The Minister for Finance, Paschal Donohoe T.D., today (Tuesday) announced that the Government has approved the publication of the legislation to establish the Rainy Day Fund, which will formally be known as the “National Surplus (Exceptional Contingencies) Reserve Fund.”
Minister Donohoe stated: ‘Establishing a Rainy Day Fund is a key commitment of the Programme for Partnership Government and the Confidence and Supply Agreement. This Bill is part of the Government’s strategy to enhance the resilience of the public finances and build strength in the economy to better safeguard our future. We are doing this alongside balancing the budget for the first time in a decade and maintaining a more sustainable tax-base’.
“The Rainy Day Fund will provide financial space, which can be drawn on in the event of a severe economic shock in order to help mitigate its effects. The lessons from 10 years ago illustrate the importance of having such a Fund in place so as to mitigate dramatic reductions in expenditure and increases in taxation at a time when the economy can least afford it. To adopt any other approach is putting our economy at risk for short-term gain.”
The Rainy Day Fund was a core element of both the Programme for a Partnership Government and the Confidence and Supply Agreement.
The Bill will be referred to as the “National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018.
Payments into the Fund
The Minister has set out that he will be seeding the fund with a €1.5 billion transfer from the assets of the Ireland Strategic Investment Fund. There will then be annual transfers of €500 million for the next five years. After that initial five year period the Government of the day can review and decide how to proceed. The Minister has also provided for a facility to lodge potential windfall tax receipts or income to the Fund where the Dáil so approves. This will be considered on a case by case basis.
Payments out of the Fund
The legislation provides for the Fund to be drawn down if there is a severe economic shock. To do this, the Minister for Finance of the day must be satisfied, on reasonable grounds, involving evidence and expert analysis, that a drawdown is necessary. The Minister will seek a Government decision to bring a proposal to the Dáil, and the Dáil will then vote on whether or not to draw down funds. This is the “triple-lock” that the Minister has referred to previously:
- Minister for Finance’s view based on expert advice;
- Government decision; and
- Dáil resolution.
The legislation also provides for a ‘contingency reserve’ to be created by way of a special exemption by which the annual payment into the Fund will not be made until the end of the financial year. This may be reduced by the amount – if any – paid out in that year to mitigate the effect of natural or other disasters. The contingency reserve can be accessed where there are unforeseeable costs arising as a result of a natural or other disaster. This could include, for example, for the purposes of mitigating the costs of exceptionally severe weather events, or of a major epidemic such as foot-and-mouth.