Monday 10 December 2018

Rainy day fund needs scale to play role in next crisis - Finance Minister

Finance Minister Paschal Donohoe. Photo: Gareth Chaney, Collins
Finance Minister Paschal Donohoe. Photo: Gareth Chaney, Collins

Colm Kelpie

The proposed "rainy day fund" should be of sufficient size to act as a fiscal buffer to bridge the impact of another crisis, Finance Minister Paschal Donohoe has said.

Mr Donohoe said the fund should give the State time to get back lost access to the international money markets.

The Government said in Budget 2018 that a rainy day fund would be set up with €1.5bn initially coming from the Ireland Strategic Investment Fund, with annual contributions of €500m from the Exchequer from 2019 to 2021. The Government had previously committed up to €1bn a year, but said it was scaling back to allow for capital spending.

The minister told TDs and Senators yesterday that the level of contributions after 2021 is still to be decided.

"I consider that the rainy day fund should be of a sufficient size to act as a fiscal buffer to bridge the impact of the shock," the minister said.

"The rainy day fund should give the economy and public finances time to make the longer-term adjustments to re-establish debt market access at normalised levels.

"This is connected to the paying down of debt, as the lower the State's existing debt level, the more sustainable the cost of debt from markets."

The Department of Finance has put the plans for the fund out to an Oireachtas consultation.

Mr Donohoe told the Oireachtas Budgetary Oversight Committee that a natural question arises as to whether the rainy day fund should be used, in the first instance as a contingency reserve.

"Force majeure events which might necessitate access to the contingency reserve may include either natural disasters or public emergencies for example," the minister said.

He added that if at the end of a given budgetary year, the funds within the contingency reserve remained unused, they could then be transferred to a separate rainy day fund.

The minister also asked whether extra funding, above and beyond the €500m a year, should be made into the fund.

The Fiscal Advisory Council has said more than half-a-billion euro could be needed.

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