budget Archives - Devine Accountants

EU to suspend budget rules as ECB relaxes regulations

The European Commission has said the EU would suspend its strict rules on public deficits to allow governments to open the money taps to face the coronavirus pandemic.

In an unprecedented decision, Brussels triggered something called the “general escape clause”, giving countries free rein to “inject spending into the economy as needed,” EU chief Ursula von der Leyen said.

The temporary measure effectively halts strict oversight by Brussels of national spending and will be welcome in Italy, the country suffering most from the novel coronavirus and one often in violation of EU rules.

EU finance ministers are widely expected to formally approve the clause next week.

Meanwhile, the European Central Bank has relaxed some of its regulatory controls over banks in response to the coronavirus pandemic.

In a statement this afternoon, the ECB said regulators, including the Irish Central Bank, would temporarily exercise ‘flexibility’ when it comes to classifying debtors as ‘unlikely to pay.’

This will apply to banks that call on government established credit guarantees as well as in the case of ‘Covid-19 public moratoriums’.

In Ireland’s case, this would be the recently announced three month payment break for personal and business customers impacted by the fallout from the pandemic.

The statement lists a number of other regulations where flexibility will be shown given the ‘extraordinary nature of current market conditions.’ 

Elsewhere, the European Commission has said it’s ready to consider backing common debt issuance in the euro zone to help the bloc weather the massive economic impact of the coronavirus outbreak.

“We are looking at all instruments and whatever helps will be used,” Commission President Ursula von der Leyen told German radio Deutschlandfunk.

“This also applies to coronabonds – if they help and if they are correctly structured, they will be used.” 

The comments from the Commission president, a member of Chancellor Angela Merkel’s conservatives in Germany, which has long resisted pooling debt with heavily indebted European Union members such as Italy, suggest consensus is now building for such a step. 

Prime Minister Giuseppe Conte of Italy, which has lost more lives in the pandemic than any other country including China where it began, has called for special “coronavirus bonds”, or a European guarantee fund, to help EU states finance health spending and economic rescue programmes.

Germany, the bloc’s biggest economy, resisted common euro zone debt issuance at the height of the 2008 financial crisis that pushed the shared euro currency to the brink of collapse.

Asked about Conte’s bonds proposal, Merkel said earlier this week that euro zone finance ministers were discussing measures to support their economies but no conclusions had been reached. 

German Finance Minister Olaf Scholz has said member states with higher debt levels should have the fiscal leeway for stimulus packages. 

“The same thing applies to debt rules – we are loosening them so that states have every opportunity to use financial resources. We are looking at everything – everything that helps in this crisis will be used, because we’ll support our economy without ifs or buts,” Ursula von der Leyen said.

EU Economics Commissioner Paolo Gentiloni said today that the European Stability Mechanism (ESM) – the euro zone’s bailout fund – would be in the best position to issue coronabonds needed to fund emergency measures. 

The bonds “are market operations and must be launched by financial structures. The most suitable is the ESM,” Gentiloni said. 

He added there was still no decision but “discussions must continue.” 

The idea of a coronabond issued by the ESM has the support of some European Central Bank policymakers as well, a source told Reuters this week.

Further afield, in its latest effort to pump funds into the economy, the US Federal Reserve has announced new measures to enhance liquidity in state and municipal money markets.

The program will be administered by the Federal Reserve Bank of Boston and make loans to financial institutions secured by high-quality assets such as tax-free municipal bonds.

The effort comes on the heels of myriad earlier central bank steps to add liquidity amid large investor liquidations during an economic shock.

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EU budget summit ends with no agreement

A marathon EU summit called to set the next seven-year budget ended in impasse tonight after the 27 member countries failed to find common ground.

The two-day gathering saw a stand-off between poorer countries and “frugal” member states seeking to rein in spending.

The departure of the UK means there will be a hole of up to €75 billion in the EU’s €1 trillion budget for 2021 to 2027.

EU leaders have been trying to bridge that gap while also shifting more resources towards the fight against climate change and the costs of managing migration.

Taoiseach Leo Varadkar said no date had been set for a follow-up meeting.

He added: “I very clearly outlined the position of Ireland, which is that as a wealthy prosperous economically successful European country we are willing to contribute more to the budget over the next seven years, but not if that meant payments to Irish farmers and important programmes like regional development, social development and Interreg were cut back.

“These programmes, particularly the Common Agricultural Policy, are essential for the incomes of farmers, also for the rural economy, for regional development.”

Differences were “still too great to reach an agreement”, German Chancellor Angela Merkel told reporters at the end of the two days of talks.

She but added “we are going to have to return to the subject” of the budget, the multi-annual financial framework, which is meant to be operational from next year.

“Unfortunately we have observed it was not possible to reach an agreement, we observed we need more time,” said European Council President Charles Michel, who had called the extraordinary summit.

Mr Michel was speaking at a separate briefing alongside European Commission President Ursula von der Leyen.

Ms von der Leyen said the disagreement was a sign of EU “democracy”. “It’s worth it to work hard to move forward,” she said.

Dutch Prime Minister Mark Rutte said the Netherlands is willing to pay more into the next EU budget but the figures must take into account the Brexit hole.

“We are willing to pay more because we are accepting that the budget will go up with economic growth and inflation,” Mr Rutte told reporters, but stressed the reality of losing Britain’s contributions must be taken into account.

He said a late proposal aimed at breaking the deadlock was rejected by beneficiaries of the EU budget just as much as the “frugal” camp.

Italian Prime Minister Giuseppe Conte said the next EU budget must not contain rebates for net payers.

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Significant gaps as EU budget negotiations to resume

EU leaders will resume negotiations this morning on the seven year budget after failing to make any breakthrough in talks late last night.

There are still significant gaps between bigger net contributors and poorer member states over the size of the budget and what the spending priorities should be.

Leo Varadkar is expected to join the negotiations this morning following yesterday’s Dáil vote and his resignation as Taoiseach last night.

The departure of the United Kingdom means there will be a hole of up to €75 billion in the EU’s €1 trillion seven year budget.

EU leaders have been trying to bridge that gap while also shift more resources towards the fight against climate change and the costs of managing migration.

The so called Frugal Four of the Netherlands, Austria, Sweden and Denmark are determined that the budget should be no more than one percent of Europe’s economic output.

They and Germany want to maintain a series of rebates that traditionally offset their large contributions, which will be even larger now due to Britain’s departure.

Following multiple bilateral meetings last night between leaders and European Council President Charles Michel it was clear there would be no breakthrough. 

German Chancellor Angela Merkel left the summit around 11pm last night as did French President Emmanuel Macron, a clear signal that talks would have to resume today.

Ireland wants to maintain farm spending at current levels, but under the current proposals the Common Agriculture Policy would see a cut of up to €53bn.

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EU leaders face tough negotiations over budget

EU leaders will gather in Brussels in an attempt to reach agreement on the next seven-year budget which faces a shortfall of up to €75 billion due to the UK’s departure.

A number of richer countries want to limit the increase in the budget to 1% of gross national income, but they are facing strong resistance from net beneficiary member states.

Taoiseach Leo Varadkar will travel to the summit after today’s Dáil vote.

He has pledged to defend the Common Agriculture Policy, which is facing stiff cuts, according to the latest proposal.

Some of the bigger contributors – the so called Frugal Four of the Netherlands, Austria, Denmark and Sweden – want to keep the budget increase to a minimum, while central and eastern European member states insist on defending cohesion funding, the money that helps poorer countries catch up.

There are also demands on EU spending that have not been there before.

The European Commission wants to spend a lot more on fighting climate change, and to pay for the costs of managing migration from the Middle East and Africa.

European Council President Charles Michel has been trying to bridge the gap, shifting tens of billions here and there.

Under his latest proposal there will be a cut in the CAP budget of around €53bn.

The Netherlands has insisted its four way coalition has already agreed the national budget for four years and will not tolerate any increase in Dutch contributions to the EU budget.

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Fuel prices rise as Dáil passes Budget 2020 carbon tax increase

Fuel prices rise as Dáil passes Budget 2020 carbon tax increase

Some key taxation elements of Budget 2020 were passed by the Dáil last night, including the controversial increase in the carbon tax.

The number of deputies who voted in favour of the measure was 97, with only 36 opposing the increase and two TDs abstaining.

Accordingly, both petrol and diesel increased by 2 cent a litre at midnight.

The move was part of a Government plan to increase the price of carbon from €20 to €80 a tonne by 2030.

Taoiseach Leo Varadkar defended the increase in the carbon tax, saying it was about protecting the most vulnerable and addressing climate action.

“What we have done today is really significant,” he told RTÉ News last night.

The increase will come into effect for other fuels from May next year after the winter heating season.

Minister for Finance Paschal Donohoe said the funds raised would be ring-fenced to fund new climate action measures.

However, there was criticism of the move from members of the Opposition.

People Before Profit TD Richard Boyd Barrett said the €6 increase in the tax was regressive and punitive.

He said it would increase fuel bills for those who are struggling.

However, Green Party leader Eamon Ryan said it did not go far enough, saying it was a status quo Budget from a status quo Government.

He said it did very little when it comes to tackling climate change.

Sinn Féin’s Finance spokesperson Pearse Doherty said the Budget should have done more to give workers and families a break.

Labour leader Brendan Howlin said the poorest cohort of people would be worse off as a result of Budget 2020.

Other measures that were passed included increasing the price of 20 cigarettes by 50 cent, hiking the bank levy and also increasing stamp duty on the sale of non-residential property by 1.5%.

There were also measures passed to counter tax avoidance by large real estate funds.

Social Democrats co-leader Roisin Shortall said her party fully recognises the huge challenges facing the country in respect of Brexit, but the threat should not be used as some kind of cover for the Government in not addressing domestic issues in the Budget.

Speaking on RTÉ’s Morning Ireland, she said there were a number of challenges such as the housing crisis and serious problems within the health service and what was seen yesterday was an attempt to ignore these issues or address them adequately.

The Chief Executive of Irish Rural Link said rural communities are disappointed with the increase in carbon tax.

Séamus Boland said people will “take it on the chin” but the tax, which is designed to change behaviour, probably will not have the required effect because most people cannot afford to change.

Mr Boland added that the cost is even greater for households dependent on home heating oil and called for retrofitting to be made available “across the board” to low income households.

Further statements on the Budget will be heard in the Dáil shortly after midday, while Minister Donohoe will be on RTÉ’s Today with Sean O’Rourke from 10am.

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Ireland was a net contributor to the EU budget in 2018

Ireland was a net contributor to the EU budget in 2018

Ireland was a net contributor to the European Union budget to the tune of €315m in 2018, according to the latest report by the EU’s financial watchdog.

The sum represents an increase from €173m in 2017 and €181m in 2016.

However, officials expect Ireland’s budget contributions to rise further in the event of a no-deal Brexit, if member states insist on meeting the EU’s current spending ambitions.

The 2018 annual report by the European Court of Auditors shows that Ireland received €2.6bn in EU funding, with the vast majority coming in the form of farm subsidies.

Of €1.56bn in overall agriculture receipts, some €1.22bn was received by way of direct payments, and €319m in rural development funds.

Overall, the report says EU spending in 2018 amounted to €1.56bn. This represents 2.2% of the total government spending of EU member states and 1% of EU gross national income (GNI).

The annual audit says the estimated error rate in member states receiving and disbursing funds was 2.6%, compared to 2.4% in 2017 and 3.1% in 2016.

Officials from the Court of Auditors say they cannot estimate the impact of a no-deal Brexit on the EU’s accounts, since they can only audit after such an event has occurred.

Estimates vary as to the hole in the EU’s budget if the UK leaves without a deal and declines to pay its outstanding liabilities incurred during membership.

In a post for the Brussels-based think tank Bruegel, economist Zolt Darvas estimated that, had the UK left without a deal at the end of March, the total Brexit hole in the budget until 31 December 2020 would have amounted to about €16.5bn, or 0.066% of the EU27 GNI.

Under the Withdrawal Agreement, the UK would have been expected to pay around £39bn STG to meet its current and future liabilities.

However, the longer the UK stays in the EU, the higher those liabilities will become.

In April, the EU adopted emergency measures that would allow the UK beneficiaries to still receive EU funding for research and agriculture in the event of a no-deal Brexit.

This would be for contracts already signed and decisions made before the Brexit date, so long as the UK continued paying its contribution agreed in the EU budget for 2019.

Officials from the Court of Auditors believe that all member states, including Ireland, would have to pay more if the UK does not honour its liabilities in a no-deal scenario.

In a note to the Finnish presidency of the EU, reported by Politico, the German government said it would seek an increase in EU spending of no more than 1% of GNI over the seven year period.

“Losing the UK as one of the largest net contributors to the MFF (Multi-annual Financial Framework) means that even with this limit, contributions of the remaining Member States will increase significantly,” the note said.

However, officials from the Court of Auditors point out that member states have also demanded that the EU increases spending in the areas of security and migration.

The MFF, which is the EU’s seven year budget cycle, sets out spending plans and commitments from 2021-2027.

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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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