Minister to outline options for expected €65bn public finance surplus
The Taoiseach has said debt reduction, increasing some of the capital budgets, and the establishment of a new sovereign wealth fund, are among the options being considered for using expected surpluses in the public finances.
Leo Varadkar said: “We have an aging population and a growing population. While we might be in surplus now, that’s not going to be the case forever. And it’s better to plan ahead than find the future Government facing difficult decisions when the economy turns as it will inevitably.”
Asked about the costs of housing refugees and the affects of the lack of accommodation on the tourist industry, Mr. Varadkar said he was proud of the fact that Ireland has taken in over 100,000 people “from all over the world needing protection, and the vast majority of them have come from Ukraine”.
He said there was a cost associated with that and that has affected tourism in some parts of the country adversely.
“We are looking at different ways as to how we might be able to help out.
“But the biggest difficulty we’ve had in recent weeks and months is just being able to find more accommodation because we have a rising population and then roughly 100,000 refugees and asylum seekers who have come here.
“So, a real struggle just to find places but we are doing everything possible – refurbishing old buildings, building modular homes – but the scale of what we are facing is very significant,” he said.
The Minister for Finance, Michael McGrath has said expected surpluses in the public finances present a “once in a generation opportunity to make the nation’s finances safer”.
Speaking as he arrived for Cabinet, he said one of the options in terms of the use of the windfall receipts would include splitting an allocation between reducing the national debt, putting funding into a long-term reserve fund, and an option for some targeted increases in capital expenditure.
Minister McGrath said targeted spending on housing is an option but “it hasn’t been the case in recent years that funding has been the real constraint. The constraint has been in planning in delivery and labour, construction materials and so on”.
The minister said however that there is scope for some targeted increases in capital expenditure, “but in the main what this presents though, is a once in a generation opportunity to make the nation’s finances safer”.
He said he believes that this generation of politicians has an obligation to ensure that these windfall receipts are put to very good use.
“Because we know we cannot make permanent expenditure commitments and the back of receipts would prove to be temporary. So this is a wonderful opportunity,” he said.
Minister McGrath also said that there may be an opportunity for some increases in a very targeted way in terms of capital expenditure, “but in the main I think we do need to use these resources now. To make provision for the future, for future paths that we know are coming your way and also to reduce the debt, which makes the country’s finances more sustainable”.
His comments come as it is expected he will bring a paper to Cabinet today outlining options on how to manage the huge surpluses expected in the public finances over the next few years.
The expected surpluses are due to record levels of corporation tax, a big part of which is considered by the Department of Finance to be once-off in nature.
This year, even after a big increase in spending due to cost-of-living measures, the public finances are expected to produce a surplus of just over €10bn.
Next year, it is expected to be €16bn with the bonanza forecast to continue to 2025 with surpluses totalling €65bn.
The main source of this good fortune is corporation tax, which is expected to be just over €24bn this year. Last year, just ten US multinationals paid 57% of this tax.
The paper will sketch out a range of options to use what is believed to be a once-off windfall.
These options will include a new sovereign wealth fund, targeted increases in spending on infrastructure and paying down some of the national debt.
It is expected that a new national fund would differ from the existing National Reserve Fund, which has €6bn invested in low-risk Government bonds.
Instead, the plan would be to pursue a diversified investment strategy aimed at generating a positive long- term return drawing on the experience of similar funds which have been set up internationally including in Norway, Australia and Japan.
At previous Cabinet meetings, Minister McGrath has indicated his preference for Ireland to prepare for increased demographic costs.
That is because his Department estimates that, by 2030, age-related spending will be €7-8bn higher per annum than at the beginning of the decade.
No decisions or recommendations on these options are expected to be made at today’s Cabinet meeting.