€1bn Brexit hit for taxes as consumers worry
Brexit fears will cost the Government €1bn in lost tax revenues this year as Irish consumers rein in spending, according to a major survey.
The survey by KBC Bank and the Econonomic and Social Research Institute (ESRI) reveals that what it calls the "Brexit blues" pushed its measure of consumer sentiment in July back to the level of November 2014 — when the economic recovery was still uncertain.
The hardline remarks of Boris Johnson had already weighed on Irish consumers even before his coronation as prime minister in the Tory Party ballot, said the bank’s chief economist Austin Hughes.
“We previously noted that Irish consumers appear to be markedly more sensitive to emerging downside risks around Brexit than their UK counterparts,” said Mr Hughes, adding that one of the reasons may be that “the painful experience” of the economic crash is still fresh in people’s minds here.
Mr Hughes estimates the dampening effect on consumer morale in the Republic since the summer 2016 UK referendum will cost the Irish exchequer €1bn in lost revenues from Vat and excise duties this year alone.
The estimates are based on the gap between the rise in Irish household incomes and lagging consumer spending that has opened up since the UK vote three years ago.
The reality of a crash-out Brexit may mean more than €1bn in tax revenues is lost to the Government, if “people get more nervous and tighten their belts more”, said Mr Hughes.
The contrast between a fairly buoyant consumer in Britain with a worried household in Ireland may also be explained that the knowledge about the damage to be caused by any re - emergence of a hard border is just so much more acute here than with the British.
Finally, for many UK consumers, the particular economic and wider fallout associated with the border that a crash-out Brexit raises do not resonate to anything like the same degree than they do in Ireland.
"These considerations are likely to make Irish consumers altogether more aware of the risks and reality of Brexit than many of their UK counterparts. As a result, the divergence in the July sentiment readings on either side of the Irish Sea is not entirely surprising,” said Mr Hughes.
The survey posted a reading of 85.5 in July, down from June’s 90.5, with readings on the general economic outlook and consumer plans to make large purchases having fallen sharply since July 2018, according to KBC and the ESRI.
Meanwhile, European stock markets were weighed by further concerns about a global economic slowdown and political concerns over Hong Kong, with London’s Ftse 100 and the Euro Stoxx indices falling by up to 0.3%.
Sterling got a respite from its worries over Brexit and a possible early UK election after plunging last week against both the euro and the dollar. However, financial bets against the pound have continued to pile up.
“It is fitting to witness a short-term rebound for sterling against the dollar and euro, on a day when short positions against the pound have climbed to a two-year high,” said Chris Beauchamp, chief market analyst at online broker IG.
“Talk of political paralysis would suggest the medium term path is still down, but even a brief snap back rally over the next few days could be dramatic.”
Sterling ended at $1.207 and at 92.81 pence.
