Second transfer brings rainy day fund to €6bn

Finance Minister Michael McGrath says Ireland must prepare for 'unforeseen challenges'. Photo: Gareth Chaney/Collins

Sarah Collins

February 07 2023 06:40 PM

The State has transferred €4bn to its new rainy-day fund, the second payment it has made since last September’s Budget.

It brings the balance of the so-called national reserve fund to €6bn, the total announced on Budget Day last year.

The fund – previously known as the national surplus reserve fund – was established in 2019. In 2020, the Government used the €1.5bn that had been transferred the previous year to pay for pandemic supports.

The new fund is not to be confused with the National Pensions Reserve Fund, which helped to pay for the 2009 bank bailouts and was folded into the Irish Strategic Investment Fund in 2014.

Finance Minister Michael McGrath said the €4bn transfer to the reserve fund came from excess corporation tax receipts, which the Government has said will not last.

“There are future costs which we must be prepared for, including the consequences of an ageing population, the digital transition and climate change.

“Recent history has taught us that we must also be prepared for unforeseen challenges, which are becoming more frequent and increasingly impactful.

“The transfer of €4bn to the national reserve fund today is an important step in that preparation.”

The move comes a week after the Government announced that it had raised an extra €800m in tax revenue in January, compared with the same month in 2022.

It led to an Exchequer surplus of €2.8bn, higher than it was at the same time last year.

In 2022, the budget surplus came in at around €4bn over estimates, at over €5bn.

But last week the Department of Finance’s annual report on public debt pointed to vulnerabilities in the public finances from a shock to the multinational sector.

If Ireland’s ‘windfall’ corporation taxes were to disappear – estimated at around €10bn in 2022 – that could add 10 percentage points to the debt-income ratio by 2025.

A larger shock that hits energy prices, pushes up interest rates and results in a fall in global growth could lead to a 25-point increase in the debt ratio by 2025, the report said.

Mr McGrath said that the State’s underlying fiscal position was “not as strong as the headline figures would suggest”.