As part of our strategy for a secure future, two crucial financial provisions have been launched recently: the Future Ireland Fund and the Infrastructure, Climate and Nature Fund. These were introduced as key elements of the 2024 Budget.
These funds serve as vital tools in strengthening the durability of our country’s financial health by allocating a portion of tax returns as contingency for future adversity and unexpected setbacks the country may encounter.
They capitalise on Ireland’s present prosperous economic climate whilst being mindful of the unpredictability of corporate tax income, which has seen notable growth over the past half-decade. Ensuring the equilibrium of our economy by refraining from financing constant expenses through unstable and potentially fleeting tax revenues is critical.
The National Treasury Management Agency (NTMA) will supervise both funds, and the investment methodologies for each fund will be set by the NTMA with consultation from the Minister for Finance and Minister for Public Expenditure and National Development Plan Delivery and Reform.
By reserving a portion of our tax gain, we can mitigate some compelling expenses the nation will inevitably face due to evolving demographic changes, climate adaptation, digitalisation, and unexpected challenges yet to surface in the future.
The Government has pledged to invest roughly €4.1 billion, equating to 0.8% of GDP per annum into the Future Ireland Fund for the subsequent twelve years, commencing in 2024. The anticipated economic return of this fund will serve to alleviate future expenditure pressures.
Saving a portion of our tax revenue annually until 2035 will facilitate significant yield on the investment, allowing the Future Ireland Fund to expand potentially to up to €100 billion by 2035. Conscientious management will not only increase the fund’s size over the years but also ensure its sustainability as a fresh source of income.
The establishment of the Future Ireland Fund is intended to alleviate the prospective tax load on employed individuals and foster an intergenerational sense of unity. Concurrently, the Infrastructure, Climate and Nature Fund (ICNF) is being introduced with dual objectives.
The ICNF’s first role is to maintain financial support during an economic slump, safeguarding initiatives such as the National Development Plan. A pattern has been observed throughout our state’s history where capital spending significantly recoils in periods of economic depression. We must veer away from the sporadic, unpredictable investment in crucial infrastructure characteristic of our past.
Capital project cancellations or postponements have societal repercussions that are evident today. Attending to these past experiences is an essential step in order to learn from our mistakes. The allocation of €2 billion annually from 2024 to 2030 into the ICNF will provide a buffer for national finances during future economic shocks, while enabling continuous investment throughout the economic cycle.
The ICNF will facilitate the maintenance of regular, significant public capital investment in crucial areas such as housing, transport infrastructure, education, healthcare and renewable energy, among other large-scale projects. This persistent investment ensures not just project delivery but also provides support for job opportunities during times of economic requirement.
Whilst reflecting on past lessons is essential, the design of the ICNF also considers imminent challenges due to climate change and environmental degradation. This acknowledgement serves as the second purpose of the fund, providing the means to conserve resources to combat these issues.
A provision of up to 22.5% of the fund – totalling up to €3.15 billion – will be used for projects aimed at reducing CO2 emissions, enhancing water quality and advancing biodiversity between 2026 and 2030.
Certain groups have suggested allocating any additional fiscal resources to capital expenditure entirely, rather than reserving it in these two funds. However, refuting these suggestions, it is essential to consider the significant existing commitments under the National Development Plan in the forthcoming years.
The creation of these two funds marks a significant landmark for the nation. They present future administrations with the means to handle obstacles we anticipate encountering from 2040 onwards. This exemplifies the foresight that responsible governments practice.
From 2015’s €3.7 billion, capital spending has inflated to close to €13 billion in 2023. Currently, we’re witnessing a record-breaking high in capital funding. This includes financial outlay on infrastructures like public housing, roadworks, bridges, medical facilities, educational institutions, and public transportation.
Ryan refers to the Climate and Nature Fund as ‘a gamechanger’ in filling the financial void until 2030.
Over the course of 2024-2026, we’ve consented to delegate an extra €2.25 billion from the windfall corporate tax revenue to our capital schedule. Paschal Donohoe, the Minister for Public Expenditure, recently distributed these funds among the departments. At the same time, we must recognise our limitations in adding significantly more monetary resources for capital projects.
With the legislation’s publication, its legislative process through the Oireachtas will commence imminently. The aim being for its enactment prior to the summer break, allowing for the funds to be implemented later this year.
Michael McGrath is presiding as the Minister for Finance.