Brexit hazard looms large on annual risk assessment

A possible British exit from the European Union could pose a risk to the stability of the union itself, the Government has been warned in an annual update of the strategic challenges facing Ireland.

The Cabinet yesterday considered the National Risk Assessment 2016 document which highlighted a possible Brexit as one of the main international concerns. Minister for Foreign Affairs Charlie Flanagan also updated his Cabinet colleagues on the issue.

A memo for Cabinet on the risk assessment document listed both national and international challenges. A dependence on corporation tax receipts was cited as a possible domestic risk.

The issue of Brexit was also included in the same briefing document in 2014 and 2015 but the latest version added: “Since then, a date for a referendum on the UK’s membership of the EU has been set for the 23rd June 2016. As a result, the significance of this risk for Ireland has escalated this year. Brexit also presents a risk to the stability of the European Union itself, which has also been challenged by mass migration flows.”

It also listed further devolution in the UK and “related political developments” as another risk, while adding that the threat of terrorism had become more acute in the past year.

“Another geo-political risk which has become more prominent since 2015 is that of terrorism. Domestically the threat of an attack related to international terrorism is rated as not likely but events in 2015 and early 2016 in other countries demonstrate that it is possible,” it said.

Economic growth

On the domestic front, a dependence on corporation tax from the multinational sector is seen as a concern.

“Strong economic growth also had a beneficial effect on the fiscal position. Approximately €45.6 billion was collected in taxes in 2015, which was €3.3 billion ahead of target. The bulk of these above-profile tax receipts (70 per cent) came from corporation tax which points to a previously-identified risk in relation to dependency on the multinational sector.”

The ongoing housing challenge also ranked among the highest concerns.

The latest update said that although the Central Bank mortgage lending rules “appear to have moderated the rate at which house prices have been increasing, continued under-supply of housing has led to a shortage of accommodation, particularly affordable accommodation, and consequential increases in rents and homelessness”.

Although it noted the economy was growing at a stronger rate, it said this “may also risk leading to expectations that restraints on public expenditure can be relaxed, thanks to the increased buoyancy of Government revenues”. It added: “An improving economy also poses challenges in the provision of infrastructure. Investment in necessary infrastructure declined during the recession and serious pressure points are emerging in a number of areas, particularly with regard to housing, transport and water infrastructure and services.”