Pearse Doherty (Donegal, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

As I said to the Minister, section 8 is the meat and bones of the legislation, so we should take a bit of time on it and hopefully then make progress on the rest of the legislation. I support the establishment of the funds but I am opposed to the idea that we set down in legislation that a percentage of GDP would go into the fund at a set point in time and that the Minister would have the ability to restrict it to half of that amount if there is a deterioration in the public finances. That is subjective. It will be up to the Minister at the end of the day to get his or her officials to write a report to give support to it because no actual criteria are laid down specifying whether there is a deterioration in the public finances. What we could see is a gradual reduction of the general Government balance, which may not be determined as a deterioration or a sudden deterioration, and that would leave us in a situation where we would have to borrow to put money into the fund, or indeed where the Minister would make decisions because the legislation specifies it rather than investing in housing. We have not said that we will put X amount of the size of our economy into supporting housing, which is the major issue that all of us face, or at least people across the State face, whether they are young or older, in terms of access to housing and affordability.

In the way it is drafted, this legislation restricts the hands of future governments. That being said, let us be clear, a future government will come in and just change this legislation and then that would be the case. If I were Minister for Finance I would not commit to 0.8% of GDP to be put in the fund in any given year without knowing whether that type of funding was available to us and the impact of making those provisions in any given year vis-à-vis other needs. I say that in particular in relation to capital expenditure, which in my view needs to have a catch-up programme because of the fact that capital expenditure for the past ten years had reduced - in fairness, it has been since the Minister's party was last in government when it drove the economy off the cliff- to the levels it did. We need a catch-up programme to allow for that type of one-off expenditure. I say that because, as I mentioned in our previous session, the fund is a good thing. I supported the transfer of more than €4 billion into the fund last year. I believe that transfers can be made this year. Given the fiscal outlook, I believe it is possible to meet the 0.8% the following year as well, while also meeting the needs of housing and other challenges. It may become more challenging in the years ahead.

I ask the Minister to address those comments. I also am conscious that in legislation like this, this is not the first time in which a number or percentage to be transferred into funds has been stated in legislation.

The Minister's predecessor, Deputy Donohoe, had to bring resolutions before the House in three different years to say we would not make the transfers. It is one thing putting it down in legislation. I also do not know why he stipulates a number if in some cases it is not possible to reach it. I could ask questions about how this measure commits us to putting in 0.8% of relevant GDP in 2035. None of us know what the GDP of the country will be in 2035. We do not even know what it will be in 2028, given that the SPU has not given us figures beyond 2027. None of us know what the general Government balance will be at that time, yet we are legislating for this. We really need to look at the SPU. It is okay to sit here on the finance committee and say we should put 0.8% of the general Government balance into a fund for the future but that will translate into real numbers and real cash. Between that and the infrastructure and nature fund, you are talking about €6.2 billion in 2026. That number will increase as the size of the economy increases. In that same year, we will have an Exchequer deficit of almost €2 billion. In his contribution, will the Minister walk us through what that means, because the general Government balance that year will be €8.6 billion? That sits in two places, namely, the Social Insurance Fund and in these two new funds. The general Government balance is less than the amount we would transfer into those two funds in that year, giving us an Exchequer balance. Will he talk us through what that would mean in relation to making the funding available in that given year?

I will outline my big concern. The stability programme update is based on a 5% expenditure rule. In fairness to the Government, it developed that rule but also in fairness to it - it is consistent - the Government has never met the rule. It has always breached the rule since it has been in government, that is, since 2020. In some cases, the Government is starving public services of the funding they require. Some of what is in the SPU is laughable. Look at the contingency reserve fund. The SPU came out two weeks ago and our surplus is reduced by €4.5 billion overnight. Why? Because the one-off contingency reserve, which the Government was saying up until budget day was year by year, will now be projected out for a number of years to 2027, which is as long as the SPU projects the numbers. Does the Minister believe that the contingency reserve of €4.5 billion is likely to continue beyond 2027 because if it does, that will obviously impact on the general Government balance? The majority of our contingency reserve, approximately €2.6 billion of the €4.5 billion, is made up of the issue of Ukraine and the immigration challenges the country faces. I have made the point to the Minister and his officials that it makes sense to project that over a longer period because these needs will not disappear overnight. There is €1.3 billion in Covid expenditure and that is where it is laughable. That is €1.3 billion in Covid expenditure the Minister believes will still exist in 2027. Everybody knows that is core health expenditure. I am saying that some of it is laughable, because it was not done last year and it was not put into the base, just as it was laughable that the contingency reserve was not being projected beyond one year.

There are a couple of moving parts in this regard. The other part is that we are not fully clear on the full impact of the OECD BEPS process. What is projected into our figures for the coming years is a reduction in corporation tax of €2 billion, beginning in 2026. However, that number could change and the funding available to the Government could change. That is why I have concerns about this specific number. None of us around this table can say whether 0.8% of general Government balance will be available to put into these funds in any of the years ahead. None of us know whether half of that will be available or indeed how that could be funded.

My other point was about the inflexibility of this measure. In any of these years there could be a situation where the Government does not have €4.5 billion to put into the future Ireland fund. It may not even have half of that, €2 billion, but it may have €1.5 billion surplus it would like to put in. However, from my reading of the legislation you cannot put the €1.5 billion in because it is 0.8%, 0.4% or zero. That is problematic. The legislation allows the Government to go above 0.8% as a one-off payment, but from the way it is drafted I understand that it can only go above it when it is making the payment. There needs to be flexibility on that. When we look at the legislation and how it is drafted beyond 2035, it allows for discretionary payments to be made into the fund. I think that is the appropriate way we will have surpluses. For example, it is likely that pillar 1 will not take effect in 2026, but we are hopeful that it will, which will be very much down to external players, in particular the US. Even if the Government were to decide soon and to legislate for it, it is unlikely it will take effect in 2026. If that is the case, there would be a significant turnaround in the general Government balance. We projected a €2 billion reduction in corporation tax that year as a result of pillar 1. If that does not happen, the €2 billion reduction - and more - will be there for us. Having the ability to make discretionary payments into the fund is therefore a positive thing but none of us can project what will be available in the future.

My big problem is that if you were to do this on the numbers, the contingency reserve, and the potential greater impact of pillar 1 and pillar 2 when it takes effect, then the Government is not building the houses we need. It is not building them. It cannot do that, because it is stuck to its figures. Its capital expenditure increase is less than €1 billion per year. How will we ramp up the type of housing we need - social, affordable, cost rental - while also meeting the needs of this fund? We will deal with amendments later on that stipulate how the funds can support the issue of housing. My problem is that under the law, this will force the Government to make a decision which has a higher hierarchy that housing and that is my serious problem in this regard. Some of these windfall receipts need to be used for the catch-up programme to build social, affordable and cost-rental homes. I believe we can do that while in some other years transferring money into the fund. However, this hard rule of 0.8% of GGB is the wrong approach. We do not know what our general Government balance will be in 2028 or 2029, what our contingency reserve will be, or what impact pillar 1, combined with pillar 2, will have on corporation tax. If this Government remains in place, it will be forced to bring a resolution in many years year saying that the 0.8% is not achievable.