In recent days, I published landmark legislation to establish two new funds that will help to ensure a more secure future for our country: the Future Ireland Fund and the Infrastructure, Climate and Nature Fund, which I announced as part of Budget 2024.
The establishment of these two funds is a crucial step to ensure the continuing resilience of Ireland’s public finances. This will be achieved by setting aside part of our tax receipts to deal with the challenges we will definitely have to face in the future and enable us to deal with any unforeseen challenges the State may face.
These funds will take advantage of the favourable economic conditions that Ireland is currently experiencing, while recognising the volatile nature of the corporation tax receipts that have increased substantially in the past five years. It is critical for the stability of our economy that we avoid embedding permanent expenditure funded by taxation receipts that are volatile and could prove to be temporary in nature.
Both funds will be controlled and managed by the National Treasury Management Agency (NTMA). The investment strategy for each fund will be prepared by the NTMA and the Minister for Finance and Minister for Public Expenditure, and National Development Plan Delivery and Reform will be consulted.
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Setting aside part of these windfall tax receipts will ensure we can offset some of the real costs we know the State will face in the future due to the changing demographics of our country, the climate transition and digitalisation and as yet unforeseen challenges the State may face
The first of the funds is the Future Ireland Fund and the Government is committing to contribute 0.8 per cent of GDP per year, which is roughly €4.1 billion in 2024, for the next 12 years. This money will be invested on a commercial basis with a view to generating income that can be used to help deal with future expenditure pressures.
Saving some of our tax receipts each year up to 2035 will mean we can generate returns on that money.
This will allow the Future Ireland Fund to grow to a significant size by 2035, potentially up to €100 billion. The careful management of the fund over the long term will ensure that this is a sustainable new revenue stream.
Setting aside part of these windfall tax receipts will ensure we can offset some of the real costs we know the State will face in the future due to the changing demographics of our country, the climate transition and digitalisation and as yet unforeseen challenges the State may face.
By establishing the Future Ireland Fund now, we will go some way to reduce the future tax burden of working people and establish a degree of solidarity across the generations.
The second fund is the Infrastructure, Climate and Nature Fund (ICNF), which has two purposes.
The first is to support countercyclical expenditure in the event of an economic downturn; to safeguard, for example, the commitments of the National Development Plan. Throughout the history of the State, during economic downturns capital spending has seen significant retrenchment. We have to get away from the stop-start or boom-bust approach to investing in vital infrastructure that has been all too common in the past.
As a consequence, it takes time to restart projects and we can see today the impacts on society of cancelling or delaying capital projects. We must learn from these experiences. Setting aside €2 billion a year from 2024 until 2030 in the ICNF will help cushion the public finances in the event of a future economic shock, while ensuring we can invest through the economic cycle.
This fund will ensure we can maintain a consistent high level of public capital investment in housing, transport infrastructure, education, healthcare, renewable energy and other major infrastructure projects. This will not only ensure that capital projects are delivered, it will also support employment at a time when our economy will really need it.
While important to learn from the lessons of the past, the design of the ICNF also recognises the challenges the State faces from climate change and the degradation of the natural environment. This is the fund’s second purpose and will enable the setting aside of resources to deal with these challenges. Up to 22.5 per cent of the fund per year, up to a total of €3.15 billion, is being provided for projects that will help reduce CO2 emissions, improve water quality and improve biodiversity over the period 2026-2030.
There have been calls from some that any additional fiscal resources available to the State should be allocated in full to capital expenditure and not set aside in these two funds. I would counter those calls by highlighting the significant existing commitments under the National Development Plan over the coming years.
The establishment of both of these funds will be a milestone for the State. They will enable future Governments to manage the challenges we know we will face from 2040 onwards. This is the type of long-term planning that responsible governments engage in
Capital expenditure has increased from €3.7 billion in 2015 to almost €13 billion in 2023. The overall level of capital funding is now at an all-time high, including expenditure on social housing, roads, bridges, hospitals, schools and public transport.
We have agreed to allocate an additional €2.25 billion of windfall corporation tax receipts to our capital programme in the period 2024-2026 and Minister for Public Expenditure Paschal Donohoe recently allocated this funding across departments. In addition, we have to acknowledge that there are capacity constraints on our ability to add significantly more fiscal resources for capital projects.
The establishment of both of these funds will be a milestone for the State. They will enable future Governments to manage the challenges we know we will face from 2040 onwards. This is the type of long-term planning that responsible governments engage in.
Now that the legislation has been published, it will shortly commence its journey through the Oireachtas with a view to enactment before the summer recess and having the funds in place later this year.
Michael McGrath is the Minister for Finance
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