As the Dáil green-lights the establishment of two new fiscal funds aimed at buffering future financial pressures and potential economic disruptions, Finance Minister Michael McGrath emphasises the necessity for Ireland to take heed from its past “boom-bust approach to public capital investment”. The legislation has received a measure of criticism, with Sinn Féin finance spokesperson Pearse Doherty stating it to be insufficiently flexible and carrying the risk of undesirable implications for Ireland’s financial and economic policies.
The legislation will set up the Future Ireland Fund, a new sovereign wealth fund, which will annually allocate 0.8 per cent of the nation’s gross domestic product (GDP), derived from corporation tax income, starting this year. Its intention is to uphold state spend from 2041 onwards.
Moreover, an Infrastructure, Climate and Nature fund is being established, which will inject €2 billion annually from 2024 to 2030, with an aim to maintaining capital spending in the face of potential future economic shocks.
The minister has confirmed that the Future Ireland Fund and Infrastructure, Climate and Nature Fund Bill have garnered wide support among the Irish Fiscal Advisory Council, the Central Bank of Ireland, and even international entities like the European Commission and the OECD.
He warned against ignoring warning signs, taking into consideration the rapid advancements in crucial sectors like healthcare, home care and decarbonisation, where costs are predicted to surge due to an ageing population. Citing the previous approach to public capital investment as a cautionary tale, McGrath argued that unexpected shocks or downfalls would require precautionary action to prevent abrupt halts in public spending on essential infrastructure.
Refuting the wisdom of contraction in times of economic weakness, he maintained that consistent investment in areas such as housing and transport should be the government’s priority. This sentiment he observes, is echoed in the provision of the second fund.
Conversely, Pearse Doherty has indicated that while his party supports the concept of sovereign funds, particularly counter-cyclical investment funds, the design is as crucial as the formation of these funds, an area where he believes the current legislation to be lacking.
Expenditure amounting to 0.8% of GDP each year, equating to about €4 billion currently, is predicted to escalate to around €5.4 billion by 2030. According to the MP for Donegal, the size of these destined funds are substantial and come with a alternative cost, as they could also potentially be used for investments in fields such as housing and infrastructure, aspects that are crucial and cannot be overlooked.
The representative from Donegal indicated that the country is forecasted to have a budget deficit in 2026 and 2027. Procured under this law, the nation will, despite being in a deficit, channel €4.3 billion into the fund in 2026 and €4.5 billion the subsequent year, 2027. He articulated his apprehensions about the effects on other domains, like addressing the government’s housing issue, of codifying this stipulation in legislation.
Moreover, he stated that the funds could be invested domestically or internationally, which carries a risk of the majority of the fund being predominantly utilized for foreign investments in pursuit of better returns on interest. This large allocation of funds could present a major cost of lost opportunities for the nation. It could alternatively be used for essential infrastructural development in less prosperous areas, and enhancing offshore wind capabilities.
Mr Doherty claimed that if other jurisdictions were to gain from the investments made through this fund, while the nation continues to face considerable challenges in housing and infrastructure, those challenges which are currently hindering economic progress, it would be an opportunity lost.
The bill passed with a 77 to 34 majority and is scheduled for debate in the Seanad in the coming week.