Rose Conway-Walsh (Mayo, Sinn Fein)
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The purpose of today's meeting is to resume our discussion on sovereign wealth funds. I welcome Mr. Svein Gjedrem, the Norwegian economist and former Governor of the Central Bank of Norway, to discuss the Norwegian sovereign wealth fund and what we can learn from it. Before we begin, I wish to explain some limitations to parliamentary privilege and the practices of the Houses as regards references witnesses make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. However, a witness giving evidence remotely from a place outside the parliamentary precincts may not benefit from the same level of immunity from legal proceedings as a witness physically present. Witnesses are again reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person or entity outside the Houses or an official either by name or in such a way as to make him, her or it, identifiable. I remind members of the constitutional requirement that they must be physically present within the confines of the place where Parliament has chosen to sit, namely, Leinster House, in order to participate in public meetings. I will not permit a member to participate where they are not adhering to this constitutional requirement. Therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting.

I invite Mr. Gjedrem to make his opening statement.

Mr. Svein Gjedrem:

I thank the committee for inviting me. As the Acting Chair mentioned, I am a former central bank governor in Norway. I also worked in the Ministry of Finance, the Treasury, for many years, ending my career there as a secretary general. I wrote my first note to my Minister on the Norwegian sovereign debt fund back in the early 1980s. That is my background. Now, I am also the chairman of the economic and development review committee of the OECD.

Can I please have some help with the presentation? Can the first page be displayed? I think that was the second one.

On the historical backdrop, Norway proclaimed sovereignty over the Norwegian continental shelf in 1963. It started to search for oil in 1966, discovered a huge oil field in 1969 and production started in the early 1970s. That production and the income from it is the source of the money that has gone into our oil fund. It is now called the pension fund rather than the oil fund, although it is not directly linked to public expenditure on pensions. There was a lot of discussion on how to deal with this money in the early 1970s. There was a White Paper on how the petroleum sector would affect the Norwegian economy in the 1970s. The petroleum taxation act was introduced in 1975, which was very important. The source of government income from the oil sector is taxation and direct ownership in the oil sector. The first proposal for creating a fund was in 1983. We developed that, and the petroleum fund Act came into force in 1990. The first deposit into the fund was in 1996, some 25 years after oil production started. It took a few decades before we got going with the fund. We had a lot of problems dealing with the oil income early on in the 1970s and 1980s.

The objectives for the oil fund in the short and medium were to improve welfare in Norway but also to avoid what we call the Dutch disease. Members may recall that in the Netherlands, gas was discovered in the huge Groningen field almost ten years before we discovered oil.

The huge Groningen gas field was not offshore but onshore. Based on that Groningen field and an optimistic view of the future, the Dutch started to spend a lot of money. They established a very high cost level and experienced a deterioration in the rest of the economy. That is called the Dutch disease. For us, it has been important in the short and medium term to avoid the kind of development the Dutch experienced based on the Groningen field. Also, there is a long-term objective of generational balance to which I will return.

We also looked into possible pitfalls connected with a potential oil fund. What we were very afraid of was that the oil fund would end up as Government budget number two for purposes not prioritised over the fiscal budget. It would make it easier to finance all kinds of expenditures over the fiscal budget through a kind of budget number two. It has been very important for us to protect the ordinary fiscal budget.

In addition, special interest groups, companies, groups of companies and other special interests would like to have their hands in the pockets and that could also reduce fiscal discipline with negative medium- and long-term impact. We also saw a need for avoiding a more lenient fiscal policy and budget policy in general.

The impacts of petroleum activities on the non-oil economy are more or less through two sources. The first is direct demand for goods and services from the petroleum activities in the North Sea towards the non-oil economy and the second is through the Government net cash flow and the use of Government oil revenues in the internal economy. The Norwegian domestic economy was open for demand in investment goods from the non-oil economy. That is open for an impact. When we have fluctuations in investment in the petroleum sector, it has an impact on the domestic economy. There is also the influence that arises when government spends the income from the oil sector.

The government take from the oil sector is very high. On the margin, the government takes 80% of income in the petroleum sector through taxes and other means.

If we look at petroleum revenues based on a generational approach, petroleum revenues have lasted for a generation or two in Norway. Nevertheless, they are temporary and very volatile. We look upon them not as income in a traditional sense but as income stemming from depletion of non-renewable natural resources. One very important objective of the oil fund is to transform windfall gain to a permanent increase in consumption. This is illustrated in the diagram on the slide. We had two or three generations of very high income from the oil sector but we want to use the oil fund to increase consumption, not only for these generations but for all future generations. That is one of the purposes of the oil fund. Then there is a need for separating current accrual from spending. We do that through the oil fund.

As for how the fund is organised, the right side of the next slide shows that all government incomes goes through the state budget but all petroleum revenue is transferred to the fund. The fund has two sources of income, namely, the government petroleum revenues and the return on investments. The fund can only invest abroad, not domestically.

There is only way to spend money from the fund, that is, through a general transfer to the state budget. That transfer equals, each and every year, the non-oil deficit. That means that we do not build up net assets or debt in the state budget. All government net financial savings go through the oil fund. When taking decisions on the transfer to finance non-oil deficits, we use a fiscal policy guideline that states that, over time, we could spend the fund's expected real return. When that rule is followed, it means that we save the oil wealth for all future generations. We spend only the real return from the fund, not the capital itself, and we are not building up deficits in the state budget. The fund, therefore, represents all net public financial investments.

The core principles are shown in the next slide. The first is that all government petroleum revenues are transferred to the fund, including the return on the fund. The second is that transfers from the fund may only be made to the fiscal budget. It is a general financing of the fiscal budget so that transfers are not earmarked for any specific purpose. These days, as I mentioned, it is called the government pension fund but it is in reality a general financing not earmarked for any specific purpose. The third principle is that the annual transfer is always equal to the non-oil deficit in the fiscal budget. That means that the fiscal budget will always be in balance as long as there is capital in the fund. All net financial savings take place in the fund. Lastly, the fund is invested abroad only.

To look back to the purposes of the fund, taking all the money and investing it abroad contributes to avoiding a Dutch disease. It means that we do not build up an unsustainable cost level in the domestic economy by building down the non-oil sector too fast or too much. That is important. When these core principles are followed, it also means that we preserve the oil wealth for all future generations. By investing only abroad, it also means more protections against special interests that want to put their hands in the pockets.

That is also an important part. It also means that the fund is not invested for special purposes, so it is not a budget No. 2 in parallel with the ordinary fiscal budget.

The fiscal rule, as I mentioned the petroleum revenue should be phased into the economy in line with the development in expected real return of the fund. To start with, we estimated the real return at 4% but adjusted that down to 3% from 2018. There is also an emphasis on stabilising the economy, with emphasis on a smooth and sustainable phasing in of petroleum revenues into the economy through the fiscal budget. Automatic stabilisers are allowed to operate with a focus on non-oil structural deficit. Discretionary fiscal policy is not ruled out. It means that in bad times when there is low activity in the domestic economy, we can spend more than this 3% rule, whereas when the domestic economy is tighter then we should spend less than this 3%. Fiscal policy should have a medium-term and long-term orientation of course.

The investment strategy is premised on fund objective, investment beliefs and fund characteristics and the highest possible long-term financial return within an acceptable level of risk. The investment strategy is characterised by broad diversification in almost all equity and bond markets in the world; by harvesting of risk premia; a moderate degree of active management; responsible management including cost efficiency in the management, and also of course transparency.

I will not go into detail on the investment strategy over time. It is anchored in the Parliament so that the most important choice for the Government and of the risk profile is the choice of the equity part of the fund. Starting in 1998, 40% was invested in equities. That increased to 60% in 2007 and to 70% in 2017. That actually means that the absolute risk in the fund is quite high. The reason for that of course is that the fund is capable of handling large losses in the short term in order to get a long-term return from equity investment.

On the slide on display, market development is expressed in Norwegian Krone in billions. These days, we have to pay 12 Norwegian Krone per bond euro. At the end of 2022 the size of the fund was approximately €1,000 billion. This is quite large for a country with 5 million inhabitants. It has gradually increased over the years.

That was my last point. I thank the committee for the opportunity to present briefly on this.

Rose Conway-Walsh (Mayo, Sinn Fein)
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I thank Mr. Gjedrem for taking the time out to be with us today in order to discuss this very important issue. We are hoping to learn from many of the things he has learned on his journey. I now open the floor to members. Is anyone from the Green Party online? As láthair. The Fianna Fáil party is next. Deputy Aindrias Moynihan has ten minutes.

Aindrias Moynihan (Cork North West, Fianna Fail)
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I thank Mr. Gjedrem for the presentation. It sounds really interesting. I had a couple of points to ask about but he has half answered some of them. I want to understand what motivated the original establishment of the fund. What were the big drivers? I also want to understand how funds get into it. How are they levied? For example, any petroleum taxes collected by the State seem to go into it but is there a kind of carbon tax siphoned off beforehand that goes towards a just transition? How is it established what funds go in? How are they identified? It is interesting that it is not invested in any Norwegian funds. I get what Mr. Gjedrem said about why that would be the case. Are they not investing therefore in their competitors? Do Norwegian companies find that some of it is already invested in their competitors? I am interested to know that.

We are looking towards wind energy. I am trying to get a handle on how Mr. Gjedrem might think a similar fund could work in that case. He also said that it took about 25 years between the start of production and the first lodgments into the fund. What were the big impediments to that? Might he have identified a work-around on that? What lessons can we take from it?

Mr. Svein Gjedrem:

I thank the Deputy for those questions. In regard to the background for establishing the fund, the discussion on that started in the early 1980s as I mentioned. It took some time. Actually back in the early 1970s a clear policy was defined for dealing with the oil money but the fact was that in the 1970s and early 1980s it was very difficult to follow those recommendations from economists and others. There was a lot of optimism established in the early 1970s. The community overall and the political community saw a possibility to build up the welfare state quite fast in the 1970s. We actually ended up with quite a lot of instability in our economy with high inflation as in many other countries but even higher. During the 1980s we had instability. Some members may remember, or perhaps they are too young for that, but oil prices increased greatly in 1973 and 1974 and again in 1979 and 1980. That created a lot of optimism in Norwegian society. However, then there was a huge decline in oil prices in 1986.

We learned a lesson the hard way. We did not start well when dealing with the highly fluctuating oil income. It was only in the 1990s that we got the house in order and had a clear understanding of the need to manage the oil fund in a better way as it developed.

Aindrias Moynihan (Cork North West, Fianna Fail)
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Does that mean that it did not really take 25 years to get it up and running and that the timescale was actually much shorter?

Mr. Svein Gjedrem:

Yes. We worked on it while I was at the Ministry of Finance and had some responsibility for working on the model. As members may remember, there was a major Scandinavian economic crisis in the late 1980s and early 1990s. It involved a banking crisis and all kinds of other difficulties. At that stage, a decision was taken that, in future, our economic policies would need to be more stability-oriented and that we would need to deal with the oil money in a different way than we had in the 1970s and 1980s. We learned the hard way how to deal with it.

When it comes to what kind of income------

Aindrias Moynihan (Cork North West, Fianna Fail)
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I might focus on the gap between the decision to set up the fund and when the money started flowing into it. Were there blockages along the way?

Mr. Svein Gjedrem:

A decision on the law to set up the fund was taken in 1991. The model had broad support in our parliament and among ordinary people all the way along, more or less. From the point the fund was established to when the first money came in, it took five or six years. In the meantime, the fiscal budget was running a deficit. All the oil money went to financing that deficit. Money started coming into the fund on a net basis in 1996 or 1997. The-----

Aindrias Moynihan (Cork North West, Fianna Fail)
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I am sorry for interrupting and rushing, but I am conscious of time. How does Norway decide how much goes into the fund? How does it levy contributions?

Mr. Svein Gjedrem:

All Norwegian Government oil money goes into the fund. The three sources of our oil income are taxes, direct government ownership of shares in the oil fields and surpluses from Equinor, an oil company that is part-owned by our government. We take all of the oil money into the oil fund and the fund has to finance the non-oil deficit in the fiscal budget. Petroleum income goes into the fund and we transfer enough of it into the fiscal budget to finance the fiscal deficit.

When deciding on the non-oil deficit, we follow a fiscal rule – the government should, over time, only spend the expected real return from the fund. As such, there is a link between the real return and the fiscal deficit. When considering establishing a fund, it is important that Ireland not let the fund's size impact the fiscal trajectory of its ordinary budget. There is a temptation to have a fiscal deficit and to spend more in the budget while building up a large net fund. Having a rule so as to avoid slippages in the ordinary fiscal budget is important.

I will respond to the Deputy's question on the reason for not financing domestic companies. In the 1970s and 1980s, there was pressure from Norwegian companies that wanted our government to co-finance their internationalisation as a passive co-owner of their foreign investments. There was also a great deal of interest in using oil money to stimulate the building of a financial centre in Oslo. It was important that we avoided doing so, though. These days, companies have access to capital in national and international markets and do not need to be supported by the Norwegian Government. There used to be a great deal of discussion on this matter, but it is accepted nowadays.

The oil fund can mostly only invest in public markets. To some extent, it can also invest directly in wind energy internationally, but not domestically. However, that is only a small part of the fund. The fund's main purpose is to maximise the real return on investments based on a clear approach to risks and politicians are not directing it towards special purposes.

Rose Conway-Walsh (Mayo, Sinn Fein)
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I thank Mr. Gjedrem. I will take Sinn Féin's slot. It will be followed by Fine Gael, People Before Profit and Labour at ten minutes apiece.

What was the response of the oil and gas companies to the 80% tax levy that went directly to the Norwegian Government?

Mr. Svein Gjedrem:

It has not always been popular, that is for sure. There is a special tax.

The return from investments in the oil sector, although fluctuating all the time, is very high. That has to do with the fact that oil resources in the world market are limited so an extra return is available, over and above a normal return on investments for other companies. We call that an economic rent. Since the 1970s, Norwegian society and politicians have been clear that the economic rent, that is, the expected return from investments in the oil sector over and above normal returns, belongs to the Norwegian people. It is an investment neutral tax, that special tax on the economic rent, in the sense that it is a tax on the cash flow from the oil sector. That means they can immediately deduct investment costs from the investments. That means it is neutral when it comes to the investment decisions of the oil companies. It means that an investment that is economically viable before tax also will be economically viable after tax. That is, of course, acceptable to the oil companies. The tax system has been stable over time, which has also been important for the oil companies.

Rose Conway-Walsh (Mayo, Sinn Fein)
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I thank Mr. Gjedrem. I want to set that in context with our own oil and gas exploration. I come from the community of the Corrib gas project and we have had much experience in that regard. We have followed the Norwegian model for many years now. The fund has built up in Norway. We do not have such a fund.

I wish to ask about scale and the correct response to managing a surplus. Is that dependent on the size of the surplus? The Government is projecting a substantial windfall in corporation tax in the coming years. However, even the projection of €65 billion to 2030 is a modest figure when compared to the €1 trillion in the Norwegian fund. No decisions have been made. We have considerable infrastructural deficits and regional imbalances to consider in the context of that €65 billion. Does Mr. Gjedrem agree that the scale of the surpluses dictate the correct policy response? At what scale of surplus would he recommend that a State should begin to look at the Norwegian model of a sovereign wealth fund? Does the projected surplus in Ireland meet those criteria?

Mr. Svein Gjedrem:

The thoughts that have been expressed on that issue in Ireland are promising. There are two elements to the income Ireland gets from international companies that have established themselves by opening a European office in Ireland. Those companies give quite high incomes to Ireland but we do not know if that will last. Ireland may have that for five, ten, 15 or 20 years but it might go away thereafter. The uncertainty in the long term is one consideration. That income might also fluctuate a lot. If Ireland was to spend it all when income is high, there will be a problem when that income declines. That was the case in respect of our oil income. That income has lasted longer than we thought possible but it has fluctuated a lot. That can create many problems in the domestic economy. If you have a very high and fluctuating income from one kind of source and you spend it on good things, such as infrastructure you need, including railways, roads, energy support and whatever else, you have to expect that your cost level will be influenced and that will have a crowding out effect on other industries. That is important to take into account.

For the longer term, as I understand it, Ireland, like many other countries, has an issue with pensions and increases in long-term pension expenditure. There is a case for saving money for the longer term. It is important to take care not to run into cost problems - the Dutch disease, as we call it - due to high and fluctuating incomes. It is also important to consider how to use the money to solve the long-term pension financing issues in the Irish economy. The number mentioned by the Cathaoirleach Gníomhach, although not as high as our oil income, is substantial. If it is spent domestically, that will influence Ireland's cost level. It will have a structural impact on other parts of the Irish economy.

Rose Conway-Walsh (Mayo, Sinn Fein)
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I will ask about risk. Is it fair to say that the risk seen as acceptable by the fund has increased over the years and that despite this increase in how risk has been viewed, the real return has declined? What are the global investment dynamics that have led to those changes?

Mr. Svein Gjedrem:

Our early expectation was that we would have a real return of 4% over time. That was adjusted down to 3% because the overall long-term growth prospects for the world economy are not as high as was the case in the 1990s and early 2000s. That is the real economy background. Real interest rates are also much lower. The expected return from equities and bonds are lower than we thought would be the case ten, 15 or 20 years ago. That is the reason. Lower expected growth in the world economy is very important. Financial investments and real investments depend on the long-term real growth of the world economy. That is the background.

The return from the fund has been higher than the real return. The return since the start has been higher than 4%. With that experience in mind, 3% seems to be quite conservative when we look backwards. However, looking forward, we think it is a realistic estimate. The return fluctuates a lot. Last year, we had a negative real return of almost 20% due to the high equity part. That was on the back of many years with very high returns. In 2008, we had a negative return of 23%. Even though we had two years with a very negative return, over time we have had more than a 4% real return from the fund.

It is the huge fluctuations in the return when you invest in equities that also give the long-term high return from equities. It is a compensation for the risks that we are willing to take.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I thank Mr. Gjedrem. That was very interesting. I want to get some idea of the numbers. How much revenue is going in each year? I am sure it varies, but could he give me some idea of what kind of figures we are talking about?

Mr. Svein Gjedrem:

It is fluctuating to a very large extent. The gross figure last year was extremely high. There was more than €100 billion in one year in inflow. In 2017 and 2018, if I remember the numbers, it was more like €20 billion or €30 billion. The biggest reason for what happened last year was due to the very high gas price. It fluctuates a lot, but the numbers in some years are very high. In the same year that we had a negative real return of almost 20%, we had a huge inflow to the fund.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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If I understand correctly, Mr. Gjedrem says that they only use the returns that the funds generate and that, roughly speaking, the level of the return, at about 3%, is what will then be transferred to the structural deficit. Am I right in saying that the sort of deficit figures we are talking about, which presumably set the kind of spending limits for the Government in any given year, if we are talking about a fund of €1.2 trillion, that a 3% return on that is €36 billion? Am I in the right sort of ballpark? That is the deficit that the finance minister will say: "We have got €36 billion to play with this year above and beyond other revenues from oil." If there is no return, or as Mr. Gjedrem says, a minus return, does that mean there is no scope for additional spending in that year? Is that it? Is it the case that if there is a loss, there is not going to be a transfer from the fund?

Mr. Svein Gjedrem:

No. We use the expected long-term real return. So whatever happens, we spend. As a rule, it fluctuates at around 3%. If there is a need for spending more to stabilise the domestic economy, we can spend more than 3%, and less than 3% in good times. The fiscal budget is still used for stabilisation purposes, but over time we spend the real return. We are not looking at the return for each year when decisions are taken on how much to spend. It is the long-term expected return. We do not spend a heck of a lot of money in good years and then very little in bad years for the fund; it is stabilised over time. The numbers were not that far away from being exact. The deficit and the transfer are approximately 10% of domestic GDP and these days it finances 20% of fiscal expenditure. One in five krone that the Norwegian Government spends comes from the oil fund, but it is sustainable because we spend only the expected return from the fund.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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These are ultimately temporary revenues that the state is getting, even if they have lasted for a generation. I do not know how much longer they will last, but whatever it is, there is a certain point at which they will run out and then the fund will run out unless another way is found to replenish it.

Mr. Svein Gjedrem:

The oil income will run out at some stage. Looking at the climate, we hope that the demand and need for oil and gas might come down sooner rather than later. Nevertheless, looking at how things go, it will probably last another generation with income from the oil sector. That is one part of it. We do not spend the capital in the fund. If you have a bank account and you have saved a lot of money in it, and you only spend the real interest that you own, then your bank account can be transferred to the next generation. That is the way. We look at this as a saving; we do not spend the capital, only the real return. It is like transferring something to the next generation. At one stage, it will not increase any more because we will have spent all of the return and then the oil income will stop and the fund will stop increasing. Then we will only have the returns.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I am not second-guessing Mr. Gjedrem, but I want to be the devil's advocate from our point of view in thinking about this. If, at a certain point, additional revenues cannot be put in, and one fifth is coming from oil revenues, when the oil runs out there is quite a deficit to make up. Why would the money not be used while Norway has it to diversify the economy and try to find other sources of revenue that will be more sustainable when it has that big block of capital? One question I have in that regard is very relevant to us. We are developing wind energy at the moment. There is talk of offshore wind projects. Mr. Gjedrem might have a comment on this. Incidentally, unlike Norway's model for public ownership of its natural resources, our Government is going for private ownership of the offshore wind projects that it is going to develop. It seems to me that much of the revenues are going to go to private companies and they are not going to flow into the State's coffers. I am curious about Norway in that regard. Is it investing in wind energy, for example, while it has this temporary revenue? Is Norway developing a new energy source that can also begin to develop revenues and diversify the economy away from a dependence on oil, which is temporary? Does Mr. Gjedrem understand my question?

Mr. Svein Gjedrem:

The Norwegian Government is, like Ireland, trying to develop a wind energy industry at sea, and also on land, but there are protests against onshore investments, so they are looking for offshore investments. The Government is willing to subsidise those investments. There is no economic rent as yet in these investments. They are costly and there is a need for subsidies.

Those subsidies are financed over the fiscal budget like other expenditures. They are not financed by the oil plant itself. Of course, Norwegian companies want to invest in wind in both Ireland and Norway, and they try to earn money on that, but, as yet, there is no economic rent. There is an economic rent in energy production from our waterfalls, on hydro-energy, and that is taxed in the same way as the oil companies in our case by the government saying that the return over and above normal return is owned by the people and by the government.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is it projected that there will be an economic rent from the offshore renewable investment in the medium to long term, and will that revenue go to the public?

Mr. Svein Gjedrem:

If a new industry is developed and there is a development whereby access to land or to the sea is limited such that an economic rent is established, I would guess that the government will look into that. We have a kind of special tax, as I mentioned, on oil and gas production, on hydro-energy production and now also on fish farming. There are limits on access to the ocean for fish farming. In all those areas it is relevant, but I think it will be many years before we will see an economic rent from offshore wind farms.

Rose Conway-Walsh (Mayo, Sinn Fein)
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We will move on to our next contributor. Thank you for bearing with us, Mr. Gjedrem. Deputy Nash is next.

Gerald Nash (Louth, Labour)
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I thank Mr. Gjedrem for being with us and for sharing the benefit of his vast knowledge, wisdom and experience on this very important policy issue with which we are grappling in this country. It is a nice problem to have in terms of our future development and being responsible with the windfall revenues we anticipate from our corporation tax regime over the next few years, uncertain and all as that is into the future. This is a really important and far-sighted initiative by the Norwegian Government a number of decades ago and it was without doubt a responsible thing to do for future generations.

My first question is about the investment strategy. I say this as a former Minister of State. Undoubtedly, it is a good thing that investment strategy is not the creature of the Government or the party political system because that ensures certainty, security and consistency of policy into the future, regardless of the complexion of the Government of the day. On the investment strategy, I have two related questions. First, I imagine that the idea of diversifying the strategy is, first, to minimise risk and, second, to arguably avoid a deadweight effect on the Norwegian economy and on Norwegian enterprises. In other words, the fund ought not to get in the way of investment that should ordinarily occur in terms of a government's political or economic strategy or get in the way of the development of enterprise in the normal way, in a free but regulated market.

Mr. Svein Gjedrem:

Yes. It is very well diversified. We are invested in equities in most markets internationally but not in the Norwegian economy, as I mentioned. This fund owns on average, I guess, 1.25% of the international equity market - noted on bourses, of course - so we own quite a large part. The strategy is not very much active management so it is diversified all over the international markets. That is important. Of course, neither the Norwegian Government nor the Parliament is involved in individual investments or in directing investments in special ways. It is general. The overall absolute risk at the type of the fund is well anchored in the government and parliament. That is very important as well.

Gerald Nash (Louth, Labour)
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Of course. I am impressed to hear that the strategy appears not to be one of active management. We know from the experience of, for example, pension investment over the years that all the evidence shows that funds that are passively managed perform as well, if not better, in the longer term. While we accept and understand that the government is not directly involved in the day-to-day management of the fund and the various investments and so on, would Mr. Gjedrem say that the fund in a Norwegian context is in any way an instrument of Norwegian foreign policy? In other words, Norway has its own set of values and its own ethical and moral framework, as Ireland does, and it could be argued that we have a similarly informed foreign policy in view of our own place in the world, our soft power and the influence we can have on the world. Would Mr. Gjedrem therefore describe the Norwegian approach to the investment fund as an ethical one? Is it, by extension, an extension of Norwegian foreign policy? In other words, are there kinds of investments with which the Norwegian fund would in principle not involve itself?

Mr. Svein Gjedrem:

The answer to that is "Yes". There are responsible investments. If there are companies not fulfilling reasonable ethical standards, the fund should disinvest from those companies. We are not investing in tobacco companies. We are not investing in some companies that have an activity with an impact on the environment. That is not acceptable. There are therefore companies we withdraw from based on some general principles. There is also an active communication between the fund as an owner of companies and the companies on ethical issues in the companies. As the committee will know, in most companies and in the world it is not black and white; there is a lot of grey. Companies can, and most are willing to, improve their ethical standards through a good dialogue with their owners, so we take part in that kind of dialogue with companies as well.

Gerald Nash (Louth, Labour)
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I understand that. That is important and something we can take note of as a committee as our work informs the development of a potential fund in an Irish context.

I think a degree of political consensus is emerging in Ireland that we should also develop a fund of this nature. In scale, it will clearly not be close to that of the Norwegian fund, but I think the principle is accepted that this is an approach we are going to take. It is a responsible approach. Would Mr. Gjedrem say the presence of a fund of this nature has a stabilising effect overall on the economy? There is evidence to show that over the years Norwegian debt levels and the cost of servicing the Norwegian national debt have been lower because the presence of this fund has a reassuring impact on the international bond markets. Would it be fair to say that?

Mr. Svein Gjedrem:

I guess so. In real terms, it has had a major impact on economic development and stability in the domestic economy. If the fiscal budget had been adjusted along with fluctuating oil incomes, as to some degree did happen in the 1970s and 1980s, we would not have had the kind of stability in our economy that we actually have had. Of course, we have a strong fiscal position. The government is in a position where there is not a great need to issue government bonds. This is because we have all these assets, so we do not have to borrow so much. We are financing the fiscal deficit with the general transfer from the fund. The interest rates on Norwegian government bonds are very low. The most important part is the stabilising of the real economy because of this fund.

Gerald Nash (Louth, Labour)
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I understand. There is no point in having prosperity without progress. We have many capacity issues here. In some ways, that is because of our macroeconomic success and fiscal position. There are big deficits in our public services. We now have not a once-in-a-generation opportunity to get things right but probably the best opportunity we have had since the foundation of the State. The forecasts we have present us with the opportunity to do some pretty transformational things for the people of this Republic. These are opportunities we simply did not have in the past, so we need to get this right. Will Mr. Gjedrem point to one or two specific transformational things the fund has enabled Norway to do which it would not otherwise have been in a position to do were it not for the existence of the fund?

Mr. Svein Gjedrem:

Many elements of our welfare state would have to be discontinued if we did not have this fund. For example, we basically have a pay-as-you-go pension system. The expenditures would have been difficult to manage without having access to this money in the long term. This has been important for our welfare state. The fund has also enabled the government to invest more in infrastructure in the last ten years or so than would otherwise have been possible. It is important to say that it has been possible to do this sustainably so the economy in general is not overheating due to these investments. Financing is done in a responsible way. Of course, this income, which is 10% of GDP, is very important. That is also the reason I think the fund will not be reduced in the future. I do not think any finance minister would be the one who started to diminish this fund that finances 20% of government expenditure. When Ireland has its fund in place, I think the country will love it.

Rose Conway-Walsh (Mayo, Sinn Fein)
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Just to check who we have online, do we still have Deputy Michael Healy-Rae? No, and Deputy Canney has also left the meeting.

Patricia Ryan (Kildare South, Sinn Fein)
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I thank Mr. Gjedrem for being here. I appreciate his time. In what condition was Norway's infrastructure, healthcare and pension pot when the fund came into being? Regarding this State, would Mr. Gjedrem suggest starting another fund if our infrastructure or healthcare system is lagging?

Mr. Svein Gjedrem:

I think it is risky to base investment in the health sector and building up a better health sector on income that is uncertain and short term. If more money is invested or spent on hospitals and health in the municipalities in the context of a desire to build these services up, it is important that this investment is based on stable, long-term income and not on income that might last two, three, five or six years and fluctuate a great deal. That is an important point to bear in mind.

Additionally, what is important in all countries when it comes to long-term public investments is the need to establish in the fiscal budget a sufficiently high level of public investment to develop a country's infrastructure, energy system, road network, public transport system and so on and so forth, and to maintain this investment at a stable level over the longer term. Such investment should be financed with ordinary income through the fiscal budget and not through money accruing in the short term. That is an important point.

Patricia Ryan (Kildare South, Sinn Fein)
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Do I have time to ask another question?

Rose Conway-Walsh (Mayo, Sinn Fein)
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A vote has been called in the Chamber and I think it will go into the voting block. With the agreement of the committee, I will adjourn the meeting rather than leave our guest hanging on for what may be the entirety, given that the voting block may last longer than normal. Is that agreed? Agreed. We have the extensive statement of Mr. Gjedrem and his presentation. We have had some very valuable contributions from him this afternoon too. Would he like to say anything to conclude?

Mr. Svein Gjedrem:

No, other than to wish members good luck with their deliberations when it comes to establishing a fund in Ireland based on the high income from international companies. I wish the country good luck with that.

Rose Conway-Walsh (Mayo, Sinn Fein)
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I thank Mr. Gjedrem for being with us today.