Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I move:

That Dáil Éireann authorises the Minister for Finance, pursuant to section 6(1) of the National Surplus (Reserve Fund for Exceptional Contingencies) Act 2019 (the ‘Act’), not to pay the prescribed amount (€500,000,000) under section 5(2) of the Act into the National Surplus (Exceptional Contingencies) Reserve Fund for the year 2020 having regard to the fact that in accordance with section 6(3) of the Act the Minister is satisfied that, by reason of the exceptional circumstances posed by the public expenditure undertaken to remedy or mitigate the impact of the COVID-19 virus, the payment of the prescribed amount would place an undue burden on the public finances.

This motion relates to section 6 of the National Surplus (Reserve Fund for Exceptional Contingencies) Act 2019, which established a fund in the same name, more commonly known as the rainy day fund. The Act was commenced on 31 October 2019 and the fund was subsequently seeded with a €1.5 billion transfer from the Ireland Strategic Investment Fund, ISIF, on 15 November 2019. I am seeking the Dáil's endorsement for a motion not to transfer the €500 million contribution for 2020 into the national surplus reserve fund.

Deputies will be aware that, under section 5(2) of the National Surplus (Reserve Fund for Exceptional Contingencies) Act 2019, the Minister for Finance is required to make a payment from the Exchequer of €500 million to the rainy day fund every year from 2019 to 2023. The Act also provides, under section 6, that in any given year, the Minister for Finance may make a proposal to the Dáil not to transfer that contribution into the fund. This proposal can be made that the Minister is satisfied on reasonable grounds that by reason of the existence of exceptional circumstances the making of the payment of the prescribed amount into the fund would place an undue burden on our public finances.

This year, we have indeed seen challenges to the State that are unprecedented in their nature. We have met those challenges with great determination, with resolve and with the use of more resources than ever before in our history. This has been made possible as a result of the careful management of our public finances over recent years which saw our economy grow during that period. It is also important to acknowledge that our preparedness for these more challenging times was also made possible through the support and solidarity of the European Union, particularly the leadership and work of the European Central Bank, and most importantly, through the hard work, dedication and resilience of the Irish people.

Following approval by Cabinet on Tuesday, 23 November, that I, as Minister, would not transfer €500 million into the rainy day fund in 2020, I am proposing this motion. I am satisfied that by reason of the exceptional circumstances posed by the pandemic and the needed public expenditure undertaken to remedy and mitigate the impact of this virus on our society, the making of the payment of the prescribed amount would place an undue burden on our public finances. The unforeseen impact of this disease has had a major impact on the level of public expenditure in areas such as employment supports, social welfare and public health. The Government has been able to respond swiftly and assertively during 2020. We were able to do this because we had the financial resources and the creditworthiness resulting from the budget strategy proposed and pursued over a number of recent budgets.

As a result of last year's budget, we entered 2020 with a surplus of €1.3 billion. Entering the year with a budgetary surplus also reaffirmed our reputation with the international bond markets as we needed to borrow further to deal with the employment and economic impacts of the pandemic. To date, the total value of support measures amounts to over €25 billion, mostly in the form of direct taxation and expenditure measures. Indirect measures such as credit guarantees have also formed part of the policies that we have used. Given the continuing presence of the pandemic and the economic disruption it continues to cause, the Government is committed to maintaining these supports for as long as they are required.

Accordingly, budget 2021 provided further stabilisation measures amounting to just under €12.5 billion. The measures can be seen working throughout the economy in supporting employment and businesses through the crisis. The €25 billion mentioned is in the order of eight times' last year's budgetary plans. We have never experienced a challenge like this in modern times. Equally, Ireland has never delivered such a strong response to a challenge. The scale of budgetary support in 2020 has been unprecedented and is among the highest in the EU and OECD.

Given the likely impact of Covid-19 on our public finances, it was clear from earlier this year that the making of the planned €500 million annual contribution was unlikely. This was signalled in the April 2020 stability programme update. This motion follows closely on the Cabinet decision on Tuesday, 6 October and the subsequent budget motion to withdraw the full €1.5 billion value of the fund to remedy and mitigate the occurrence of the exceptional circumstances for the State arising from Covid-19, in accordance with section 9 of the 2019 Act.

I want to reflect on the rationale for establishing the fund. The effects of the economic and financial crisis that began in 2008 were gruelling. Although we have made significant progress, there is no doubt at all that those effects are still felt today. The rainy day fund which the previous Government committed to creating in A Programme for a Partnership Government was an important plank of the policies that put our national finances on a sound and sustainable footing and built our resilience to external shocks. The rainy day fund was an economic buffer and support available for drawdown in the event of a sharp economic downturn. It allows the Government to mitigate the effects of the downturn we are experiencing at this time. In particular, it will allow investment by the Government to continue even if there is a sharp reduction in tax receipts.

We have experience of the great financial crisis of 2008 where, because we had no available resources, current expenditure was cut back severely and capital programmes came to a near complete halt as a consequence of that crisis. The result was severe in terms of the impact on Government programmes for many of our citizens and in terms of underinvestment. Our aim in establishing the rainy day fund was that, in the event of a future economic or budgetary shock, we could maintain our investment programmes, particularly our capital investment programme. The latter delivers the infrastructure that is required by society and the economy. Maintaining capital expenditure is also likely to support employment and help us to escape the recessionary cycle caused by sudden economic shocks. Expenditure on core capital programmes is to increase by €1.6 billion next year to €10.1 billion. This is the largest amount that has ever been allocated to investment in schools, homes and public transport. It is exactly the type of increased investment and expenditure that we were not in a position to make a decade ago.

The rationale behind establishing this fund, which enjoyed broad support across the political system, was to accumulate funding that could be deployed in the event of an adverse shock to the economy. That decision has been proven correct and we have seen the value of the fund. No one knew that the time of the fund's use would come so quickly. Nobody imagined the circumstances in which it would be deployed. The Government continues the work started under the two previous Governments to put in place policies to protect our public finances while continuing to invest in the infrastructure and services that are so important to our people. This approach helped to achieve a balanced budget and sustainable tax base before the advent of the pandemic. All of those steps put us in a much-improved position to plan for the medium and longer term.

I will conclude by reflecting on the decision to draw down the fund. From earlier this year, given the impact of the pandemic on the economy, I considered that the requirements of the fund had been met and that it was appropriate to draw down those resources. Due to a number of successful debt issuances by the National Treasury Management Agency, NTMA, earlier in the year, there was no immediate need for drawdown of the fund during the early months of the pandemic. Under the European system of accounts, the funds drawdown will not be counted as general government revenue and it will not improve the general government balance. Equally, when the money was transferred into the rainy day fund, it did not count as general government expenditure. The drawdown receipt by the Exchequer was used to offset funding requirements arising from budget 2021 and the need to support the increase in Covid-related expenditure. It was important that the fund was in existence to provide support for this expenditure. Similar to returns to the Exchequer from the National Asset Management Agency, NAMA, using the rainy day fund meant the State has been able to provide for additional and much-needed support during this time without having to borrow more, thereby reducing the burden of repayment or refinancing costs on future generations.

The motion, which proposes not to pay the annual €500 million contribution to the rainy day fund is, of course, not preferable, but it is necessary. It is the right decision in order that Exchequer funds are available when they are most needed to respond to the crisis with which we are dealing. I want to be in a position again to build up resources in the fund to deal with potential future economic shocks, but doing so during the course of this unprecedented pandemic-driven economic crisis is not sensible. The issue of resourcing the fund will be a matter for Government to decide in the future, when it is appropriate. I commend the motion to the House.

See this speech in context