State’s rainy-day fund under review and not in existence, PAC told

There is no money in the Government’s rainy-day fund which Taoiseach Leo Varadkar plans to raid for vital infrastructural projects because it does not exist yet, the Public Accounts Committee (PAC) was told on Thursday.

Department of Finance chief economist John McCarthy told the PAC that the fund would not be established until 2019. He was responding to a question from committee chairman Seán Fleming, who said there was a public perception that the fund was already up and running.

“There’s nothing in it yet, but there is a provision at the moment for €1 billion to be provided in 2019, 2020 and 2021,” Mr McCarthy said.

He said the Government planned to put money into the fund once it had balanced its books and was running a budget surplus, which it expected to do in 2018.

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However, Mr McCarthy said the operation of the fund was currently under review and an update would be delivered in the Government’s Summer Economic Statement next week.

During the recent Fine Gael leadership race, Mr Varadkar indicated he might scrap the rainy-day fund, intended by former minister for finance Michael Noonan as a buffer against future shocks. Mr Varadkar suggested that he might use the money for capital projects instead.

Overheating

However, the Minister for Finance Paschal Donohoe appeared to pour cold water on the prospect of a major capital splurge on infrastructure during an appearance at the Oireachtas finance committee on the same day.

He warned that as the State approaches full employment a hike in capital expenditure could overheat the economy, pushing up prices and eroding competitiveness, similar to what occurred in the mid 2000s.

"We have to ensure that as we release investment into our economy that it actually turns into investment as opposed to what happened previously," Mr Donohoe said. As it stands, capital expenditure would be nearly 50 per cent higher next year than it was in 2014, and double the 2014 figure by 2021.

However, business groups, such as Ibec, highlight that the average annual capital spend here from 2015-2020 will still be below 2 per cent of gross domestic product, which is less than in many peer countries, and insufficient to deal with the current infrastructural challenges.

On the State’s €200 billion-plus national debt, Mr Donohoe said the figure was coming down as a percentage of our national income and that the sale of State holdings in the banking system would be one way of accelerating this process.

He said the quickest way of driving down debt was running budget surpluses, noting the Government was on course to balance its books next year before running a moderate surplus in subsequent years.

Earlier, Mr McCarthy said that, on a per-capita basis, Ireland was the second-highest indebted country in the world behind Japan. He noted that the Government holds debt equating to €42,000-€44,000 for every person in the State.