Ireland has to learn the lessons of the “boom-bust approach to public capital investment”, Minister for Finance Michael McGrath has said as the Dáil passed legislation to create two new funds to deal with future spending pressures and potential economic shocks.
He also defended the Government’s approach to the funds as Sinn Féin finance spokesman Pearse Doherty claimed the legislation “is far too rigid, lacks flexibility and risks unintended consequences for the State’s fiscal and economic policy”.
Under the Bill a new sovereign wealth fund, the Future Ireland Fund, will be created with 0.8 per cent of gross domestic product (GDP) generated from corporation tax receipts invested annually, starting this year, to support State spending from 2041 onwards.
An annual €2 billion will be invested from 2024 to 2030 in a new Infrastructure, Climate and Nature fund designed to ensure that capital spending is maintained in the event of a future economic shock.
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The Minister said the Future Ireland Fund and Infrastructure, Climate and Nature Fund Bill has been “widely commended by the Irish Fiscal Advisory Council, the Central Bank of Ireland, the European Commission, the OECD, and a list of ratings agencies and other independent experts, both domestic and international”.
He added that “an alarm bell is ringing and we must take heed of it and take on board all of the expert advice that we are getting in that respect”.
“The demographics will not look after themselves. These are costs that are coming very quickly in the years ahead. I refer to the cost of an ageing population, healthcare, home care and decarbonisation.”
Mr McGrath also said “there is a need to learn the lessons of the past and the boom-bust approach to public capital investment. If we encounter a shock or we have another downturn, which we inevitably will, if we do not set up these funds the response will be to slam the brakes on public spending when it comes to infrastructure.
“It is the last thing a government should do. When the economy is weak we should invest through the economic cycle, lean against the wind, invest in housing, transport and all of the infrastructure we need. That is what the second fund does.”
Mr Doherty said his party supported the establishment of sovereign funds, particularly a countercyclical investment fund. But he said what mattered was how it was designed and that the legislation “falls short”.
The annual investment of 0.8 per cent of GDP, about €4 billion currently, would rise to €5.4 billion in 2030. These were “significant sums” and come “at an opportunity cost in respect of monies that could otherwise be invested in areas such as housing and infrastructure, which we cannot afford to neglect”, he said.
The Donegal TD said the State is projected to run an Exchequer deficit in 2026 and 2027. “Under this legislation, the State would, while running a deficit, transfer €4.3 billion into the fund in 2026 and €4.5 billion in 2027.
“We have concerns about the implications for other areas, such as tackling the Government’s housing crisis, of enshrining this provision in law.”
He said the funds could be invested inside or outside the State “and there’s a risk that money allocated to this fund will be predominantly invested abroad and in search of higher interest yields”.
This brought “a massive opportunity cost to the State, an opportunity to invest in Ireland” in critical infrastructure and in less economically developed regions, in offshore wind capacity”, he said.
Mr Doherty said “it would be a missed opportunity should other jurisdictions benefit from the investment under the fund while the State continues to face significant challenges in housing and infrastructure, challenges that are holding back the economy”.
The Bill was passed by 77 to 34 votes and will be debated in the Seanad next week.
