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

I thank the Deputies opposite for their constructive engagement on the Bill so far, particularly on Committee Stage when we had a good and lengthy discussion on the different sections, the purpose of setting up these two new funds and the different perspectives on how the funds might be managed. I thank the Members for their co-operation in facilitating the swift progression of this legislation.

Section 7 is an important section of the Bill and it is appropriate that we discussed it at length on Committee Stage. As I outlined then in response to these proposed amendments, I believe the design we have arrived at for the investment strategy for the fund is the right policy approach to suit the purpose of this fund. This approach will allow the future Ireland fund to be built into a long-term, revenue-generating financial asset to offset costs that will come over the years ahead. It is important to remind ourselves of the various bodies, both domestic and international, that have supported the Government's legislation and the setting up of these two new funds. While this is not an exhaustive list, it includes the Irish Fiscal Advisory Council, the Central Bank of Ireland, the European Commission, the OECD, a whole range of different ratings agencies and many others.

If we were not to set up the future Ireland fund in a manner designed to build it into a long-term, revenue-generating financial asset, these expected known and unknown costs would have to be met with resources that would be available at that time. This would mean there would be less money in the future to invest in the things people are calling on the Government to provide or, indeed, higher costs for future generations. We must acknowledge that these known fiscal challenges are on the horizon, particularly those related to rapidly shifting demographics. While it is of course very welcome that people are living for longer, the ageing of the Irish population in the coming decades will have significant fiscal consequences. Shifting demographics in the decades ahead will result in a slower pace of economic growth and increased expenditure demands, in particular in relation to pensions, health and long-term care, putting significant pressure on the public finances.

While Ireland's demographic profile is relatively favourable at present, it is set to age rapidly over the coming decades, bringing us closer to the EU norm. The European Commission's 2024 ageing report shows that while there are currently approximately four people of working age for each person over the age of 65 in Ireland, this figure projected to fall to just over two by 2050. That is not to assume that somebody over the age of 65 is not going to make an economic contribution. Of course, many of them do and will in the future, but it does point to an overall trend that is simply undeniable.

My Department’s latest projection, which was set out in the stability programme update, estimates that age-related expenditure will increase from approximately 22% of GNI* in 2022 to 28% in 2050, an increase of 6%. Pension expenditure will account for the greater share of this, rising by 4% of GNI* between now and 2050. I want to give the NTMA the capacity to earn the best possible financial return for the State from the investment of the funds we entrust it with. I have full faith in its competence and ability to do so. To do this, we are giving the NTMA the discretion to invest inside or outside the State on a commercial basis. The intention to use the resources of the future Ireland fund to invest in specific forms of economic activity would undermine the reason for the establishment of the fund.

We all recognise that significant costs will arise down the line, such as the costs of demographic change, digitalisation, decarbonisation and other costs to the State. The policy aim is to establish a financial asset for the State to deal with such future liabilities. Such funds can only grow to a significant scale where consistent payments are made over time, allowing for an appropriate long-term investment strategy and the benefits of compounding so that the fund can reach an appropriate scale. As I indicated in my letter to the finance committee earlier this week, this could reach more than €100 billion by the time it is available to be drawn down in the early 2040s. These figures are, of course, estimates and represent outputs from draft modelling by the NTMA, with assumptions used for a number of inputs, size and timing of inflows, asset class weights, asset class returns and risks. These can vary significantly but the figure gives a sense of the potential.

We all know there are risks. Many uncertainties that we simply cannot predict may or may not materialise over the period ahead.

Based on what we know today, however, the setting up of these funds is a sensible step. It is a necessary step in my view and it will definitely help future Governments to meet at least some of the costs we know are definitely coming our way. Building a financial asset allows the State to use the proceeds of the fund to have the resources available to support the Government of the day in dealing with these issues. We do not pretend that this will solve all the expenditure likely to be incurred by the State in the 2040s, but having financial assets in place will certainly be of enormous assistance. We will all benefit from a defrayal of such costs - the current generation, people of working age, pensioners, future pensioners, future people of working age and young people today.

On the wider issue of investment, there is so much we could discuss, including the Government's national development plan, with €65 billion provided out to the end of this decade, and much more, including the role of the Ireland Strategic Investment Fund, ISIF, which, as Deputies will be aware, is focused on investment in Ireland. It has had a mandate since 2014 to invest on a commercial basis to support economic activity and employment. It has a discretionary portfolio of €8.7 billion and a directed portfolio of €6.3 billion.

At this point in the discussion, I will highlight the recommendation from another committee of the House, namely, the Committee on Budgetary Oversight, which recommended that the fund be solely invested outside of Ireland to protect against stoking inflation and lobbying. That was the reason cited by that committee, which has representation on a cross-party basis from this House. It is another important input into the debate we are having on this issue again this evening.

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