Mr. Oliver Gilvarry:

I thank the Cathaoirleach and members of the committee for the invitation and the opportunity to attend to discuss the future Ireland fund and infrastructure, climate and nature fund Bill. As outlined, my name is Oliver Gilvarry and I am the assistant secretary of the banking and financial stability division of the Department. I am accompanied by colleagues from the Department, the NTMA and ISIF.

I want to outline the general scheme of the future Ireland fund and infrastructure, climate and nature fund Bill. The general scheme was agreed by Government in October and the drafting process is currently under way with the help of the Office of Parliamentary Counsel. The Bill seeks to establish two funds, which are the future Ireland fund and the infrastructure, climate and nature fund. The structure, along with the retention of the Ireland Strategic Investment Fund, provides a basis to save and invest resources to deal with known and unknown long-term pressures on expenditure facing the State; supports counter-cyclical expenditure and helps to address specific climate and nature issues; and maintains a stream of investment in the domestic economy though ISIF.

The Bill can be considered to be in three main parts. The first is the establishment of the future Ireland fund. The second is the establishment of the infrastructure, climate and nature fund. Finally, there is the management of these funds by the National Treasury Management Agency.

I turn to the future Ireland fund. Over the coming decades, there are expected to be significant pressures on both public expenditure and revenue which face the State. These pressures have been outlined in the Department of Finance’s scoping paper in early 2023, by the Irish Fiscal Advisory Council and by the Commission on Taxation and Welfare. These costs are not solely related to the ageing of the population, such as increased pension costs, increased demands for healthcare and long-term care, but also from the impact of climate neutrality and the digitalisation of economies, including our own. For each year from 2024 to 2035, 0.8% of GDP will be invested in the future Ireland fund. That roughly equates to €4.3 billion in 2024. In 2024, an additional €4.1 billion from the National Reserve Fund will also be transferred. The investment returns will be maintained within the fund, helping it to grow through returns on returns, which is otherwise known as compounding. The fund will be maintained over the longer term, with the returns on the fund used to support Government expenditure, thereby benefiting future generations. No payment is envisaged from the fund until 2041. This allows the fund to build up over time through investment and compounding so that it can contribute significantly to public expenditure needs from 2041 onwards and thus for future generations.

I turn to the infrastructure, climate and nature fund, ICNF. In Ireland, fiscal policy has tended to be pro-cyclical and capital spending has been particularly susceptible to pro-cyclicality over the years. An adequately capitalised fund is a good means to support counter-cyclical fiscal policy. It is also recognised that there are increasingly significant environmental challenges, not just in climate but also in degradation in the biosphere and impacts on water quality. Each year, €2 billion will be invested in the ICNF, from 2024 to 2030, building a total contribution to the fund of €14 billion. The contribution in 2024 will come from the dissolution of the National Reserve Fund. Any investment return will be retained within the fund.

The ICNF has two components, which are support for climate and nature projects and counter-cyclical support for infrastructure projects. The climate and nature component is subject to a cap of €3.15 billion in expenditure from 2026 to 2030. This is intended to fund capital projects when specific objectives have not been met for climate such as reductions in greenhouse gas emissions or in the areas of nature and water quality, such as the deterioration in areas of special conservation or reductions in biodiversity. When access to that element of the fund is triggered by the relevant Ministers, the process will be managed by the Minister for public expenditure with guidance developed by his Department.

The counter-cyclical element in the ICNF has substantial value in cushioning future economic shocks and maintaining growth-enhancing investment through periods of lower or negative growth. The creation and existence of this fund will ensure that the State has resources available in a future downturn to support capital expenditure through the business cycle, instead of reducing capital expenditure in a pro-cyclical manner. In turn, this would avoid generating backlogs in capital projects due to a lack of spending during economic downturns. Up to 25% of the fund, less any commitments made to climate and nature expenditure, can be used in one year. The Minister for Finance and the Minister for public expenditure would co-ordinate this process so that the necessary amount is drawn from the fund in one year. This is to ensure that the resources of the fund are deployed appropriately.

Both funds will have a broad investment policy set out in legislation and post enactment a more detailed investment strategy will be prepared by the NTMA with input from the Ministers for Finance and public expenditure. The heads of the Bill provide for the funds to be vested in the Minister for Finance and managed and controlled by the NTMA. The funds would be subject to audit by the Comptroller and Auditor General.

As I had referred to earlier, it is intended that as part of the development of these funds, the National Reserve Fund would be discontinued and its assets allocated to the future Ireland fund, with €4.1 billion going to it, and with the getting ICNF €2 billion in 2024.

The intention of this legislation is to enable the State to put aside resources to manage the future challenges we know we will face in the coming years. It will also help to support capital spending in downturns, preventing a repeat of past occurrences where capital projects were delayed or cancelled due to economic downturn. This will be alongside supporting Ireland's climate and nature commitments, in the event we are missing or are likely to miss stated targets in those areas. I and my colleagues are available for questions.