It is “blindingly obvious” that Ireland should set up a new long-term reserve fund in which to invest the massive corporation tax (CT) receipts expected in the coming years, according to Minister for Finance Michael McGrath.
The Fianna Fáil TD said such tax receipts will not last indefinitely, there are “enormous” costs coming down the line related to Ireland’s ageing population and “we have to make provision for the future”.
He called the proposal to set up a new long-term reserve fund “a once in a generation opportunity to make our nation’s finances safer.”
His remarks came as he published a Department of Finance paper entitled Future-proofing the Public Finances – the Next Steps.
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Mr McGrath and his department are developing detailed proposals on how to use forecast budget surpluses of €65 billion up to 2026.
The proposals are to be brought to Government in the coming weeks.
At a press conference on Wednesday, Mr McGrath said his view – which received “strong support” at Tuesday’s Cabinet meeting – is that the forecast surpluses should be “substantially” used to set-up of a long-term savings vehicle and that the Government would also be open to debt reduction.
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He added that he is willing to consider “additional targeted public capital investment” where it can be shown that funding rather than the capacity of the construction industry to deliver a project is the constraint.
Mr McGrath said the need for a new long-term fund to invest the expected surpluses in is “blindingly obvious” to provide for huge costs in the future, when asked if such a fund was a way of batting off pre-budget spending demands from ministers and Government backbenchers.
He said there will still be room from recurring tax receipts for a “significant budget package” and there will be tax and welfare measures in this autumn’s budget as well as improvements in public services and an increase in the public capital programme.
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Mr McGrath added: “This is a separate issue ... it is about ensuring that these (CT) receipts that could well prove to be temporary, are not being used to fund commitments that will have to be met long after these receipts could potentially disappear.
“And that for me is so obvious that we have to make this provision.”
He said proposals for the fund will be worked on in the coming weeks and they will have to be brought to Cabinet along with a formal request for approval to prepare legislation to allow it to be set up.
Mr McGrath said “as much detail as possible” on the fund will be provided at the time of the Government decision and the Summer Economic Statement on how it would be built up into the future.
He said there are many issues to be decided including how much of any surpluses is set aside each year for a new fund, how the money would be invested, when should the fund begin to be drawn down, and how much of the surpluses should be used for debt-reduction or capital projects.
Mr McGrath pointed out that the forecast surpluses are not guaranteed and also that the “standstill” cost providing services to an ageing population is expected to be €7 billion to €8 billion higher in 2030 than at the start of the decade.
He said: “The analysis set out in my department’s paper shows that even if all windfalls are saved, the fund would not be sufficient to finance all ageing costs.”
