Tuesday, 17 December 2019
National Surplus (Reserve Fund for Exceptional Contingencies) Act 2019: Motion
That Dáil Éireann authorises the Minister for Finance, pursuant to section 6(1) of the National Surplus (Reserve Fund for Exceptional Contingencies) Act 2019, 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 2019 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 United Kingdom's proposed withdrawal from the European Union (Brexit), the making of the payment of the prescribed amount would place an undue burden on the public finances.
The motion arises on foot of the National Surplus (Reserve Fund for Exceptional Contingencies) Act 2019 which established the National Surplus (Exceptional Contingencies) Reserve Fund, more commonly referred to as the rainy day fund. The Act was commenced on 31 October last and the fund was subsequently seeded with a €1.5 billion transfer from the Ireland Strategic Investment Fund, ISIF, on 15 November.
Before dealing with the substance of and rationale behind the motion, I wish to reflect briefly on the fact that although we have made great strides in recent years as a country and an economy, this is no time be to be self-satisfied or complacent. New challenges emerging internationally have the potential to shape our economic prospects for years to come. I wish to touch briefly on one of those challenges, namely, Brexit. Deputies will be aware that our hope is that the withdrawal of the United Kingdom will take place based on the deal agreed between it and the EU at the European Council last October.
Despite the outcome of the general election in the UK, the ultimate outcome remains uncertain and a disorderly exit at the end of the transition period in 2020 remains a distinct possibility. No UK exit is good for Ireland. Anything that disrupts the ease of trade between Ireland and the UK will be bad for Ireland. Along with this, the loss of a large member state that has actively promoted free trade and liberal values will come at a considerable cost to a small country such as Ireland, where free and open trade has been the driving force behind the convergence of living standards to European norms. Brexit, in whatever form it takes, will soon be a reality and our economy must adapt. The Government can and will help to ease the transition but our economy will have to adjust to a new reality.
The motion is a consequence of the Government's Brexit stance. Under section 5(2) of the Act, the Minister for Finance is required to make a payment of €500 million from the Exchequer to the rainy day fund every year from 2019 to 2023, inclusive. The Act also provides, under section 6, that in any given year, the Minister may make a proposal to the House not to transfer the annual €500 million contribution to the fund. The proposal can be made when 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 the public finances. In response to the Minister's proposal, such as that stated in the motion, Dáil Éireann may pass a resolution authorising the Minister not to pay the prescribed amount into the fund for that year.
The rationale behind the rainy day fund is to accumulate funding that can be deployed in the event of an adverse shock to the economy. Given the size and openness of the economy, the use of such funding is an important way to protect the economy in more challenging times. In his Budget Statement on 8 October, the Minister for Finance, Deputy Donohoe, stated that if the economic impact of a no-deal Brexit was more severe than forecast, he was prepared to use resources that would otherwise have been dedicated to the rainy day fund to address the impact. Given that a no-deal Brexit was seen as likely at the time of the budget's publication, the Minister announced his decision not to transfer €500 million from the Exchequer this year as part of his Budget Statement. Although the outcome of the UK election has reduced the probability of a no-deal Brexit in the short term, I reiterate that the ultimate outcome remains uncertain and that a disorderly exit at the end of the transition period in 2020 remains a possibility.
The motion is the statute-based follow-through on the Minister's announcement. Such action is the appropriate response to the more challenging economic environment we may face. It will help to ensure we have the right supports in place within the Exchequer to protect the economy from the impacts of Brexit and that the Government can continue to protect the funding of our public services in the immediate aftermath of a no-deal Brexit. I commend the motion to the House.
I acknowledge that significant risks still face the economy in respect of Brexit. As for the economic relationship between Ireland and the UK, the issue has just been moved into the next phase, namely, the negotiation of the future relationship. In light of what has emerged from the newly elected British Government, whereby a hard deadline will be imposed on the talks, the risk of a disorderly Brexit has resurfaced. We all know what the consequences would be for Ireland's economic and trading relationship with the UK. A disorderly Brexit at the end of 2020 would mean the imposition of customs and an effective regulatory border between Great Britain and Ireland. They are significant issues, and notwithstanding what has been agreed in the withdrawal agreement, the core economic relationship in the future will be determined by the negotiations. There are other risks, not least the weak European economy, the prolonged period of low growth among a number of our main trading partners and the trade tensions that persist among the main trading nations of the world.
It should be acknowledged that while the rainy day fund has been established in law, which is welcome, as is the €1.5 billion in the fund, arising from the one-off transfer from the ISIF, the rainy day fund should be in a much stronger position than it is. The criticisms of the Irish Fiscal Advisory Council, IFAC, about the Government's handling of the public finances, were well made, not least in light of the points it made about the tailwinds at our back as a country in recent years, the boom in corporation tax receipts and the historic prolonged period of low interest rates. IFAC has estimated that yearly tailwinds have risen to between €10 billion and €14 billion, yet the deficit in the public finances improved by only approximately €3 billion between 2015 and 2018. The council made the point that budget 2020 projected a surplus for 2019 and a return to deficit in 2020, even without disorderly Brexit-related spending, although the central scenario in the budget was a disorderly Brexit, which we all continue to work to avoid.
On the issue of the overdependence on corporation tax, which is acute and is now a significant risk to the public finances and the economy, we are likely to collect approximately €11 billion in corporation tax by the end of the year, which is welcome. The receipts are very strong but IFAC estimates that the excess could contribute between €2 billion and €6 billion to the Government's yearly revenues.
There is a prospect, albeit unquantifiable, of the receipts not recurring. The Government has made permanent expenditure commitments on foot of the receipts but if they do not repeat year in, year out, we will be left very exposed. IFAC also made the point that the structural budget balance, based on the Department's measure, has deteriorated in recent years. Despite all the factors in our favour, the underlying public finance position has not improved in a manner that one might have expected.
We will reluctantly support the motion. We support the concept of a rainy day fund, as does IFAC. In its recent summary assessment, it stated the Government needs to "use the rainy day fund and a prudence account to save temporary receipts, including saving unexpected corporation tax receipts so that they cannot be used to finance overruns in other areas". We agree with that, but in the round, given that the risk of a disorderly Brexit remains in place and may not be as remote as we had thought a matter of days ago, we will support the motion.
For many people, not least exporters in the Border region, it is already raining in respect of Brexit. The fear of a disorderly Brexit and the atmosphere that has grown around that have been damaging for many companies and exporters, and our agrifood sector, in particular, has been damaged and remains so. While I acknowledge that the €500 million to guard against that may be useful, I posed a question earlier to the Taoiseach on the relevance of Europe in regard to the issue and the EU's responsibility. Ireland has been damaged by a European scenario, given that our closest neighbour, the UK, has decided to leave the EU and we are the collateral damage.
Most people would firmly agree that the protection of our structures and our economy should not just be the responsibility of the Irish taxpayer. It should also be the responsibility of the EU, which needs to come up to the plate in this regard. It is not enough to give us some moral support because we need more than that. The businesses in the Border region of which I am aware need much more than moral support. Although Brexit and where it might take us is one of our biggest sources of fear with regard to the international economy, the international trade wars, which are mainly being aggressively pushed forward by Trump's America, are also coming home to bite in some areas. This development could have an impact on other issues. As a very open economy, we are very open to being damaged by the factors that influence the global markets. The notion that Brexit is the only problem we have is incorrect, unfortunately. Other things that may come at us in the coming months and years could be equally damaging.
I would like to focus on the rainy day fund. As I said, for many people it is already raining. There is an immense infrastructure deficit in rural communities in constituencies like Sligo-Leitrim, which I represent. We need to see investment in broadband, in roads and in bringing jobs into such areas. We need to develop the economy in the areas where the most potential lies. We encourage the Government to use any funds that may be available for such purposes. The concept of a rainy day fund flies in the face of logic for many people across a large sector of our economy who believe they are still struggling with austerity. I remind the House that many people are concerned that austerity has not left. When they hear that a fund is being amassed for a rainy day, they ask who will decide that such a day has arrived. Will it be a rainy day that the banks, the insurance corporations or the people in some other part of the corporate sector bring on us again? In the event of another disaster, will the taxpayer have to roll in once more to fund these entities rather than investing in the economy to protect ordinary working people who are struggling hard? It must be acknowledged that many people are finding it difficult to manage.
We support the notion that this money should not be put aside. It needs to be spent wisely. It needs to be invested to get a return for the many regions of this country that have been left behind. It can be seen from the Project Ireland 2040 plan, which is very much about trying to put money back into areas that have been left behind, that even the Government acknowledges that this is an issue. Of course many of us would say that Project Ireland 2040 does not go far enough. I suggest that €500 million is small money compared to what needs to be spent in many of the regions. In that context, we will support this initiative.
The Minister of State has told the House that the Act which established the rainy day fund "was commenced on 31 October last and the fund was subsequently seeded with a €1.5 billion transfer from the Ireland Strategic Investment Fund, ISIF, on 15 November". As we approach the end of December, that entire strategy has been upended. I am not a supporter of the rainy day fund. I think the Minister acknowledged in his Budget Statement that it was discovered after the decision was made to raid the €1.5 billion strategic investment fund to put money into a rainy day fund that the latter fund can only be used to bail out the banks yet again.
Like every person in this country, I hope the question of bailing out the banks will never again arise. The bailing out of the banks is one of the recognised purposes of the rainy day fund. It has a couple of other purposes. It turns out that Brexit, which is genuinely one of the greatest challenges we have ever faced, does not qualify for the rainy day fund. If a number of enterprises close down as a consequence of a really hard Brexit - we hope this does not happen in any way - the rainy day fund will not be able to come to their aid. I am sure the Minister's officials will confirm that the rainy day fund will not be able to come to the aid of enterprises or other institutions that need urgent funding as a result of a hard Brexit. I think there has been a great deal of agreement in this House about Brexit. Nobody wants any Brexit, if at all possible. We have to face the possibility that there could be a difficult Brexit or even a very hard Brexit. If the UK just drops out of the EU as part of a very hard Brexit, the situation could be genuinely very difficult for Ireland because the World Trade Organization, unfortunately, is in total disarray and is unable to form panels. I hope nothing like that happens.
Having spoken against the creation of the rainy day fund, I must explain that I opposed the Minister's decision to raid the strategic investment fund for €1.5 billion because this country has another crisis, in addition to Brexit, that relates to capital funding. I am referring to the housing crisis. If the Minister walks around Dublin city tonight, within ten minutes he will have seen five or six people sleeping rough and begging on all the streets leading to Grafton Street. It is really hurtful for many people to see this in the capital city of a country as rich as Ireland. The strategic investment fund has a clear purpose. It was established when the previous Government was in power. One of its potential uses is to put appropriate capital funding into certain areas. This would include putting appropriate funding into the housing market. We have a great deal of State land in this country at the moment, but we have no capacity to fund social housing on that land. The Minister has locked away €1.5 billion which was previously in a strategic investment fund. This is an example of playing around with money. It is an accounting trick that involves transferring money from one set of reserves to another set of reserves. The difference is that there are strict controls on what the rainy day fund reserves may be used for. As those reserves came from the strategic investment fund, they could have been used for a variety of significant purposes. They could have been used to make a key investment in the development of housing for those who need it so badly. Having set up, funded and seeded the rainy day fund as recently as October or November of this year, the Minister is now crying off from his original plans. In fairness to him, he announced on budget day that he would do this, but all I can say is that it makes a joke of Fine Gael's stewardship of the economy.
I support the proposal not to pay €500 million into the rainy day fund for 2019 in the context of the ongoing exceptional circumstances of the UK's proposed withdrawal from the EU. The Minister announced a €1.2 billion package, excluding EU funding for Brexit, in budget 2020. He said on that occasion that he was prepared to use resources that would otherwise go to the rainy day fund. The purpose of this was to address the possibility of an adverse shock to the economy. After the disastrous outcome of last week's general election in the UK, many commentators immediately said that the result at least brought certainty. Although it is clear that the UK will leave the EU on 31 January 2020, the uncertainty associated with Brexit is surely destined to continue. It seems likely that we could again be facing a no-deal, cliff-edge, full-trade Brexit at the end of the transition period on 31 December 2020. We learned today from the UK Prime Minister that the House of Commons will shortly include this date in statute as the definitive date for the end of the UK's transition into a future EU-UK trade agreement.
Even after the future customs and trade arrangements for Northern Ireland are made, uncertainty will continue. Most of all, there is a strong possibility that last week’s election was the last general election in the current United Kingdom as Scotland moves decisively to independence alongside Ireland within the EU. If the Scottish Labour Party and labour movement now throw their weight behind Scotland’s push for independence, Scottish freedom will be impossible to stop. It is timely, therefore, to hold the additional €500 million for the rainy day fund in the Exchequer this year. In his budget speech and again tonight, the Minister stated that the €1.5 billion would be transferred to the fund from the Ireland Strategic Investment Fund. I ask him for a report on how that proposal has worked out in the past month.
When we discussed the National Surplus (Reserve Fund for Exceptional Contingencies) Act 2018 last January, I outlined my continuing opposition to the establishment of the rainy day fund. I believed then, and still believe, that all available current and capital resources should be allocated to addressing crucial needs of our constituents, especially in health, disability and home care services, housing, education, security and other services, and for the restoration of salaries for all public servants to pre-crash levels. We know the sad history of the National Pensions Reserve Fund from 2001 and how that fund was decimated by Fianna Fáil and the Green Party and later splurged on the outrageous blanket bank guarantee supported by Fine Gael and, tragically, the Labour Party.
I ask that the Minister update the House on the current cash and near cash reserves of the National Treasury Management Agency, NTMA, the current assets of the Ireland Strategic Investment Fund and the current estimated State shareholdings in the major pillar banks. Those shareholdings were originally earmarked to pay down part of our still huge national debt. The Irish Fiscal Advisory Council reminded a recent meeting of the Committee on Budgetary Oversight that the Government debt burden is the sixth highest in the OECD. This time last year, Ireland’s net debt burden was equivalent to 90% of GNI*. Only France, Portugal, Italy, Japan and Greece have higher net debt burdens in the OECD. The Economist’ 2020 world economy survey finds that Ireland's per capitaincome is the highest of all the countries surveyed, surpassing that of states such as Singapore and Switzerland, although I note that no analysis of Luxembourg is provided. We know, however, that every Irish citizen has a national debt per capitaburden equal to nearly half of these elevated per capitastatistics, which are scarcely believable in light of foreign direct investment. IFAC and other commentators continue to urge that the rainy day fund and what IFAC describes as a prudence account should encompass so-called temporary receipts, including unexpected corporation tax receipts. Most people would feel that the opportunity cost of salting away another €500 million from current revenues in one year and the €1.5 billion from the strategic investment fund is vast and this money would be better used for much-needed productive capital investment in our economy.
It was the former Minister for Finance, Deputy Michael Noonan, who first came forward with the rainy day fund idea, which followed up on an original proposal by Deputy Michael McGrath. The rainy day fund is certainly part of the Fianna Fáil-Fine Gael joint policy.
I support the creation of a national wealth fund like the funds in place in Norway or China but only when the profound needs of our people in health, housing and other critical areas have been addressed by Government. It was not opportune or necessary to create this fund earlier this year. Now we see that within weeks, as Deputy Burton said, we will have to change our plans and put this €500 million back into the national account.
I welcome the opportunity to speak on this motion this evening. This rainy day fund is a tool developed by the Government to act as a buffer against fiscal shocks. In general, these funds are used to set aside money during good economic times to support the economy during downturns. I accept that there are uncertain times ahead following the UK elections and the backing the electorate gave to Boris Johnson to go ahead with Brexit. However, the decision not to continue to pay into this fund and to use the UK's withdrawal from Europe is another example of this Government backing away from its legal obligations.
I have lost trust in the Government to provide adequately for all the people of Ireland in a fair and equal manner. We see homeless children seated on cardboard eating on our streets, elderly people lying in corridors in hospitals, our roads turning into dirt tracks and the families of disabled people left to fend for themselves. Our farmers and fishermen are still reeling from the storms and fodder crisis of 2018. At that time, I called on the Minister to put in place an emergency fund to help with the crisis but the Government dragged its heels on this too. Fishermen along the west Cork coast suffered badly from the massive storms leading to their lobster pots and other fishing gear being destroyed. I asked for an aid package to help our fishermen to deal with these losses and again my pleas were all but ignored. This is an example of when the Government should have been proactive in engaging with farmers and fishermen offering aid packages and using the rainy day fund. If we have no funds available to help these groups of people in a crisis and no money to pay the prescribed amount into the reserve fund, where is the money going? Is this because there is still an open cheque on the table for the national children's hospital, with no accountability for those funds? With the national broadband plan on the horizon, is the Government providing the contractors involved with the same level of access to extra funding with no accountability, while we have people crying out for some sort of reassurance that things will get better?
The primary purpose of the National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018 is to provide the legislative basis for the establishment of a rainy day fund to be formally known as the National Surplus (Exceptional Contingencies) Reserve Fund. In principle, the Act is fine. It is sensible and prudent. I also accept that this represents an institutional reform in Ireland's fiscal policy framework and that it is a Bill whose primary purpose is to mitigate severe economic shocks. However, I am concerned about some issues raised by the regulatory impact analysis of the Bill. For instance, the fund was seeded by an initial transfer of cash or near cash assets from the ISIF of up to a maximum of €2 billion, with further Exchequer transfers of €500 million per annum due from 2019 to 2023, inclusive. Provision is also made for periodic transfers from the Exchequer, thankfully subject to Dáil approval, where, for example, there are above expectation tax receipts. People have a serious difficulty with this provision. Most people would probably prefer to have above expectation tax receipts used to improve service infrastructure such as schools and roads, address the health crisis and, in particular, build houses or fund any number of other projects that require cash injections, of which there are many.
We need to be very clear that there is flexibility in this matter and that an automatic transfer of tax to the fund would not occur. We need far more clarity and clear guarantees on the specified purposes of this fund. We do not want it to operate as a kind of mini-bailout facility for any Government plans that go astray. I am thinking here of the national disgrace that is the national children's hospital. The project is a runaway train and Professor Anthony Staines has described the disastrous oversight of it as awe inspiring incompetence. It has created not just a rainy day but a thunderstorm of financial embarrassment, if the Minister was capable of embarrassment. He will be embarrassed shortly when the people get a chance to embarrass him and have its verdict on him. What assurance can we get that the fund would not be raided by Government to try to cover the losses of disastrous decisions such as that?
The Minister of State, Deputy Finian McGrath, is the greatest waffler that was ever in here. He was a better waffler than poor old Gay Mitchell was in his time. The Minister of State and the Minister for Transport, Tourism and Sport, Deputy Ross, would have an umbrella if the sun was shining and they would probably wear a raincoat on the beach.
I note that the Committee on Budgetary Oversight, having examined the proposals, identified a number of areas where there is need for greater detail on the purpose and design of the rainy day fund. The committee was of the opinion that greater flexibility will be needed at EU level to ensure that moneys committed to a rainy day fund would be spent when needed to counter a future economic shock. What was alarming, however, is that the committee also found that the Department of Finance consultation paper on the rainy day fund was unclear about its purpose. I am not opposed to the concept but I will not have it as a slush fund for the Government to bail itself out and dig itself out of holes. I will not support that.
I thank all colleagues for their contributions and will comment on the different points made. Deputy Michael McGrath is right in what he said in that there are now many other risks apart from the risk of a no-deal Brexit in 2019. What is most likely is that the risk of a no-deal Brexit is there but the timing of it has shifted. We can see from the events over the last day that as the new Government in the United Kingdom takes shape, it reminds us that many of the risks associated with Brexit have not gone away but the timing of them has clearly changed since the budget was introduced.
Deputy Martin Kenny made the point that if we look at where we are with other changes taking place across the world, we can see that while Brexit continues to be a big risk there are other ones also. He pointed to the changes taking place in respect of global trade and the tone of global trade, and is right to acknowledge that. It is also important to acknowledge that, to date, the Irish economic performance and the diversity we now have in our exports mean that despite the shift in tone in respect of global trade, we have still managed to deliver a reasonably strong performance across 2019. While I expect to see an effect on our export performance in 2020 and beyond, there is still every prospect of the Irish economy continuing to be able to grow across the coming years if we are successful in avoiding a no-deal Brexit.
To deal with the three charges Deputy Burton made, the first was a concern if in any way the Ireland Strategic Investment Fund was raided. I would recoil from that language as much as I am sure the Deputy would have recoiled from accusations she had raided private pension funds. Of course, neither claim would be true. What I have done, as she would do and has done, is make choices as to where the country's assets should sit and how we can make better use of them. She asked why would we not use a movement of funding from the Ireland Strategic Investment Fund to respond to the great difficulties we have in housing, on which all Deputies have touched. However, we did that by moving nearly €2 billion from the Ireland Strategic Investment Fund to seed the Land Development Agency and Home Building Finance Ireland, HBFI. We have moved funding from the Ireland Strategic Investment Fund to respond to the great housing challenges we have on which we still need to make much more progress.
Deputy Broughan asked what is our position from a cash balance point of view. At the end of November, the State had €24 billion of reserves available to it, 60% of which are in short-term funding instruments, which is money the State would be able to access quite quickly if it needed it. The Deputy touched on the intellectual rationale for a rainy day fund and went on to make the case that he does not believe this particular one is needed because we should be spending all our resources on addressing the issues we face today. While I understand the need to invest in and respond to all the challenges of today, the balance I am simply trying to strike is to ensure we get ready for the challenges of tomorrow as well. I believe the creation of a fund such as this one would be of help, particularly in dealing with the reliance on corporate tax receipts which we are making significant progress in moving away from by virtue of the surplus we will deliver at the end of this year.
Regarding what Deputies Michael Collins said, as well as what Deputy Mattie McGrath said that touched on what Deputy Burton said, nowhere in my budget day speech did I say that the role of the rainy day fund was to recapitalise banks. I never said that anywhere in it. As I said in a number of Oireachtas debates on this issue, I am certain the rainy day fund would be available to the State if we had to deal with very extreme consequences as a result of a no-deal Brexit happening. It is one of the reasons we have it in place. Many have claimed it would not be available to help us deal with the harsher and more unpredictable consequences if a no-deal Brexit were to occur. I am confident that it would.
I thank all Deputies for their contributions. It appears some parties and Deputies will support the motion because they believe there is a need for a rainy day fund but they also accept the wisdom of not making a deposit to it now. It appears there are other Deputies who would support this motion because they do not believe in having a rainy day fund. In either circumstances, I believe the requirement to bring this motion to the House is the right thing to do. In this circumstance, the right thing to do is also not to make a deposit to it but it is open to the Government and future Governments to decide when to resume it and if they want to make a larger deposit in 2020.