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

I am pleased to be in the Seanad this afternoon to take Second Stage of the Future Ireland Fund and Infrastructure, Climate and Nature Fund Bill 2024. This debate follows an extensive engagement to date, including with the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach for prelegislative scrutiny, on Committee Stage in the Dáil and also with the budgetary oversight committee. I express my thanks to Deputies for their contributions to date. I know Senators will also want to contribute to the debate on this important Bill.

This Bill provides the legislative 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, NRF, the assets of which will seed the new funds. These new funds are a significant development in the Government's fiscal policy. This has been welcomed by the IMF, the OECD, the Fiscal Council, the ESRI and the Central Bank of Ireland in their economic analyses of Ireland. There are two key motivations to the development of these funds. The first is based on the assumption that a large proportion of the increase in corporation tax seen in recent years is potentially windfall in nature, which means it is 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. The second motivation for these funds is based on the fact that there are known and unknown structural challenges facing the public finances in the medium term posed by the so-called four Ds, which are demography, decarbonisation, digitalisation and deglobalisation. The Bill provides the structure to save and invest resources to deal with known and unknown long-term pressures on public expenditure, to support countercyclical expenditure and to help to address specific climate and nature problems. As part of the overall structure underpinning the establishment of the funds, the Ireland Strategic Investment Fund will continue to maintain a stream of investment in the domestic Irish economy.

As was a common theme of debate during the passage of this Bill through the Dáil, the Government recognises there is a need to maintain capital expenditure across a range of priority areas. This is reflected in the ongoing capital expenditure programmes across different Government Departments including housing, and in the creation of a countercyclical fund as part of the infrastructure, climate and nature fund. The Bill has four main features which are the establishment of and the rules underpinning the future Ireland fund; the establishment of and the rules underpinning the infrastructure, climate and nature fund; an annual economic and fiscal assessment to determine whether it is appropriate to make the full contribution to the funds and a potential accessing of the infrastructure, climate and nature fund; and the management of the funds by the NTMA.

The purpose of the future Ireland fund is to support State expenditure from the early 2040s. Each year from this year to 2035 - that is for a 12-year period - 0.8% of GDP will be paid into the fund from the Exchequer. This year that is approximately €4.1 billion. In 2024 a further €4.2 billion will be transferred to the fund from the national reserve fund before it is dissolved. With the contributions, growth in GDP and return from investments over the long-term horizon, the fund could grow to more than €100 billion by the time of drawdown. The Bill allows that up to 3% of the future Ireland fund can be drawn down each year from 2041. These resources will be available to help to support future expenditure pressures faced by the State, such as those relating to an ageing population, to climate and to the digital transition. They are not directed at any specific expenditure as the use of the resources from the fund is a matter for the Government of the day.

The infrastructure, climate and nature fund is the second fund proposed under this Bill. The purpose of this fund is twofold: first, 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 second, to provide support to projects that directly or indirectly contribute to climate change, nature, water quality and biodiversity objectives. An annual figure of €2 billion will be paid into this fund from 2024 to 2030, inclusive, which is a total of €14 billion.The contribution in the current year will come from the distribution of the national reserve fund. The countercyclical element can cushion the public finances in future economic shocks to help maintain investment in schools, hospitals and homes throughout the economic 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.

Separately, in 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 the allocation of resources to specific projects will be managed by the Minister for Public Expenditure, National Development Plan Delivery and Reform, with guidance developed by his or her Department, and will be managed 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, IFAC, 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 of the country. The Minister for Finance will produce his or her own assessment and have regard to the report of the council.

Where the Minister of 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, 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 is 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 actions, the Minister for Finance may, again following consultation with the Minister for public expenditure, propose to the Government and then to Dáil Éireann that the contribution to the future Ireland fund in the following year is 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 may, again 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 facing the country. I should be clear that where the criteria allow for a drawdown of the countercyclical element, and when there is climate and nature expenditure, in a year for 2026 up to 2030, up to 47.5% of the assets of the fund can be drawn down in one year, potentially.

The structure of each fund aligns with the existing structure for the Ireland Strategic Investment Fund, ISIF, which I know Senators will be very familiar with. The funds will be vested in the Minister for Finance and managed by the National Treasury Management Agency, 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 Ministers for Finance and Public Expenditure, National Development Plan 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, describe the types of investment it will not invest in, and describe 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 briefly set out the main provisions of the Bill. Part 1 contains standard general provisions, namely, 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 out of 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 provide 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 Part 2, section 8 provides for payments to the future Ireland fund. It provides that 0.8% of “relevant GDP” is paid to the future Ireland fund from the Exchequer each year between 2024 and 2035. It allows for further payments following a Dáil resolution. 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 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 and 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. Section 23provides for the Minister for Finance to prepare a review on the operation and effectiveness of the infrastructure climate and nature fund in 2031.

In Part 4, section 25 requires the Irish Fiscal Advisory Council to assess the economic or fiscal position of the State annually and make recommendations to the Minister for Finance in respect of actions to take in the following year regarding: 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. 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 fiscal council’s report in his own assessment. The purpose of this assessment is to determine the action to take in the following year regarding: 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 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 that 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's annual report.

In Part 6, section 33 amends the National Treasury Management Agency 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 ISIF 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, that 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. Finally, 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.

There has been constructive and meaningful engagement on this Bill so far, and I have no doubt that will continue in this House. The Bill arises from the need to deal with the future fiscal challenges faced by the State. The establishment of the future Ireland fund will help lessen the fiscal burden for the following generations. It would also deliver on the Government's ongoing commitment to creating and sustaining financial stability and developing economic resilience. The legislation also recognises the need to deal with present environmental challenges and to help preserve public expenditure throughout the economic 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 the potential economic or fiscal shocks. I commend the Bill to the House.