brands such as Baileys and Kerrygold.

The US Trade Representative’s Office released the list of hundreds of European products that will be subjected to new 25% tariffs in retaliation for EU aircraft subsidies.

The World Trade Organization authorised the US to impose duties on $7.5bn worth of European goods after it decided that the EU failed to end subsidies for Airbus.

“For years, Europe has been providing massive subsidies to Airbus that have seriously injured the US aerospace industry and our workers,” US Trade Representative Robert Lighthizer said.

“Finally, after 15 years of litigation, the WTO has confirmed that the United States is entitled to impose counter measures in response to the EU’s illegal subsidies.”

US President Donald Trump told reporters at the White House that the WTO ruling was a “big win for the United States”.

The EU is pushing for tariffs of around $10 billion on American goods in a parallel process to be decided by the WTO early next year.

‘No winners in a trade war’

Kerrygold owner Ornua has said that “disappointingly” it is one of many EU exporters that have become caught up in a tariff dispute that is outside of its control.

The dairy group said that any new trade tariff is an unwelcome barrier to doing business and will have a significant cost impact on its business.

Ornua also warned that if the tariff cost cannot be recovered in the market, it will negatively impact its supply chain.

“In anticipation of the WTO’s decision, we have been preparing our business by having appropriate risk mitigation measures in place,” Ornua said.

“That said, we urge both parties to reconsider the impact of these tariffs and we renew calls for a settlement to be reached that does not impact on companies and brands who are not directly involved in any aspect of this dispute,” it added.

Ornua is the country’s biggest exporter of dairy products and reported revenues of over €2 billion for last year.

Meanwhile, the organisation representing the drinks industry here has said it is disappointed and gravely concerned by US moves to impose tariffs on a range of imports, including some Irish spirits.

Drinks Ireland Director Patricia Callan said there are no winners in a trade war.

Ms Callan called on the Government to use the upcoming budget to support the industry by reducing excise on drinks products and by providing targeted support to Irish producers.

“We are disappointed and gravely concerned that both Irish cream liqueur (from Ireland and Northern Ireland) and Irish whiskey (single malts from Northern Ireland) will be subject to tariffs in their largest market, the United States,” Ms Callan said.

“We are particularly disappointed that, yet again, spirits categories have been dragged into a trade dispute about unrelated sectors, in this case aircraft,” she added.

According to the organisation, 78.5 million bottles of both Irish whiskey and Irish cream liqueur were sold in the US in 2018.

“These sales help support thousands of jobs across the US and in Ireland, north and south, including in the agricultural sector which supplies Irish barley and cream for these products,” Ms Callan said.

She added that the imposition of tariffs will have a highly-detrimental impact on the all-island economy and smaller craft distillers, particularly for Northern Ireland, as Brexit looms.

Bord Bia said the tariffs on Irish cream liqueur would cost Irish firms €33m a year.

“The imposition of 25% tariffs on Cream Liqueurs from Ireland to the US is unwelcome and will have a negative impact to US exports in the category,” the organisation said.

“However, given the strength of the brands involved and their long history of supplying the market they will continue to work with their importers and distributors to supply the US market.”

“Irish cream liqueur exports to the US were worth €135 million in 2018.”

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Sterling jumps to 8 day high

Sterling jumps to 8 day high

Sterling jumped to an eight-day high after the head of a group of euro sceptic lawmakers in Prime Minister Boris Johnson’s Conservative Party said the government’s latest Brexit proposals offered the possibility of a “tolerable deal”.

A weaker dollar on a weaker-than-expected US non-manufacturing purchasing managers’ index inflated the rise, sending the pound above $1.24.

“There does seem to be maybe some reason to be optimistic in terms of the Brexit plan,” said Jane Foley, senior forex strategist at Rabobank.

“We know this is not a done deal, but it hasn’t yet been written off” and this is what is exciting market participants at the moment, Foley said.

By 1430 GMT sterling was up 0.9% at $1.2410, an eight-day high. Against the euro, the pound was up 0.6% at 88.64 pence.

Traders remained unsure whether Johnson’s proposal to replace the Irish border “backstop” was going to morph into a final Brexit divorce agreement due to mixed messages coming from both sides.

“For sterling, as it’s often the case these days, the outlook is binary,” said Foley.

The so-called backstop is an insurance policy to prevent the return of a hard border on the island of Ireland, which has become the biggest hurdle to securing an agreement with Brussels.

The British government on Wednesday proposed an all-island regulatory zone in Ireland to cover all goods, replacing the so-called backstop arrangement, and was waiting for an official response from its European counterparts.

But a European Parliament Brexit group believes the new proposals “do not represent a basis for an agreement”, according to the draft of a statement seen by Reuters ahead of release later in the day. A senior European Union official said on Thursday that Johnson’s last-ditch Brexit proposal “can’t fly”.

Analysts say the market is largely sceptical that the EU will agree to Britain’s latest offer to avoid a no-deal departure from the European Union on October 31. But with hedge funds covering some of their short bets against the pound, the currency has held at current levels.

Just 28 days before the United Kingdom is due to leave the EU, both sides are positioning themselves for a delay or a disorderly no-deal Brexit. Johnson says he wants a deal but insists there can be no delay beyond the end of the month.

The cool reception from Brussels to Johnson’s proposal indicates just how far apart the two sides are on the first departure of a sovereign state from the EU, which was forged from Europe’s ruins after World War Two.

“It would be one monumental climb-down by the EU to go from a customs union backstop for either the whole of the UK or Northern Ireland with no time limit to a plan that does not entail a customs union and requires some form of border checks that has a potential rolling four-year time-limit attached,” MUFG analysts said in a note.

“But for now, the hope of some breakthrough may continue to provide GBP support, but we don’t see it lasting… We see building risks to the downside and expect the September lows to be tested pretty quickly in the coming days/weeks,” they said, referring to the $1.1959 three-year low hit in early September.

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Sterling unfazed by weak economic data, as Britain waits for EU Brexit response

Sterling unfazed by weak economic data, as Britain waits for EU Brexit response

Sterling was little moved today despite a surprise contraction in the services sector as investors waited to receive a formal European Union response to Britain’s latest Brexit offer.

The pound has found little direction in recent days, and is back where it was at the start of the week.

Britain’s economy appears to have tipped into recession, according to the latest IHS Markit/CIPS services Purchasing Managers’ Index.

The index fell by more than any economist predicted in a Reuters poll, tumbling to a six-month low of 49.5, below the 50 level that divides growth from contraction.

Despite this however, the pound managed a small rise and was last up 0.1% at $1.2315 while against the euro it was up 0.1% at 89 pence.

Analysts say the market is largely sceptical that the EU will agree to Britain’s latest offer to avoid a no-deal departure from the European Union on October 31.

But with hedge funds covering some of their short bets against the pound, the currency has held at current levels.

A European Parliament Brexit group believes the new proposals “do not represent a basis for an agreement”, according to the draft of a statement seen by Reuters ahead of release later in the day.

Should the EU reject Britain’s Brexit proposal, attention will turn to the “Benn bill” that compels the government by October 19 to seek an extension to Brexit until January 31, 2020, if no deal is reached during an EU summit on October 17 and 18.

But British Prime Minister Boris Johnson again told his Conservative Party at their annual conference yesterday that Britain would leave the EU on October 31 with or without a deal.

Sterling had enjoyed a strong rally in late September as investors bet that lawmakers would be able to stop a no-deal exit.

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Services sector sees slowest growth since May 2013 – PMI

Services sector sees slowest growth since May 2013 – PMI

The services sector grew at its slowest rate since May 2013 last month, a survey showed today, amid a softening of both foreign and domestic demand conditions.

The AIB IHS Markit Purchasing Managers’ Index (PMI) for services slipped to 53.1 in September from 54.6 in August.

While it still remains above the 50 mark that separates growth from contraction, this was the weakest rise in business activity since May 2013.

The services sector covers areas as diverse as communication, financial and business services, IT and the tourism trade.

The economy has largely weathered the disruption created by Britain’s 2016 vote to leave the European Union but increasing uncertainty around Brexit, due to happen on October 31, is starting to bite.

Total new orders increased at the weakest rate in 76 months, and export sales fell for the second time in the past three months.

AIB said that the sub-index for new business eased to 52.2 in September, a 76-month low that the survey’s authors said was due to Brexit uncertainty negatively affecting customer demand.

“The combination of weakening global activity and the growing risk of a no-deal Brexit, which has been weighing on manufacturing activity this year in Ireland, is now beginning to impact on the services sector according to the latest AIB PMI data,” the bank’s chief economist Oliver Mangan said.

“The September reading of 53.1 still represents a solid pace of growth in the services sector.

“However, recent PMI data point to a deceleration in the pace of activity in the Irish economy as the year has progressed, largely owing to external headwinds,” Oliver Mangan added.

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Euro zone inflation slows in September on cheaper energy

Euro zone inflation slows in September on cheaper energy

Euro zone inflation slowed further year-on-year in September because of cheaper energy, new figures showed today.

But the core measure excluding such volatile components rose, the first estimate from the European Union’s statistics office Eurostat showed.

The numbers underline the difference of opinion over the state of the euro zone economy among the governors of the European Central Ban.

The ECB wants to keep inflation below, but close to 2% over the medium term but has so far failed to boost price growth despite years of unconventional steps.

Eurostat said consumer prices in the 19 countries sharing the euro rose 0.2% month-on-month in September for a 0.9% year-on-year gain, slowing from 1% in August.

Economists polled by Reuters had expected a flat reading at 1% year-on-year.

The lower than expected September number was mainly due to a 1.8% year-on-year fall in energy prices.

Without energy and the equally volatile unprocessed food, or what the European Central Bank calls core inflation and watches in monetary policy decisions, price growth accelerated to 1.2% in September from 1.1% in August.

Also the even more restrictive core inflation measure, looked at by many market economists that in addition excludes alcohol and tobacco, accelerated to 1% from 0.9% year-on-year.

At its September 12 monetary policy meeting, the ECB decided to resume asset purchases designed to loosen monetary policy.

This decision was opposed by a third of the policymakers, including Germany’s Sabine Lautenschlaeger, whose decision to resign before the end of her term was announced last week.

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Jobless rate steady at 5.3% in September despite Brexit concerns

Jobless rate steady at 5.3% in September despite Brexit concerns

New figures from the Central Statistics Office show that the unemployment rate remained at 5.3% in September compared to August.

The jobless rate has crept higher in recent months due to Brexit concerns, but it is still very low compared to the financial crisis when it soared to 16%.

The country’s unemployment rate is also below the current euro zone average of of 7.4%.

Today’s CSO figures show that the seasonally adjusted number of people who were unemployed stood at 126,900 in September, down from 127,500 the previous month.

There was an annual decrease of 7,500 in the number of people without a job in September compared to the same time last year, the CSO added.

Today’s figures reveal that the seasonally adjusted unemployment rate for men in September was also unchanged at 5.5% from August, while the rate for women fell to 4.9% from 5.1%.

They also showed that the seasonally adjusted youth unemployment rate for persons stood at 14.8% in September, unchanged from the previous month.

Commenting on today’s figures, Pawel Adrjan, economist at global job site Indeed, noted that demand for staff was strong across most parts of the economy with the construction sector particularly competitive.

But the economist said the impact of a hard Brexit remains a considerable downside risk, with rural Ireland considerably more exposed than Dublin.

“The border counties of Cavan and Monaghan have the biggest proportion of jobs in Brexit-exposed sectors. Counties with a strong reliance on agriculture – including Tipperary, Wexford and Kilkenny – are also heavily exposed given the shock to food exports to the UK that a no-deal Brexit could mean,” he added.

Independent economist Alan McQuaid said that after the pick up in unemployment in the second quarter of the year, the falls in August and September are encouraging.

He said he believes the numbers in work will continue to rise on an annual basis over the remainder of 2019.

“The average jobless rate is now projected to fall to 5.2% this year from 5.8% in 2018. A jobless rate of 5% is currently forecast for 2020, but that assumes Ireland avoids a hard Brexit, Mr McQuaid said.

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