A RAINY DAY fund set aside by the Government is anything but financially prudent, a Clare TD has warned.
In the Budget announced in September, the Government detailed plans to put €2bn into a rainy day fund in 2022 and €4bn in 2023 to give itself sufficient breathing space to respond to future challenges.
Both deposits were drawn down from the State’s excess corporation tax receipts were well above the €500 million that the Government is obliged to pay under the legislation governing the fund, which was drawn down in full in 2020 to fund emergency Covid spending.
State borrowing rates rose across Europe and the US in advance of the September Budget due to fears that central banks will have to increase interest rates very rapidly to control inflation. The large allocations to the rainy day fund provides some protection for the exchequer if there is a fall-off in corporation tax, where receipts in recent years have grown way in advance of projections. More than €21bn was expected to be collected in corporation tax in 2022, and more than €22bn in 2023.
Set up in 2019, the rainy day fund was allocated an initial €1.5 billion from the Ireland Strategic Investment Fund, but plans to add €500 million each year thereafter were quickly revised due to Brexit and the pandemic. The fund was then drawn down in full over the course of 2020 to offset the impact of a decline in tax receipts and an increase in emergency pandemic-related expenditure.
Deputy Michael McNamara (IND) shared his concerns, “I worry that this government’s rainy day fund, which is presented as financially prudent is anything but. Most of it will be used as a slush fund to fund current expenditure- as it was during Covid. Sure, that makes life easier for people in the short term but it does nothing to insulate them from the challenges of the future”.
He added, “We badly need to invest in transport infrastructure – a rail link from Shannon to Limerick to Dublin is just a pipe dream. There are no high speed trains on this island. All trains are diesel rather electric. Buses don’t run in time, if at all and timetables are not co-ordinated with rail or ferry timetables – as they were 50 years ago. We had a better transport infrastructure relative to other European states at independence than now. That’s damning. Our ports are inadequate to accommodate offshore wind turbines, our hospitals are inadequate to meet current demand, especially in the Midwest, and we have a young population demographic by European standards but that won’t always be the case. We’re running a surplus by economic accident, nobody can say a 25 percent ncrease in GDP in a year was anything other than stumbling on a crock of gold, an accident, or Leprechaun economics as the New York Times described it. The crock of gold will run out. It always does. history, and future generations, will judge us very harshly if there’s nothing to show for it”.
Parallels were drawn with the Fianna Fáil Government led by Bertie Ahern from 1997 to 2008 by the barrister. “Bertie’s governments, dependent as they were in stamp duty receipts, were despised in hindsight. At least they delivered a motorway network and a surplus of housing supply. This government, dependent on corporation tax receipts, appears to plan on leaving nothing more to future generations than a depleted slush fund”.
McNamara cautioned that continuing to defer strategic decisions will have an impact. “I’ve heard neutrality described as a historical accident and it may well be – as it is for Austria and, to a lesser extent, Switzerland – but like them, it’s one that has served us well geopolitically and economically. Now it’s increasingly and without any great analysis seen as a bit embarrassing, rather than an asset, by people who’ve never, and will never, hold a gun and have no proposals on what we’d sacrifice to fund the military spending required to fund an army like Finland’s or Austria’s (similarly sized-states) and a modern navy as well. Essentially, we’re sleep walking, deferring all strategic decisions”.
