Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I am grateful to be afforded the opportunity to deal with the draft ministerial order on the National Pensions Reserve Fund Act 2000. The draft ministerial order being discussed by the committee today will, if approved, formally suspend the payment of the annual contribution of 1% of GNP from the Exchequer to the National Pensions Reserve Fund in 2012 and in 2013.

Both the budget for 2012 and the budget that has been just announced for 2013 are based on the assumption that the contribution will not be made in those two years. Suspending the contribution will also fulfil a commitment made as part of the EU-IMF programme that we would not make contributions to the fund while the programme is in place. We are on track to meet our deficit target for 2012, as we did in 2011. The current estimate of the 2012 general Government deficit is 8.2% of GDP, which is well within the 8.6% limit set.

Budget 2013 is designed to achieve a deficit of 7.5% of GDP while being as equitable and as fair as possible and fostering economic growth.

Budget 2013 marks the eighth announcement of consolidation measures since mid-2008. All told, and including budget 2013, close to €29 billion in budgetary adjustments or more than 17% of estimated GDP in 2013 will have been implemented. Against this background, and taking account of the fact that we still have some way to go to achieve the target of a general Government deficit of 3% of GDP in 2015, making a contribution to the National Pensions Reserve Fund in these times is not realistic. The State simply does not have the capacity to borrow this much money in addition to what it has borrowed already and continues to borrow. If we were to make the contributions to the NPRF this year and next, it would have to be at the expense of other public expenditure. I am confident Deputies will recognise the validity of this fundamental point and support the making of this order.

The background to this issue will be familiar to Deputies. The National Pensions Reserve Fund was established in 2001 by the then Minister for Finance, Mr. Charlie McCreevy. Mr. McCreevy's decision was one of the most enlightened and sensible measures taken during the period in question given that no one could have foretold subsequent developments. The position in 2008 and 2009 would have been inordinately worse had it not been for the National Pensions Reserve Fund. While the former Minister is criticised for many reasons, he cannot be criticised for establishing the pensions reserve fund as this rainy day money has been useful to the State in responding to the crash of 2008 and 2009.

The National Pensions Reserve Fund Act 2000 requires that an annual contribution equivalent to 1% of GNP is paid from the Exchequer to the NPRF each year. The legislation was amended in 2009 to allow the Minister for Finance to direct the National Pensions Reserve Fund Commission, which is responsible for the investment and management of the fund, to invest in the banking system to improve the capital position of the banking system. Following the enactment of the amending legislation, the Minister for Finance directed the commission to invest €3.5 billion in each of Allied Irish Banks and Bank of Ireland through the purchase of preference shares. The Minister directed the fund to invest a further €3.7 billion in AIB in December 2010 and €8.8 billion in 2011 and an additional €1.2 billion in Bank of Ireland in 2011, bringing the total investment in the two banks to €20.7 billion.

The National Pensions Reserve Fund legislation was further amended in 2010 by the Credit Institutions (Stabilisation) Act 2010. The changes included a provision allowing the Minister for Finance to suspend, by order, the Exchequer contribution to the NPRF in 2012 and 2013. This made sense in terms of the need to ensure overall Government debt, which is expected to peak at around 121% of GDP in 2013, is kept as low as is reasonably possible. As I indicated, this decision also fulfils a commitment made as part of the EU-IMF programme that we would not make contributions to the fund while the programme is in place.

On the implications of the draft order we are discussing, the State paid a total of €3 billion to the fund in 2009 to help cover the cost of the directed investments in the banks. This figure consisted of €1.6 billion in respect of 2009 and a further €1.4 billion as an advance on the liability for future years. In addition, under the Financial Measures (Miscellaneous Provisions) Act 2009, the assets of the pension funds of 16 university and non-commercial State bodies were transferred to the NPRF in 2009 on the basis that the pension liabilities of the bodies in question will be met in future on a pay-as-one-goes basis. The value of the assets transferred was credited against the annual Exchequer contribution to the fund.

Taking these additional contributions together, there was no requirement for an Exchequer contribution to the National Pensions Reserve Fund in 2010 and 2011 and the liability for 2012 would be €369 million. The liability for 2013 would be €1.339 billion on the basis of the GNP figure published with the budget. The suspension of the contribution to the fund in 2012 and 2013 means the Exchequer does not have to fund a total of €1.708 billion and this reduces the pressure on the public finances accordingly.

Looking to the future, the remaining non-bank, assets in the fund, which are referred to as the discretionary portfolio, were worth €5.975 billion at the end of September 2012. The programme for Government includes a commitment to use the assets of the National Pensions Reserve Fund for productive investment in the economy. The Government announced the establishment of the strategic investment fund, SIF, in September 2011. This fund will channel commercial investment from the National Pensions Reserve Fund towards productive investment in the economy, following appropriate legislative changes to the investment policy of the NPRF. As well as money from the National Pensions Reserve Fund, the strategic investment fund will seek matching commercial investment from private investors and target investment in areas of strategic significance to the future of the economy.

A key principle of the strategic investment fund is that the NPRF investment, which is to be solely on a commercial basis, will seek matching investment from third party investors. In this way, the fund's assets can be used as a catalyst to attract additional capital for investment in the economy. In addition, the fund has been working closely with NewERA in respect of investment opportunities relating to the commercial semi-State sector.

The National Pensions Reserve Fund Commission also announced, in November 2011, a commitment of €250 million to a new infrastructure investment fund which is seeking up to €1 billion from institutional investors in Ireland and overseas and will invest in infrastructure assets in Ireland, including assets designated for disposal by the Government and commercial State enterprises, and new infrastructure projects.

The National Pensions Reserve Fund has committed, subject to certain preconditions, €450 million to finance the national roll-out of domestic water meters. As the Minister for Finance noted in his Budget Statement last week, the fund is also developing a range of support funds to provide equity, finance and restructuring and recovery investment to the small and medium enterprise sector. The funds are expected to range in size from €100 million to €400 million.

To return to the draft order to suspend the 2012 and 2013 contributions to the National Pensions Reserve Fund, I trust Deputies will approve the order as part of the Government's budgetary plan to restore order to the public finances and help rebuild the economy.