Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

The public capital programme is within the remit of the Minister for Public Expenditure and Reform, Deputy Paschal Donohoe, who will appear before the committee tomorrow. The Minister is better positioned than I am to answer questions on capital expenditure, how it is progressing and whether there are barriers to the system. All I know is that, as the fiscal space expanded and resources became available, we increased the amount of funds available for the public capital programme from what the level agreed when Deputy Brendan Howlin was Minister for Public Expenditure and Reform and Deputy Joan Burton was in government. Expenditure on that programme, which is to roll out to 2021, has been increased.

There is a difference in the manner in which capital expenditure is calculated under the fiscal rules where only one quarter is booked up front. Deputy Burton can ask the Minister for Public Expenditure and Reform about that tomorrow. He has a little more leeway on capital expenditure than on current expenditure.

The rainy day fund will only arise when we balance the budget and start running surpluses. It cannot arise this year because we are still borrowing and in deficit. However, it is proposed to put in place a rainy day fund from around 2018 and I will continue the work being done in the Department on this issue to ensure such a fund is put in place. One of the things that has bedevilled macroeconomic management in this country is the theory that, regardless of external or domestic circumstances, I will spend it if I have it. We have all deplored the boom and bust cycle in the economy, which has occurred in every generation and twice in some generations. All members are familiar with the theory of counter-cyclical interventions, according to which one does not stimulate an overheating economy and one stimulates an economy that is entering recession. Everybody has known this theory for years but in times of crisis, for example, the crisis that occurred in 2008-09, no money was available for the demand side of the economy. The purpose of a rainy day fund is to have money in place, which, if spent at the time the surplus accrues, could lead to overheating of the economy. The fund is used on the day the business cycle goes down and more spending is needed on the demand side. It would probably be spent on capital. I will not change the work being done on this matter in the Department. However, a rainy day fund will not arise until surpluses are recorded in the system. We believe we will be very close to nominal balance at the end of 2017. Under the new European rules, a balance is deemed to be plus 0.5%. It is not balance in the way we would traditionally understand it but it is in accordance with the rules.

A structural balance is more complicated and will probably be achieved in 2018. All going well, the economy will continue to grow at approximately 3.25% through the forecasting period and surpluses will accrue some time in the course of 2018. The Minister and Government of the day will then have choices to make. Will they spend everything they have, use the surplus to reduce taxes or put some of it aside? I believe it is possible to spend some of it, reduce taxes and put some of it aside, provided one does not try to do everything. A rainy day fund is a very prudent concept. The circumstances in which it would be spent would be a matter for the Government of the day. However, drawdowns should not be automatic but should proceed on the basis of criteria. We will work on that issue. That is my position on the matter. The rainy day fund will not start in this year's budget and will not arise-----