Jonathan O'Brien (Cork North Central, Sinn Fein)
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45. To ask the Minister for Finance if funds held in the exceptional contingencies reserve fund, as currently designed under the National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018, could be withdrawn to invest in capital expenditure or fund welfare payments during an economic downturn, exceeding the Expenditure Benchmark under the fiscal rules. [25549/19]

Paschal Donohoe (Dublin Central, Fine Gael)
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There is a commitment in the Programme for a Partnership Government to establish a Rainy Day Fund. Creation of the Fund forms part of Government’s policy to stabilise the public finances and increase the State’s resilience to external economic shocks.

The National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018 was published on 24 October 2018 and is now before the Seanad.  

The actions of this Government and its predecessor including pro-active mitigation measures and preparation of better crisis management plans give me confidence that we are now better prepared to meet future crises. That said, with a strongly performing economy setting reserves aside now will further strengthen our position.

The RDF is intended as a reserve fund which may be drawn upon under certain circumstances, particularly severe economic downturns. Creation of the Fund forms part of the Government’s policy to stabilise the public finances and increase the State’s resilience to external economic shocks.

One criteria for drawdown of the Fund is that it can be used to remedy or mitigate the existence of “exceptional circumstances” in the State. Under the Fiscal Responsibility Act 2012 “exceptional circumstances” are defined as either a period of severe economic downturn or a period during which an unusual event outside the control of the State has a major impact on the financial position of the general government.

It is also envisaged that the occurrence of a force majeure event could justify deployment of the Fund. This could include events such as: a natural disaster; public emergency; or other unforeseen one-off occurrences.

The RDF is intended therefore to be used as a defined-purpose instrument to address severe events as opposed to the normal fluctuations within the economic cycle.

This approach would align it with the current EU fiscal rules framework, whereby it could be accommodated as an “unusual event” under the existing Stability and Growth Pact (SGP) provisions.

In the event of a severe downturn, the Fund could be used to support capital investment. This would enable us to maintain the infrastructural development to support future economic recovery and growth.

It is proposed that withdrawals from the RDF will be transferred to the Exchequer so as to support the State’s expenditure with positive supply side effects.

Eamon Ryan (Dublin Bay South, Green Party)
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46. To ask the Minister for Finance the measures he will consider to support the economy in the event of a sharp recession caused by international risks, such as those referred to in the recent report of the Irish Fiscal Advisory Council. [25552/19]

Paschal Donohoe (Dublin Central, Fine Gael)
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The risks posed by an external shock to our economy have been consistently highlighted for some time by both myself and my Department. These risks are being managed by building-up our fiscal capacity through broadening our tax base, debt reduction, targeting improvement in the general government balance, and establishing the Rainy Day Fund.

The tax base has been broadened by a series of measures, most recently by extending the standard rate of VAT to the tourism sector. These policies will help improve the resilience of the public finances to shocks to various sectors of the economy.

Separately, our debt as a percentage of GDP has almost halved from a peak of around 120 per cent in 2012 and continues on a downward trajectory. However, our debt burden remains elevated when measured as a share of modified GNI. Accordingly, this Government has committed to further utilising resources realised from the resolution of the financial crisis towards reducing this burden.

A small Exchequer cash surplus was achieved last year, the first underlying surplus since 2006. A general government balance of 0.0 per cent of GDP was also achieved in 2018. A surplus of 0.2 per cent is targeted for this year, improving to 0.4 per cent in 2020 under current assumptions.

Furthermore, the Rainy Day Fund will be established this year with an initial capitalisation of €1.5 billion from the Irish Strategic Investment Fund. Some of the historically high levels of corporation tax will be set aside for this fund, with an annual contribution of €0.5 billion budgeted. From the perspective of the sustainability of the public finances, this means the risk of permanently increasing expenditure on the basis of transient receipts is reduced.

The potential impact of an external shock is being mitigated by focusing on competitiveness-oriented policies. Capital expenditure has been prioritised to address the bottlenecks to growth which emerged during the recovery, such as the need for more residential development and public infrastructure investment. Total capital expenditure is set to more than double from €4.2 to €8.6 billion between 2016 and 2021. Such sustained levels of investment will increase our capital stock, improve the long-term growth potential in the economy and help build resilience to external shocks.

The Summer Economic Statement, to be published later this month, will set out the Government’s overall economic and budgetary strategy and establish the parameters for the forthcoming Budget, particularly in the context of the increase probability being assigned to a disorderly Brexit.