Wednesday, 12 June 2019
National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018: Second Stage
I am pleased to appear before the House to take Second Stage of the Bill. The Bill is an important plank of the medium and long-term policies of the Government, putting our national finances on a sound and sustainable footing and building our resilience to external shocks. The national surplus reserve fund for exceptional contingencies, or rainy day fund, will be an economic buffer available for drawdown in the event of exceptional circumstances resulting in a sharp economic downturn. It has the potential to act both as a counter-cyclical tool and a contingency fund to support Government fiscal policy in mitigating the effects of a downturn. Steps taken by the Government and its predecessor, including proactive mitigation measures and the preparation of better crisis management plans, give me confidence that we are now better prepared to meet future crises. Nevertheless, with a strongly performing economy, setting reserves aside now will further strengthen our position.
I will now outline the Bill's provisions. Section 1 is a straightforward section comprising definitions. Section 2 sets out that the "National Surplus (Exceptional Contingency) Reserve Fund" will be established on commencement and that the fund's purpose is to hold assets for reasons specified in section 9.
Section 3 places a cap of €8 billion on the value of assets in the fund but allows any return to be held in the fund. In the current interest rate environment, we can expect a near-zero return or a small carrying cost. It is unlikely, however, that the cap will be reached for a number of years and it is expected the interest rate environment will normalise before then. While the cap has been influenced by a number of factors related to the carrying cost, a Dáil Committee Stage amendment provides for the Dáil to amend the cap up or down following a proposal from the Minister for Finance. The proposed overall size and contribution levels to the fund reflect that the carrying costs are effectively a trade-off in not reducing the national debt as they reduce the funds available for increases in public services, reductions in taxation or both. Concurrently, the existing State cash balances serve to reduce the required size of the fund as they would be the first draw in the event of a requirement for additional funds.
Section 4 provides that the fund be managed and controlled by the Minister for Finance and includes standard provisions on the keeping of accounts, audit formalities and the laying of audited accounts before the Oireachtas. The Minister's intention is to delegate his investment responsibilities in respect of the fund to the National Treasury Management Agency, NTMA, under section 28 of the National Treasury Management Agency (Amendment) Act 2000.
Sections 5 and 6 relate to the transfer of assets to the fund. Section 5(1) requires the Minister for Finance within 30 days of commencement to transfer assets not exceeding €2 billion to the fund from the Ireland Strategic Investment Fund, ISIF. The intention remains that the transfer will be €1.5 billion but a higher maximum has been specified to allow for some headroom in case some of the transferred assets transpire to have a slightly higher realised value. The Irish Fiscal Advisory Council, IFAC, has previously suggested that higher payments should be provided to ensure sufficient counter-cyclicality to offset faster-than-prudent growth rates. This would give the Oireachtas no clarity, however, as to the amount of ongoing payments and would further complicate the making of budgetary decisions. Instead, subsection (2) sets out that in each year from 2019 to 2023, the Minister for Finance is to transfer €500 million from the Central Fund to the rainy day fund, subject to subsections (5) to (7), inclusive. Under subsection (4), the Dáil can pass a resolution authorising additional transfer to the fund in a range of circumstances, such as if there are windfall tax receipts or a substantial budget surplus. It might also be used to augment the fund further in the years after 2023.
In the Dáil, some Opposition amendments were opposed by the Government on the grounds they sought to undermine the intention to have the fund provisioned as quickly as possible. As the fund is intended to protect the State in uncertain times, it is necessary to establish it now when the State has the resources to do so. Once established, use of the fund will be influenced by our wider preparedness for further crises but tail risks will always remain. As State funds are fungible, however, the rainy day fund cannot be viewed as being distinctly for one purpose. The most recent economic and financial crisis saw the State's financial reserves being used as contingency funds for funding public services and for counter-cyclical purposes for employment initiatives. As such, subsections (5) to (7), inclusive, create a form of in-year contingency reserve for those years 2019 to 2023, inclusive, where a payment of €500 million is due. Those payments will generally be made towards the end of the year and, therefore, if there is a serious event requiring substantial unanticipated expenditure, it will be possible to reduce the amount of the payment by the amount of the additional expenditure incurred.
The type of event is deliberately not described in greater detail than a natural or other disaster, as it is intended to refer to inherently exceptional events or those exceptionally repeated in a given year. Examples might be an exceptionally severe weather event causing enormous damage or a major health risk such as a significant outbreak of foot-and-mouth disease. The facility is not intended to substitute for prudent contingency budgeting. If used, any payment will be made directly from the Exchequer under the normal public financial procedures. In addition, the Minister for Finance will report to the Dáil on the reasons for making a reduced payment into the fund. If between 2019 and 2023 we move into a substantial deficit, it will not make sense to borrow for the fund.Therefore, section 6 is an escape clause to allow the Minister to propose a resolution authorising that the €500 million payment not be made. The Minister must be satisfied that making the payment would place an undue burden on the public finances and the resolution must be passed by the Dáil.
Section 7 is a technical amendment to the National Treasury Management Agency, NTMA, Acts allowing the Minister to direct the NTMA, as custodians of the Ireland Strategic Investment Fund, ISIF, to transfer assets out of it to another specified fund. It also obliges the NTMA to comply with that direction.
Section 8 sets out the high level investment strategy for the rainy day fund. It is designed to be conservative and maintain a highly liquid fund to ensure that, if a crisis gives rise to an immediate funding requirement, the money will be available at short notice. Subsection (3) gives specific authority to consider the net Exchequer position in deciding where and how to invest the fund, when it is not possible to conserve its full nominal value. When the Minister delegates the investment functions to the NTMA, investment guidelines will be drawn up based on this mandate.
Section 9 sets out criteria for drawdown of the fund which are of vital importance for effective operation. These criteria act as a triple lock. The first element is that the Minister is satisfied on reasonable grounds that drawdown is necessary to remedy or mitigate exceptional circumstances, to prevent potential serious damage to the financial system in the State or to support major structural reforms with long-term positive budgetary effects. The EU's fiscal rules do not currently make specific provision for the development of a rainy day fund. However, the fund could be used as a counter-cyclical buffer in response to exceptional circumstances rather than normal fluctuations within the economic cycle.
An economic crisis can be quite unpredictable in its effects, and there is no point having the money but being unable to access it because a specific threshold or condition is not met. For this reason, Government is reluctant to be strongly prescriptive within the Bill itself, but we are working on indicators which might best be used to assess whether exceptional circumstances exist. The second element is that the Minister brings a memo to obtain approval of a proposed resolution. Following Government approval, Dáil Éireann decides whether or not to approve the resolution.
Decisions on drawdown will take place in the full light of democratic scrutiny. There is a modification to this procedure set out in subsection (4), for cases of serious urgency. If the Minister believes, again based on reasonable grounds, that a payment into the Exchequer is urgently needed before the next sitting of the Dáil, with Government approval, the Minister may make the payment into the Exchequer. The Minister must then report to the Dáil on the payment and the reasons for it at the next sitting. I very much hope we never need to use this provision, but it is necessary to provide for a situation which might arise from an extreme crisis.
Section 10 requires the Minister to comply with a resolution of Dáil Éireann or the emergency Government decision and transfer the amount specified into the Exchequer. Drawdown is specifically only to the Exchequer. Any onward transfer will be subject to the full rigour of the public financial procedures and can only be made with Dáil Éireann's consent.
Section 11 is fairly standard in that any expenses, which are not expected to be significant, incurred by investing the fund will be chargeable to the fund. Section 12 sets out the Short Title and includes a standard commencement provision. Commencement is intended later this year, subject to Oireachtas approval, when the delegation order and investment guidelines are ready and when the NTMA confirms it is ready to make the transfer from the ISIF.
The constructive and meaningful engagement on this Bill thus far has contributed to a robust proposal. As such, this fund could help proactively mitigate a future serious downturn and deliver on a commitment in A Programme for a Partnership Government that it would also deliver on this Government's ongoing commitment to creating substantial financial stability and developing economic resilience. I commend the Bill to the House.
I thank the Minister of State for a comprehensive opening statement and I do not intend to repeat all the various measures and provisions included in the Bill but I want to say a few words about it. As a party, Fianna Fáil will be supporting this Bill which would effectively establish the rainy day fund. It was a fund that we proposed ourselves as a party back in 2015 and in early 2016 it was negotiated into the confidence and supply agreement that this Government has with Fianna Fáil. It was then included in A Programme for a Partnership Government as a result and it was included and committed to by the then Minister for Finance, Deputy Noonan, in the summer economic statement of June 2016. The Taoiseach, in his leadership campaign, said that he intended to raid the fund in June 2017 but in fact it had not been established at that stage.
In late 2018 it went through the Dáil and it is now coming into the Seanad to be established. I welcome that and it is a prudent and sensible thing to do at a time when our Exchequer returns are improving and positive to allocate some funds and build a bit of resilience because past experience has shown us that we will not always be on the up and we will not always be doing well. Shocks happen, though we wish they did not and it would be great if they did not. Sometimes they do not happen for long time. However, what goes up generally eventually comes down.
At the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach not that long ago, one of the chief executives of one of the banks said that we are closer to the next recession than we are to the last one. In recent days the Irish Fiscal Advisory Council has pointed out that there are challenges and that as a State we have been quite lucky with the interest rate on the national debt and that we have been lucky to receive such a windfall in corporation tax payments. Bring them on, and the more we have the better, but the Irish Fiscal Advisory Council pointed out that of the €10 billion or so, between €3 billion and €6 billion of it could be at risk. I know Members may disagree with that but this is the Government's own watchdog saying it. It is not some critic or Opposition spokesperson just throwing it out there.
It is a prudent and sensible measure to do what we are doing. We are a small, open economy and we are particularly vulnerable to global changes. It is fair to say that there may be movements in the Organisation for Economic Co-operation and Development, OECD, and other places to deal with digital taxation, to deal with how the world taxes its resources and to deal with how those taxes are allocated, whether they are based on where the value was created, which would often be here, or whether it is based on where it is consumed, which would often not be here and that brings challenges.
Ironically, maybe the base erosion and profit shifting, BEPS, process and other processes have meant that we have been beneficiaries of intellectual property being moved into Ireland and taxed. As a result of that, we have been beneficiaries but equally, if it can move in that easily maybe it can go as easily. I do not wish it to and I would hope that we manage to keep it but it is an important feature to have. I know there are some people who will criticise that approach and say we should spend all the money now but it is a time of relative good fortune in our economic position, with interest rates historically low, with the national debt being much cheaper than it normally is to service, and with our corporation tax receipts being much better than they have been in a long time, so it is important.
However, we have challenges as the Minister of State knows and most of the Members of this House appreciate the challenge of digital taxation and receipts and so on as well as the challenge of Brexit and potentially a no-deal Brexit, which is not something any of us want to see, in this country at least. It is a possibility, however. Senator Feighan of the Minister of State's party made reference on the Order of Business yesterday to having been in Westminster on Monday. He referred to the level of uncertainty and said that he was more concerned about a no-deal Brexit now than he had ever been. It is not something any of us want to see but it is something we must prepare for.
I welcome the mechanisms that are there to lock in that money and that it is not easily squandered or raided. There are mechanisms in place, which the Minister of State outlined, to make sure the money is only used for what it is supposed to be used for. However, it does make sense that we allocate this money in the next few years and bring it up to a figure of €8 billion. The Minister of State referenced a Committee Stage amendment from Fianna Fáil that said that cap can be moved and that if we were doing exceptionally well it could be decided that a little bit more would go into the fund, or equally, if there were times when it was really needed the money could be reduced. It is a good idea to put in €1 billion over the next few years and then €500 million or whatever it is in each of the following years.It is a substantial amount of money - €8 billion. We sometimes forget the size of it. We have a national debt of almost €200 billion, but €8 billion is a very significant amount of money. It could go a long way towards providing a bit of resilience or wriggle room if there was a time, as there was in the living memory of all of us, of shock or challenge. Whether it be global recessions, banking crises or whatever, we hope we have built-in mechanisms that will never allow those situations to develop in the same way again, but shocks will happen. We are dependent on a small number of corporations for a significant proportion of the corporation tax and if any one of those companies was to fail or not do well, or even relocate out of this jurisdiction, we could quickly have a significant hole, which is not something I hope for.
I wish the Bill swift passage through this House and into enactment. I thank the Minister of State for being here today. It is an important piece of legislation. It is an example of new politics working well.
I welcome the Minister of State. I will be brief.
First, I thank the Minister of State for his speech on the National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018. I thank him for his clarity on what is the central tenet of this legislation. As the previous speaker, Senator Horkan, stated, it is timely. It is prudent. It is the right thing to do. It is a wise decision. When we boil it all down to the micro level, would we not all like to be in a position to do that in terms of our personal finances on a much smaller scale? It is relevant and it is right, and it is the prudent thing to do.
We are conscious of the fiscal advisory council's cautions in the past few weeks, particularly in the past week. I will not rehearse that here, but it is a gentle and constant reminder that we all must be prudent and keeping an eye on the ball regarding the nation's finance.
I support the Bill. It is important. It includes a significant capping of €8 billion. I wish the Minister of State every success and that we have a clear passage and get this vital legislation through the Houses.
I welcome the Minister of State, Deputy D'Arcy, to the House. I very much welcome this Bill. I was just recalling when this came up for discussion. I would have looked for such a rainy day fund in 2008 or 2009. Therefore, it is not a new concept. However, it is a welcome concept. The fact that it is now happening and we are able to afford to pay money into a rainy-day fund shows that the state of the economy has improved considerably in recent years and we are now back to the finances being in a sound position and able to provide for the so-called "rainy day".
There are a few observations I wanted to make. The Minister of State speaks about the management and control, keeping the accounts and whatever. A question I want to ask concerns the level of funds that will be kept in liquid form. For example, there was the National Pensions Reserve Fund. Will the fund's criteria be along those lines that we need to hold a certain level of liquidity? Once the NTMA takes over management of the fund, what level of liquidity will be required to be maintained?
If the Government reaches a situation where there is a crisis and the funding must be availed of, let us say, the Government has €8 billion in the fund and we reach a situation where there is a major financial disaster and the money has to be used, are there any measures within the Bill or being looked at to expedite replenishment of the fund when we reach a point at which we are back in a sound financial position? What will the criteria be? The fund will be built between 2019 and 2023.
I very much support the measure that applies if we have windfall gains. These are the two aspects I want to ask about. I suppose my first question is, will the rainy-day fund be included in the calculation of the national debt? Will it have a netting effect and reduce the national debt? If we have €8 billion, will it count against the gross national debt? Second, if we have a windfall tax, how would the Minister decide on whether that should be used to reduce the national debt level or paid into the rainy-day fund? What criteria will be used to determine that decision?
I note in the Bill that if one were to draw down money from the fund, it would have to come from a proposal from the Minister. If there were a situation where someone other than the Minister decided to put a motion down in the Dáil for the fund to be accessed and that particular measure found support in the House, what would be its legal status vis-à-visthe Minister in his capacity in terms of controlling the fund? I suppose those are the details.
We need to enact this legislation as quickly as possible. It is something that should be used, as it is described, for a rainy day. It is being kept in broad strokes but irrespective of who is in government, will the Minister of State be defining the type of criteria that will be used to determine the level of contingency that might arise, for instance, a natural disaster or putting counter-cyclical measures in place, or does he believe it is inappropriate to include such a measure and he must leave it at the discretion of the Minister for Finance and Government of the day to make that decision in terms of the fund?
I welcome the Bill. I thank the Minister of State, Deputy D'Arcy, for his work on this Bill and many other measures, and for coming before the House in a regular fashion and dealing with the aspects. I wish it fair passage. However, when it comes to it, and the fund is up and running, it is important that there would be some element of Government guidelines on how one defines contingency, how one defines, for example, a disaster, when one can make counter-cyclical payments out of the fund, and what its status is vis-à-visa motion put down by the Dáil. It is extremely important that it is structured in a way that, if need be, it can be accessed quickly.
This fund is not necessarily about making huge investment returns. It is about having a fund in place that, if we reach a situation where there is a crisis point, we can access it to spend in the best interests of Ireland.
Sinn Féin opposes this Bill. We do so not because we are against the idea of saving up responsibly to invest in the future.
In many ways, the Title of this Bill is misleading. Most people understand a rainy-day fund to be a mechanism to allow for investment whenever the economy begins to slow down, but this Bill calls for vast sums to be put aside now, and yet has limited criteria as to when and why it can be drawn down. Ask most people what the major issues we face are and they will say they are housing, healthcare provision, climate change and the cost of living. Nothing in the legislation before us allows funds to be drawn down to address any of those problems.
The National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018 will see up to €2.5 billion of citizens' money transferred to the Government's reserve fund. The only purpose of this fund, according to the legislation itself and its operation with the fiscal rules, is for money to be drawn down in order to spend in the event of a natural disaster or to provide liquidity to the banking sector.As the Parliamentary Budget Office has noted, the best policy for responding to natural disasters such as flooding is to mitigate risk by investing in preventive measures such as flood defence and relief schemes, thereby reducing the likelihood and scale of damage caused by natural disasters such as flooding. Despite this, the Government has cut capital funding in flood risk management for 2019 by €3 million.
The other explicit purpose of the reserve fund is to provide money for the banks. The evidence and options before us, and the provisions of the National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018, lead only to the conclusion that the reserve fund is designed to recapitalise the banks if they repeat the reckless behaviour of the past. The tools should be in place and strengthened Europe-wide to ensure that the sovereign is separate from the banking industry and that it is the shareholders, not the citizen taxpayers, who foot the bill for banking crises, and pay to sustain their solvency.
Sinn Féin rejects any fund that could see up to €8 billion of taxpayers’ money wasted to provide assurance to the banking industry should it want another bailout. The National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018 should be radically changed or swiftly rejected. In its current form, the Bill designs a reserve fund that cannot deal with the challenges that will face our society in a future downturn. Instead of investing resources in infrastructure, housing, green technologies and jobs for the future, it diverts resources into a fund that will only be used to recapitalise the banks. Instead of wasting resources in this way, Sinn Féin has brought forward a number of proposals that will future proof our economy and invest in the future, while mitigating the risks posed by Brexit and climate change.
Sinn Féin would establish a €2 billion Brexit stabilisation fund to support businesses and communities most exposed to Brexit as a result of disruptions to North-South and east-west trade. The fund would be resourced with €500 million of Government revenue annually in 2019 and 2020, in addition to utilising €1 billion from the Ireland Strategic Investment Fund, ISIF. This fund would then be deployed to boost capital investment in affected regions, to provide localised assistance for exporters in the agrifood sector, and to form investment partnerships with local councils to invest in the regeneration of towns and communities. Sinn Féin would increase the levels of investment provided for in the national development plan allocation for housing in the period 2019 to 2023, significantly increasing supply. Sinn Féin has also advocated an increase of €1 billion in capital investment for 2019 in our alternative budget. We need to increase capital investment across Departments for transport, housing, education, health, communications, environment and climate action, and dramatically increase the resources allocated under the national development plan in the period 2019 to 2023.
To respond to uncertainty in the times ahead, investment is required in our infrastructure, in the skills and education of our people, in housing and in developing a secure and stable economic base upon which our country can rely in the future. I put it to the Minister of State that we believe this would be a much better way to put funding away. We are very concerned. Perhaps the Minister of State could say something that would reassure me that we are not putting away this money to be used, again, to bail out the banks. The Minister of State will be aware that many problems have still not been fixed within the banking system; not only in Ireland but also Europe-wide and globally. Are we going to be here to pick up the pieces again? The Minister of State has said that capital ratios have improved within the banking sector but I believe there are serious aspects still to be considered. I do not want to see citizens having to pay out again in addition to the €67 billion that we are already paying out, the effects of which people are still suffering. I would rather see money invested in people, and especially in children with disabilities who cannot get the vital services and supports they need. We spoke earlier of physiotherapy and all of those services. I would rather see funding directed to investment in our people and in people who are currently being marginalised and deprived of funding in all of these areas, rather than the funding being left to one side just in case the banks collapse again.
I welcome the Minister of State to the House. The proposed legislation carries on from something that was here in the past that is still inactive. The former Minister for Finance, Charlie McCreevy, set up the National Pensions Reserve Fund with the whole purpose of setting money aside from surpluses or unforeseen funding that came into the Exchequer if such eventualities as this might occur. The sad part of the National Pensions Reserve Fund is that when the State hit a recession we used the money to bail out the banks and to buy stakes in the banks. Perhaps it should have been used for purposes such as this fund is proposing, such as infrastructure during times of economic hardship.
I have some questions for the Minister of State on this fund. Provision is made for all of the reports from the Minister for Finance to be put before Dáil Éireann. Can the Seanad be included in that? Perhaps a report could be made to the Seanad on where and how the money is being spent. Is it possible to include that within the legislation?
I am a bit worried about the fact that when the Dáil is not sitting, the Minister would have the right to make a decision on the fund. It is not that difficult to recall a Dáil in emergency situations. I believe it would be appropriate to consider the possibility of recalling the Dáil if it is during a non-sitting period, rather than the Minister of the day going ahead and making a decision. Sometimes I get nervous about situations such as that.
Sinn Féin has already referred to the fund being used to bail out the banks. If this provision is to be part of the legislation we should be looking at putting a levy on the banks to put money into the fund. If the fund is to be used for financial institutions and if it is to be part and parcel of the legislation, the banks should be paying into the fund also.
The Minister of State has described the fund as a "highly liquid fund". Will the Minister of State explain this to the ordinary Joe Soap like myself who might not understand what is meant by that? Is it referring to cash or shares, or is it something else? Perhaps the Minister of State will describe that.
Reference has been made to not making additional money from the fund through investments and so on. What types of proposals has the NTMA suggested to the Minister of State about where this allocation of money might be placed? The Central Bank and the NTMA hold a lot of cash reserves currently. Perhaps the fund might be used in that way.
With regard to the EU and the implications the fund might have for Ireland's overall national debt, have there been positive indications from that perspective around Ireland being able to borrow for day-to-day spending? The EU has set aside certain criteria and has the fund been taken into account for this?
Overall, as with any business, it is important to set aside money for potential calamitous events, or if a small business is struggling with cashflow problems. I welcome a measure such as this.With respect to the €8 billion figure, it might not be sufficient. We should not so much have a cap on the value of the fund and when it reaches €8 billion but should allow it to increase further.
Overall, I welcome the Bill. It is a positive move. I am a little nervous about the way in which we can use it. I would have preferred if we had used the National Pensions Reserve Fund for infrastructural works. We would have got more benefit from that fund than from putting it into the banks.
I thank Senators Horkan, Boyhan, Kieran O'Donnell, Conway-Walsh and Lawlor for raising these issues. I will deal with the questions raised. Senator O'Donnell asked about the liquidity of the fund. I am proposing a highly liquid fund which will be held as a near cash fund so that it can be accessed very quickly if required. Senator Lawlor asked the same question. This would distinguish it from longer-term investment funds such as the Ireland Strategic Investment Fund or sovereign wealth funds. It will ensure that when we need the rainy day fund it can be drawn on without having to crystallise losses, potentially in adverse market conditions. I intend the funds' assets to be kept as cash deposits or fixed income financial instruments or products. There are carry costs associated with maintaining a near cash fund and in the current interest environment, it suggests a near zero return. With interest rates expected to normalise over the coming years, I expect in the medium term the fund should have low but positive rates of return.
Regarding whether the fund is part of the national debt, it would be part of the national debt because it will be cash on hand. Our national debt is what we owe, what we have borrowed, what the sovereign owes, but there are cash balances that will form part of what will be our net debt rather than our gross debt.
Senator Kieran O'Donnell asked if the fund be replenished. That would be decided by another Dáil. We are putting in the initial tranche of €2 billion and between 2019 and 2023 the legislation states we will put in €500 million per year each year. Subsequent to that, if the Oireachtas chooses to add to that or continue that policy, the law can be changed. However, this legislation provides that we will put €500 million per year into the fund. If there is change of Government next year, it can change that provision if it sees fit. That is a matter for different parties with their respective views and their different ideologies.
In terms of a windfall tax, we are passing the legislation to ensure that €500 million per year will be put into the fund plus €2 billion at the start of the process. If there is a windfall tax, that is a matter for the Oireachtas to decide on in the future. If we get an enormous amount of money from some entity somewhere that we have not predicted, it can be put into the fund but we would question putting in more than €8 billion into a near cash fund. We do not believe that would be prudent. If we put it into a near cash fund, it may cost us a small amount of money or we may earn a very small amount of interest on it. Why would we do that while at the same time potentially continue to borrow in the future? Last year we had a surplus and we are not borrowing for the likes of this fund. We hope we will have a surplus this year but who knows what will happen in two or four years' time, depending on the economic markets and the economic cycle that we potentially may or may not be in? We believe €8 billion is enough to have in a near cash fund. We do not believe it is prudent to go beyond that amount.
Only the Minister for Finance can present to the Dáil in respect of the fund. Senator Kieran O'Donnell asked in the current context, where we have a minority Government, whether a finance spokesperson could present a measure in Dáil to access the fund and be successful in a vote in the Dáil for the money in the fund to be spent on something else. The answer to that question is "No". Only the Minister for Finance can present in that respect.
Senator Kieran O'Donnell also asked whether it appropriate to prescribe the type of event for which the fund could be used. We do not believe it is appropriate. We want to leave it broad and general so that the law does not prohibit the potential allocation of funding via the Minister for Finance to the Dáil. A flexible open arrangement is in place in terms of the legislation rather than it being more prescriptive. If we were more prescriptive an event could occur that nobody would had thought about and because the use of the fund for that purpose has not been prescribed, we would not be able to allocate funding towards it.
I thank Senator Conway-Walsh for her question. Her view is that we should be spending the money in this fund now.
Perhaps I mistook what she said. I understood she said we are not spending enough on health or on housing but we are. We will spend €18 billion on health in 2019. We have never spent more on health. In terms of housing, we are spending €2.4 billion. Again, we have never spent more on housing. The issue is whether we keep spending more money on those sectors but perhaps not get value for money. I believe we are spending enough. The issue is that we have to set some money aside when the tax-----
Senator Conway-Walsh has pulled me up previously stating that I mistook what she said to me and I do not want to do that now. What I am trying to do is to give an explanation. This fund could potentially be a Brexit stability fund and perhaps the Senator will vote in favour of the Bill.
This fund could potentially be used for a banking crisis. It is open enough and we are not prescribing exactly what its usage will be but it is not intended for a banking bailout. I want to be very clear on that. Thankfully, we are post the banking crisis but when it happened we had no structures in place as to how we would recapitalise the banks except to provide funds directly from the sovereign. The work done in the past decade has been to break the link between the sovereign and the banks. I want to put on the record, and it is important to be clear on this, that a core objective of the EU banking union is to separate the sovereign from the banks and prevent the use of state funds to bail out banks. The existing structures have been in place for a number of years. The EU banking union provides for a single potential supervisor through the single supervisory mechanism, SSM, a single rule book and a single resolution mechanism. This aims to improve co-ordination and mitigate against negative spillover in the future. The banks in question, the major banks on the Continent that are part of the eurozone, are regulated not by the Central Bank of Ireland or individual central banks but by the European Central Bank. That is why we are breaking the link between the individual banks in individual jurisdictions and the reason they are regulated by the European Central Bank.
The bank recovery and resolution directive is designed to impose the cost of bank failures on the banks, their shareholders and the holders of their eligible liabilities - that is for a bail-in. That directive, which has been passed, is part of European and Irish law to ensure that we do not go back to the sovereign and that the era of doing so has ended.
Based on these and on the wider banking union changes and the more intrusive and assertive regulatory regime, I would not expect the national surplus reserve fund to be required to bail out banks. The regulatory landscape has been overhauled completely at national level since the crisis with the introduction of the Cental Bank Reform Act 2010, the Central Bank (Supervision and Enforcement) Act 2013. In addition, the Central bank of Ireland is acknowledged now as being one of the most robust and challenging institutions in Europe. The so-called light touch regulation is a thing of the past. The Central Bank of Ireland operates as an agent of the European Central Bank. These are the structures that are now European wide and European based to ensure that the era of bailing out a bank has ended and that the bailing-in happens through shareholders and the bondholders who invest in banks.
Senator Lawlor asked whether it possible to include the Seanad in terms of reports relating to the fund.It is not something that was put to us before and I will be looking at it.
In regard to the question of what happens if the Dáil is not sitting, we had this debate in the other Chamber. Some absolutely unforeseen catastrophe could befall the State and it may not be possible to recall the Dáil. For example, only 15 or 16 months ago there was a massive snowfall. If an event happens and it is not possible to reconvene the Dáil, the flexibility is there for the Minister to make a determination that there can be an allocation of funds, whatever that extreme event is. Subsequently, however, the Minister must present at the next Dáil sitting to explain the circumstances. We are putting in place this flexibility but we hope and anticipate it will never be used.
I touched upon the issue of the liquidity of the fund. The National Treasury Management Agency will be the custodian of the fund. It does a good job, better than most. I believe I have dealt with all of the issues.
Victor Boyhan, Colm Burke, Paddy Burke, Jerry Buttimer, Maria Byrne, Lorraine Clifford Lee, Paudie Coffey, Martin Conway, Paul Daly, Gerry Horkan, Colette Kelleher, Anthony Lawlor, Terry Leyden, Ian Marshall, Gabrielle McFadden, Michelle Mulherin, Catherine Noone, David Norris, Kieran O'Donnell, John O'Mahony, Joe O'Reilly, James Reilly, Neale Richmond.