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

I move: “That the Bill be now read a Second Time.”

As announced at budget 2024, this Bill will provide the basis for two new funds: the future Ireland fund and the infrastructure, climate and nature fund. It will also provide for the dissolution of the National Reserve Fund. The Government’s approach to developing these two funds is based on the assumption that a large proportion of the increase in corporation tax seen in recent years is potentially windfall in nature, namely not linked to economic activity within the domestic economy. It is important that the State does not build up permanent fiscal obligations on the basis of revenues that could prove transitory. We are also facing structural fiscal challenges in the medium term, posed by the so-called four Ds: demographics, decarbonisation, digitalisation and deglobalisation. The task of dealing with these economic and fiscal challenges has been a focus for me and my Department over the past year.

On budget day, I was pleased to announce that the Government had agreed a structure to: save and invest resources to deal with known and unknown long-term pressures on public expenditure; support countercyclical expenditure and help address specific climate and nature problems; and continue to maintain a stream of investment in the domestic economy though the Ireland Strategic Investment Fund. Alongside these changes, the Government recognises the need to maintain capital expenditure on infrastructure across a range of priority areas. This is reflected in the ongoing capital expenditure programmes across Departments.

The Committee on Budgetary Oversight considered the proposal to establish a fund and published a report at the beginning of October 2023. The Committee on Finance, Public Expenditure and Reform, and Taoiseach published its pre-legislative scrutiny report in January 2024. I thank both committees for their contributions to the development of this Bill. I look forward to further engagement with Members as the Bill progresses through the Houses.

The Bill has four main features: one, the establishment of and rules underpinning the future Ireland fund; two, the establishment of and rules underpinning the infrastructure, climate and nature fund; three, an annual economic and fiscal assessment to determine whether it is appropriate to make the full contributions to the funds and the potential accessing of the infrastructure, climate and nature fund; and four, the management of the funds by the National Treasury Management Agency, NTMA.

The future Ireland fund’s purpose is to support State expenditure from 2041. Each year from 2024 to 2035 - in other words, the next 12 years - 0.8% of GDP will be paid into the fund from the Exchequer. This year, that amounts to approximately €4.1 billion. A further approximately €4.1 billion will be transferred to the fund from the National Reserve Fund this year before it is dissolved. With the contributions, growth in GDP and return from investments over the long-term horizon, the fund could grow to around €100 billion by 2035. The Bill allows up to 3% of the future Ireland fund to be drawn down each year from 2041, so long as this withdrawal does not impact the value of the fund capital. The intention is to protect the capital of the fund to ensure the benefits can be spread across a number of generations. The Bill also allows that where borrowing costs of the State are higher than the return generated by the fund, the limit can be increased to up to 5% of the fund and can include the fund capital. This increase would be subject to a Dail resolution, providing additional Oireachtas oversight.

These resources will be available to counteract future expenditure pressures faced by the State, such as those relating to an ageing population, climate and digital transition. They are not directed at any specific expenditure as the use of the resources from the fund are a matter for the Government of the day. It would be impractical and imprudent for a government now to determine the priorities of a government in the 2040s and beyond.

The infrastructure climate and nature fund is the second fund proposed under this Bill. The purpose of this fund will be twofold: to provide a fiscal buffer to support State expenditure during a period of significant deterioration in the economic or fiscal position of the State; and to provide support to projects that directly or indirectly contribute to climate change, nature, water quality and biodiversity objectives. Some €2 billion will be paid into this fund annually from 2024 to 2030. That is a total of €14 billion. The contribution in 2024 will come from the dissolution of the National Reserve Fund. The countercyclical element can cushion the public finances against future economic shocks to help maintain investment in schools, hospitals and homes throughout the business cycle.

Subject to an annual assessment from 2026, up to 25% of the fund can be drawn down in a given year to support State expenditure. It is intended that this will avoid generating backlogs in capital projects due to a lack of spending during economic downturns. Each year from 2026 to 2030, up to 22.5% of the fund can be drawn down to support State expenditure on designated environmental projects, subject to an overall cap of €3.15 billion. The process for allocation of resources to specific projects will be managed by the Minister for Public Expenditure, NDP Delivery and Reform with guidance developed by his Department and as part of the existing budgetary process.

The Bill provides an annual assessment process to vary or pause the payments to each fund and to draw down from the infrastructure, climate and nature fund in a downturn. This process is central to the adaptability of the two funds. Each year, the Irish Fiscal Advisory Council will assess the economic or fiscal position of the State, having regard to a number of indicators, including, but not limited to, corporation tax receipts, GDP, employment figures and the general Government balance. The Minister for Finance will produce his or her own assessment and have regard to the report of the fiscal council. Where the Minister for Finance is satisfied that there has been a deterioration, he or she may make a proposal to Dáil Éireann to reduce or pause the contributions to each fund in the following year.

Where there is a deterioration in the economic or fiscal position of the State, the Minister for Finance, following consultation with the Minister for public expenditure, may propose to Government and then to Dáil Éireann that the contribution to the future Ireland fund be reduced to 0.4% of GDP in the following year. Where the deterioration is of such significance that it is appropriate to take more drastic action, the Minister for Finance may, following consultation with the Minister for public expenditure, propose to Government and then to Dáil Éireann that the contribution to the future Ireland fund in the following year be paused entirely. When such a proposal is made, the Minister for Finance may also propose to pause the contribution to the infrastructure, climate and nature fund. The Minister for Finance may, following consultation with the Minister for public expenditure, propose to Government to withdraw up to 25% of that fund to respond to the economic or fiscal situation.

I should be clear that, where the criteria allow for a drawdown of the countercyclical element and there is climate and nature expenditure in a year from 2026 to 2030, up to 47.5% of the assets of the fund can be drawn down in one year.

The structure for each fund aligns with the existing structure for the Ireland Strategic Investment Fund. The funds will be vested in the Minister for Finance and managed by the NTMA. Each will have an overarching investment policy and a requirement for the NTMA to develop and publish an investment strategy. The investment strategy will detail how the NTMA will hold and invest the assets of each fund in accordance with the investment policy. It will be prepared by the NTMA with input from the Minister for Finance and the Minister for Public Expenditure, NDP Delivery and Reform. The investment strategy for each fund will be provided to the Government for noting and will be published on the NTMA’s website.

Each strategy will embed environmental, social and governance, ESG, matters across the funds. The NTMA will be required to describe: how it takes into account ESG factors in its investment decisions; the types of investment it will not invest in; and how it determines the basis for making such investment decisions. This provides a framework for the NTMA to engage pre and post investment on important topics such as ethical conduct, human rights, labour practices and environmental compliance.

I will now set out the main provisions of the Bill. Part 1 contains standard general provisions: the title, commencement, definitions and expenses. Sections 4, 13, 24 and 27 provide definitions applicable to specific parts. There is some symmetry between Parts 2 and 3, which establish each of the new funds.

Sections 5 and 14 provide for the establishment of each fund respectively. Sections 6 and 15 set out the investment policy for each fund. The assets are to be held on a commercial basis, so as to seek to secure the optimal total financial return, having regard to the level of risk, including ESG risks, and the likely timings of payments from each fund.

Sections 7 and 16 provide that the NTMA shall determine, monitor and keep under review the investment strategy for the assets of each fund, in accordance with the overarching investment policies. Sections 12 and 22, provides for a mechanism to delay the payment from either fund to the Exchequer, where there are potential challenges to liquidating assets of either funds.

In the context of Part 2, section 8 provides for payments to the future Ireland fund. It provides that 0.8% of relevant GDP will be paid to the future Ireland fund from the Exchequer each year between 2024 and 2035. It allows for further payments to be made on the basis of a Dáil resolution. In this context, relevant GDP refers to the level of GDP for two years previous to the transfer year. For example, the contribution in 2026 will be determined in budget 2025 and based on the level of GDP in 2024. Section 9 provides the mechanism to reduce or pause these payments. Section 10 requires the NTMA to report to the Minister for Finance on the amount of the investment return the NTMA believes is appropriate to be drawn down in the next five years. Section 11 provides for withdrawals from the future Ireland fund from 2041.

In the context of Part 3, section 17 provides for payments to the infrastructure climate and nature fund. It requires that €2 billion is paid to this fund from the Exchequer in each year between 2025 and 2030. Section 18 provides the mechanism to pause these payments. Section 19 provides for withdrawals from the infrastructure, climate and nature fund to support State expenditure in a downturn. Section 20 provides for the designation of environmental projects. The process of allocation of resources will be managed by the Minister for Public Expenditure, National Development Plan Delivery and Reform. Section 21 provides for withdrawals from the infrastructure climate and nature fund to support spending on such projects and section 23 provides for the Minister for Finance to prepare a review on the operation and effectiveness of the fund in 2031.

On Part 4, section 25 requires the Irish Fiscal Advisory Council to assess the economic or fiscal position of the State annually and to make recommendations to the Minister for Finance as to the contribution to the future Ireland fund; the contribution to the infrastructure, climate and nature fund; whether or not to draw down from the infrastructure climate and nature fund in the following year.

Section 26 requires the Minister for Finance to determine each year whether there has been or is likely to be a deterioration in the economic or fiscal position of the State. He will have regard to the council’s report in his assessment. The purpose of this assessment is to determine the contribution to the future Ireland fund, the contribution to the infrastructure, climate and nature fund and whether to draw down from the infrastructure climate and nature fund in the following year.

Turning to Part 5, section 28 outlines the responsibilities of the NTMA in relation to the funds. Section 29 requires the Minister for Finance to provide the NTMA with notice of payments into either fund. Section 30 provides for the expenses incurred by the NTMA in its functions under this Bill to be paid from each fund. Section 31 obliges the NTMA to endeavour to ensure the assets of either fund are not invested in fossil fuel undertakings. This follows the template of the Fossil Fuel Divestment Act 2018. Section 32 provides for material to be included on the funds in the NTMA annual report.

On Part 6, section 33 amends the NTMA Act 1990 to increase the board by two members, and to enable the establishment and dissolution of sub-committees. Section 34 amends the National Treasury Management Agency (Amendment) Act 2014 to incorporate a specific requirement for the NTMA to have regard to any risk posed by the ESG matters of relevance to the holding or investment of the assets of the Ireland strategic investment fund, and to provide a revised mechanism for the transfer of assets from the Ireland Strategic Investment Fund from 2035 to align with the process of the future Ireland fund, including the reporting of a five-year rolling plan. Section 35 provides for the transfer of €2 billion of the assets of the National Reserve Fund to the infrastructure, climate and nature fund; the transfer of the balance, which is approximately €4.1 billion to the future Ireland fund; and the dissolution of the National Reserve Fund by order. Section 36 repeals the act which provided for the National Reserve Fund. Section 37 provides that the two new funds shall be exempt from domestic taxation, including the relevant amendments to tax law set out in the schedules.

This Bill arises from the need to deal with future fiscal challenges faced by the State. The establishment of the future Ireland fund will help lessen the fiscal burden for future generations. The legislation also recognises the need to deal with present environmental challenges and to help preserve public expenditure throughout the business cycle through the establishment of the infrastructure climate and nature fund. The provisions of the Bill are balanced in a way that seeks to maximise the contribution to both funds yet recognises the need to have mechanisms in place to reduce or pause contributions to help deal with potential economic or fiscal shocks. The Bill extends a requirement to have regard to environmental social and governance issues, not just for the two new funds, but also extending this requirement to the Ireland Strategic Investment Fund. The Bill establishes responsibility within the NTMA for the management and operation of these funds.

I put on record my appreciation of the enormous amount of work put in by the officials in my Department, their colleagues in the Department of public expenditure and our colleagues in the NTMA who have already undertaken a great deal of preparatory work in anticipation of the passage of this legislation. A significant amount of work has gone into the drafting of this Bill. I thank the Attorney General and his team for all their work. I have already acknowledged the work of colleagues across both the budgetary oversight committee and the finance committee for their examination of the general scheme of the Bill.

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