Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I will share my time with Deputy Fleming. I welcome the opportunity to contribute to the Second Stage debate on the National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018 - it is quite a mouthful - or, what has become known as a rainy day fund.

The events of recent months underline and reinforce the need for a fiscal buffer to be put in place. It makes for very sound financial management for our country to plan for darker days that might lie ahead. One can argue about the drawdown criteria, the methodology and how much is put into the fund but what is not arguable is the need for a country, in managing its public finances, to have a buffer in place so that when there is an economic shock and when exceptional circumstances arise in the future, we have a reserve at our disposal which can be used in that in such a circumstance. The risks we face as a country at this time are very significant. Many of the economic variables have been favourable for Ireland in recent years. We have had tailwinds, in effect. When one examines the interest rate environment our country has benefitted from, one sees there have been very low sovereign borrowing costs, which mean we have saved billions of euro compared with where we thought we would be now in terms of the costs of servicing the national debt. The ECB's quantitative easing programme, or bond-buying programme as it has become known, is very favourable for Ireland in terms of the market conditions it helped to create. As we look into the future there is great uncertainty about potential trade wars. We have the rise of protectionism. We have a very volatile situation in the United States. There is a potential trade war there. It already exists but could deteriorate even further in terms of its relationship with China. The area of corporation tax and the boom in receipts which we are benefitting from at this time is very favourable for Ireland. Receipts are now in excess of €10 billion per annum, which is far ahead of where we could possibly have imagined a number of years ago.

That is all before one even mentions Brexit, which the Minister outlined today. The Minister published an initial assessment of what the impact of a disorderly Brexit with a hard deal or no deal would be on the Irish economy. None of us in the House wants to see that but we have to accept that with just two months to go to 29 March, it is a very live possibility. If it happens, it will have major ramifications for our country, economic performance, jobs, tax receipts and so on. I welcome the fact the Minister today published an initial assessment. There will be further details in February and further work will be unveiled as part of the stability programme update which we are required to submit to the European Commission by the end of April.

I welcome the debate on the Bill. We first proposed a rainy day fund towards the end of 2015 because we saw at that time, and we continue to see, the need for a developed economy working in a cyclical economic environment to put away money for difficult days that may come in the future.

It is important to acknowledge that while there will be a difference of emphasis in how such a fund is set up and how it is operated, a very wide range of international organisations support the establishment of a fiscal buffer, including the European Commission and the OECD. The ECB has also spoken about it. All the main international organisations we engage with, have a partnership with and work with on an ongoing basis, such as the IMF, have urged the Government to put a fiscal buffer in place. It is important we make the start in doing it at this time.

There will be a debate about the criteria for triggering a drawdown. Section 7 of the Bill deals with that issue. It sets out that it would be in order to remedy or mitigate against an event of exceptional circumstances - that is, an unusual event outside the control of the State - that impacts on the financial position of the Government or a severe economic downturn, to prevent potential serious damage to the financial system and its continued stability or to support major structural reforms that have direct, long-term positive budgetary effects within the meaning of Article 5 of the Council regulation of 1997. We will have an opportunity to go into the drawdown criteria in some more detail on Committee Stage.

It is important to say in the event of it being suggested that Ireland could be in breach of fiscal rules if we draw down this fund, ultimately any sanction or decision to take proceedings against Ireland will be made by the European Commission on the advice of the European Council. All those bodies recommend and endorse the strategy of setting up a fiscal buffer of this nature. It will only be in exceptional circumstances that this money will have to be drawn down. I do not envisage a circumstance in which our colleagues in Europe, who are advocating the establishment of such a fund, would punish us for drawing it down or for invoking the good example they have asked Ireland and other countries to set. I do not envisage such a scenario. However, the detail of it is something we can and will work through in the weeks ahead when we get into the section-by-section analysis of the Bill.

With regard to some of the specifics, there is a need for a debate on the cap of €8 billion the Minister has provided for in the Bill. The Minister has reiterated his intention is to transfer €1.5 billion. The legislation provides for up to €2 billion but the Minister has clarified in his remarks this evening that his intention is to transfer €1.5 billion followed by annual transfers of €500 million. A couple of years ago the intention was that it would be €1 billion per annum and it is anticipated it will be €500 million. The Minister might elaborate further if he gets his chance in his closing remarks. We will certainly revisit the issue on Committee Stage of why there is a need for a statutory cap of €8 billion in terms of the quantum of the limit the Minister believes is appropriate for this fund.

The requirement for the fund to be highly liquid and to be retained in the form of cash or near cash will have consequences by way of the return or the cost of administering such a fund. We need to work through the detail of whether there is a need for all the fund to be held in cash or near cash. I do not think it does necessarily. The likelihood of billions of euro having to be drawn down overnight is very unlikely. It may well be more prudent in the form of managing the fund. I am sure the Minister will take the advice of the NTMA, which will have delegated authority in this matter, that at least some of the fund could be put on longer term notice so there may be some return available for the fund to be delivered. I urge the Minister to have a look at the report and the opinion of the Parliamentary Budget Office and the conclusions from December 2017. I acknowledge there is further work to be done in the development of this framework but it is very important for our country at this time. We do not know what we are facing in the next couple of months. It may well be that in the most adverse of scenarios the need to establish this fund or our capacity to establish it could be severely impacted in the very short term. I acknowledge that. All this discussion is on the basis of the central scenario for Brexit, which Government has used as the basis of budget 2019. We have to use it as the basis for this debate while acknowledging the direction may change and that it may need to change out of necessity depending on what happens in Westminster in the next couple of months. On the basis of the central scenario, we need to proceed in a very careful and managed way in setting up a fiscal buffer which, I have no doubt, will prove to be exceptionally useful in time to come when exceptional circumstances visit our country again, as is inevitable at some point in time.

I will leave my remarks at that. I look forward to Deputy Fleming's contribution and that of the other Members of the House.

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