Wednesday 13 December 2017

Coalition's €6bn gamble with pension fund

Donal O'Donovan

Donal O'Donovan

THE Government is smashing open the State's savings in a €6.4bn all-or-nothing gamble aimed at kick-starting the economy.

The stimulus package is the clearest sign yet of a shift from a policy of "austerity" to one aimed at direct investment to foster economic growth.

The pension fund is being wound up and the money will be put into a new Ireland Strategic Investment Fund (ISIF).

The money will be ploughed into projects such as road building, water infrastructure and school-building programmes, where there is a known need for investment and where the Government thinks it will be able to make a return on the money spent.

As part of the radical plan, new laws are being introduced that will force the National Pensions Reserve Fund to sell off its billions of investments.

This money will then be used to fund two new state investment agencies charged with overseeing the high-risk strategy. The money is currently invested in profitable stocks and bonds abroad and had been earmarked to cover the cost of civil servant pensions into the future.

Pat Rabbitte, Michael Noonan and Brendan Howlin after the meda briefing on the update to the NTMA bill at the Grangegorman Development Authority
Pat Rabbitte, Michael Noonan and Brendan Howlin after the meda briefing on the update to the NTMA bill at the Grangegorman Development Authority

"The move is a very important shift in government policy," Communications Minister Pat Rabbitte said.

Legislation to wind up the National Pensions Reserve Fund (NPRF) and put new state investment agencies New Era and the ISIF investment bodies on a statutory basis was announced by ministers Michael Noonan, Brendan Howlin and Pat Rabbitte and the minister of state responsible for New Era, Fergus O'Dowd.

The plan is aimed in particular at getting some of the 150,000 construction workers who lost their jobs since 2007 back to work, and, crucially, spending in the economy again.

Fianna Fail's Sean Fleming warned that without clear targets for measuring progress under the plan, it was hard to see it as "anything more than another PR-driven announcement".

It is understood the Government did not need permission from the EU/IMF for the move, because the cash has never been covered by the so-called memorandum of understanding setting out the bailout terms.

But the move is part of a wider European move towards policies aimed explicitly at job creation.

"Disruptive action is needed because around 45pc of people on the live register have been there long-term," according to Philip O'Sullivan, an economist at Investec.

The challenge for the Government will be finding the right projects to back, he said.

Finance Minister Michael Noonan said using the cash to drive economic growth rather than "squirrelling it away in savings" makes sense.

"The best way to meet the cost of pensions is to grow the economy," he said.

The plan is to invest on a commercial basis and to re-invest back into the economy as cash goes back into the fund, but details of just where the money will go and how many jobs are likely to be created remain vague.

Public Expenditure Minister Brendan Howlin said much of the funds will be used in Public Private Partnership deals to match investment from the private sector and from Europe.

It is already happening with projects like the upgrade of the N7 at Newlands Cross, and of the N11 Dublin to Wexford road.

It is likely to come into force in the second half of this year, but the NPRF has already been shifting money into projects at home in anticipation of the changes.

Over the past two years it has invested around €1.5bn of the €6.4bn in Irish projects, including joint venture deals that have set up funds to lend to small business.

The latest plans include a major shake-up of the National Treasury Management Agency (NTMA), which will get a simplified management structure and will see its New Era unit given a major say in the running of the ESB, Bord Gais, Coillte and Eirgrid.

Those semi-states, which have a turnover of €6bn a year and control more than €13bn of the State's capital assets, will be grouped together for the first time under the plan.

Irish Independent

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