Committee on Budgetary Oversight debate -
Wednesday, 5 Jul 2023

Sovereign Wealth Funds: Discussion (Resumed)

An Cathaoirleach

The purpose of today's meeting is to resume our discussion on sovereign wealth funds and to discuss the publication, Future-proofing the Public Finances – the Next Steps.

We are joined by Mr. Matthew McGann, Mr. Pat Leahy and Mr. Colm Roche. I offer sincere apologies for the delay in admitting them to the meeting and thank them for their patience. I hope we have not disrupted their evening too much.

Before I begin, I wish to explain, as is the norm, some limitations to parliamentary privilege and the practice of the Houses regarding references witnesses may make to other persons in their evidence. Witnesses are protected by absolute privilege in respect of the presentation they make to the committee. This means they have an absolute defence against any defamation action for anything they say at the meeting. However, they are expected not to abuse this privilege. It is my duty as Chair to ensure this privilege is not abused. Therefore, if witnesses' statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

Regarding privilege for members, members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or any official, either by name or in such a way as to make him, her or it identifiable. I remind members of the constitutional requirement that they must be physically present within the confines of Leinster House in order to participate in public meetings. I will not participate members to participate where they are not adhering to this constitutional requirement. Therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting.

I invite Mr. McGann to give his opening statement.

Mr. Matthew McGann

On behalf of my colleagues in the economics and banking divisions in the Department of Finance, I thank the committee for the opportunity to attend today to discuss Future-proofing the Public Finances – the Next Steps, which we published on 10 May.

I am the principal officer and head of fiscal analysis in the economic division of the Department of Finance. I am joined by my colleague Mr. Colm Roche, also from the economic division and Mr. Pat Leahy, principal officer in the banking division and is likely to be in charge of bringing forth the legislation on the fund.

The Department of Finance has been very active in highlighting the near- and long-term risks to the public finances. In September 2022, in De-risking the Public Finances – Assessing Corporation Tax Receipts, we published an analysis of the risks posed to the public finances stemming from the level shift in corporation tax receipts. That paper showed that in 2022, around €1 in every €4 of all tax collected came under the corporation tax heading. Furthermore, corporation tax receipts were, and still are, highly concentrated among firms. In 2021 the top ten firms paid 53% of corporation tax receipts, or approximately €1 in every €8 of all tax collected. The key output from the paper was that using a range of methodologies, we produced an estimate of the amount of corporation tax receipts which were potentially at risk, or were windfall in nature. This was in the region of €4 billion to €6 billion in 2021. The estimates for windfall receipts have only increased since then.

Building on this work, in budget 2023, a new metric was introduced called the underlying general government balance, or GGB*. We apologise for introducing a new "star" acronym into our language. This metric strips out the estimated windfall receipts from the headline budget balance to give a better picture of the underlying health of the public finances. Using this metric, last year’s headline budgetary surplus of €8 billion would have been turned on its head with an underlying deficit in the region of €2.75 billion.

In parallel to this work, the Department has also examined some of the medium- to long-term fiscal vulnerabilities on the expenditure side, most recently in Population Ageing and the Public Finances in Ireland, which was published in September 2021. That paper highlighted that by the middle of this century, age-related spending will be approximately €17 billion higher in real terms than it was in 2019. I will return to the issue of demographics shortly.

Taking all of this into account, on taking office, Minister for Finance, Deputy Michael McGrath, asked the Department to prepare a paper outlining the merits of setting aside windfall corporation tax receipts to a long-term fund which could contribute to future budgetary pressure such as those relating to an ageing population and the twin transitions of climate and digital.

I will outline the main findings from the paper which was published in May. As I mentioned, the Department of Finance estimates that windfall corporation tax receipts have increased significantly in recent years. The paper published in May updates this estimate and finds that around €11 billion of last year’s €22.5 billion of corporation tax receipts were windfall in nature and this year it is projected to be around €12 billion. The paper also highlights the risks that the costs of ageing I mentioned pose to the public finances. While Ireland currently has a favourable demographic profile, this is set to change significantly in the coming decades, when we are projected to have one of the most rapidly ageing populations in the EU. The projected ageing of our population is demonstrated most clearly by the dependency ratio, that is, the number of working age people to each person over the age of 65 years. This ratio for Ireland currently stands at around four, however, by 2050 it is projected to fall to just over two. This significant shift will mean that there will be around half as many people of working age to support each person of pension age. In addition to the demographic challenge, the paper also stresses that there are other forthcoming pressures on the public finances such as those I mentioned relating to the climate and digital transitions. However, it does not go into these in great detail simply because they are not as readily quantifiable as the ageing costings.

The main exercise presented in the paper simulates a range of design options for a future-focused fund which could help protect the public finances from both an over-reliance on windfall receipts and from structural expenditure pressures such as an ageing population and the climate and digital transitions. Specifically, the paper sets out the results of a series of illustrative scenarios which model how such a long-term saving fund could be built up. It presents three options for capitalising the fund, which range from assigning approximately one third to all of the estimated annual windfall corporation tax receipts until 2030. In addition, there are two real rates of return simulated, namely, 3% and 5%.

The results show that if drawdowns did not begin until 2035, they could cover 16% to 82% of the projected increase in age-related costs by that year depending on the fund’s design and the rate of return. A key take away from the paper is, therefore, that under none of the capitalisation options simulated, or under either the 3% or 5% real rate of return assumption, would drawdowns from the fund cover all ageing-related spending increases by 2035. In fact, even under the most optimistic real rate of return assumption and while transferring the entirety of the estimated windfall corporation tax receipts annually out to 2030, which would be €12 billion a year in today’s terms, the drawdowns would only cover four fifths of the projected ageing costs. This finding indicates that such a fund would be a complement to and not a substitute for other necessary reforms, such as increases to the rates of PRSI.

In conclusion, Future-proofing the Public Finances – the Next Steps presents a range of indicative options for establishing a future focused fund to save a portion of windfall corporation tax receipts and budgetary surpluses and which could help contribute to future expenditure pressures. Work is ongoing within the Department that the Minister can bring detailed proposals to Government for the establishment of such a fund.

My colleagues and I are happy to address any additional questions which the committee would like to raise.

An Cathaoirleach

I thank Mr. McGann. He has outlined in plain terms what the country faces regardless of the windfall taxes. It is ominous that there will be two people working to support one person over 65 years, where there are four today. It is a 50% decrease. Are there figures for the increase in the over 65s? Is there any projection there for the ratio of supports? The ratio of workers is going from four to two but the numbers living beyond 65 years will greatly increase again in 2050 just as it has increased in recent years.

Mr. Matthew McGann

Does the Chair mean estimates of the actual population?

An Cathaoirleach

Yes.

Mr. Matthew McGann

We have those. We participate at European level in the ageing working group. It is a three-year cycle of production for updated ageing projections and they are part of the calculations. I do not have them to hand but we could send a note on that. It is no problem. We are just entering the start of that three-year process again for updating those.

An Cathaoirleach

Okay, thank you. Do members wish to raise any issues arising from that?

Deputy Ged Nash

We have a rota ordinarily.

An Cathaoirleach

Deputy Durkan has the floor.

Deputy Bernard J. Durkan

I thank our guests for the report. Does it solely relate to age-related issues or does it go beyond that in terms of future-proofing?

Mr. Matthew McGann

No, it is a scoping paper. It is not intended to be prescriptive, it is intended to inform the discussion. It follows on from last September, when we produced an initial paper which contained estimates of the size of the windfall. The natural question then is, what will you do with these windfalls? We were asked at this committee, I think it was before Christmas last year, if we were working on what could be done with those windfalls. The paper is a progression from that and is about trying to inform the debate. Several expenditure pressures are coming down the line, of which ageing costs are the most identifiable or quantifiable. We use them in the paper to provide a perspective on how the fund could be built up and used to offset some of those future additional costs. Ageing costs are the most quantifiable, which is why we used them. In the paper, we also stated that they were for illustrative purposes. That is why I also referenced climate costs - the cost of the climate and digital transitions. It is a natural assumption that we are purely focused on ageing but we used that for practical reasons.

An Cathaoirleach

I think yesterday, in the economic statement, there was a specific mention of windfall taxes and a certain element of them being put towards capital in relation to climate mitigation. I think €2.25 million was mentioned over three years.

Mr. Matthew McGann

Subject to correction, I think it was €2.25 billion - that is right. That was contained in the summer economic statement yesterday.

Deputy Bernard J. Durkan

Of all the issues we need to future-proof, for instance, I do not agree with referring to the taxation from foreign direct investment as "windfall". That presumes it is limited in its happening. We should assume that it remains constant, unless and until - I hope - it will not be part of a removal from the country, by one means or another, of foreign direct investment, which we depend on. It is a fundamental part of economic performance at the moment.

Has the Department identified other issues in the same timeframe which might be challenging in terms of needing to address and future-proof them?

Mr. Matthew McGann

Does the Deputy mean other issues beyond the corporation tax windfalls?

Deputy Bernard J. Durkan

Yes, such as ageing. I am worried about this - I should not be worried about anything at all - but I do occasionally get worried. For instance, it has become a goal on the part of some to ensure we do not retain the investment related to higher payments in corporation profit tax. If some people had their way, it would be long-since gone. We must recognise that a larger percentage of our population is gaining employment at home, thereby reducing emigration. Other people from other countries with specific skills are coming into our economy and making a worthwhile contribution. At the same time, we have a national debt that is exceptionally high. It must be identified in the context of relating in some way to the availability of corporation profit tax, as it is, and to the necessity to address, at some stage, the national debt gradually, over several years. What consideration was given to that?

Mr. Matthew McGann

The Deputy is correct that there are several additional vulnerabilities to the public finances over the medium to long term. It is important to state that this corporation tax windfall represents a potential blind spot for public finances. It is not just about the potential to put them aside to pay for future expenditure pressures, it is also the danger, if they are transient in nature, that we potentially fund permanent expenditure commitments with non-structural or non-permanent tax receipts. We all know we had an unhappy experience of that in the lead-up to the financial crisis. That is a revenue vulnerability to public finances. Another potential revenue - I am not sure vulnerability is the right work - relates to climate change and decarbonisation. The revenue streams associated with carbon-related products or services or the excises we get from fuel, for example, are likely to diminish. That is the goal of the carbon tax and of public policy. Those revenue streams should phase out over the coming years, which must be factored into medium-term revenue projections. As I already mentioned, on the expenditure side, there are ageing costs, which are not just pensions - there are also healthcare and long-term care. There is a revenue risk associated with that as well because, as the population ages and there are fewer people at work, labour supply diminishes, which is a big contribution to growth and, therefore, revenue. While ageing-related costs increase, there is also a negative impact on the revenue stream.

On the climate front, to be honest, it is very difficult to estimate. I read Professor Kinsella's contribution to the committee in which he highlighted the costs associated with increased frequency of climate events such as flooding. There are even more difficult to quantify costs associated with the change in the climate if there are higher temperatures; that can negatively impact productivity and agricultural production. Those are hard to estimate. The digital transition is also quite hard to estimate because it will involve a change in the nature of work and has a big emphasis on education and skills to try to enable people to navigate it as smoothly as possible. A Department of Finance official will always say there are several long-term threats to the public finances, but we can identify some at the moment that are coming down the track.

Deputy Bernard J. Durkan

Did the Department factor in any way the impact and age profile of the country the number of young people coming into the country, which will have an impact of sorts on the age of the population in 2030 or 2035 or whenever?

Mr. Matthew McGann

A key variable or input to the calculation of long-term ageing costs is immigration. Irish people are living for longer and having fewer babies, which contributes to long-term population projections, but immigration also contributes. To be honest, it is one of the hardest to forecast or model. We do that as part of a process at the European level; there are methodologies and EUROSTAT produces population projections. Together with the Central Statistics Office, CSO, we feed into the EUROSTAT process. Projections for immigration come with some of the largest confidence warnings around them because they are so difficult to accurately model.

Deputy Rose Conway-Walsh

I thank Mr. McGann for his statement. I apologise that he was kept waiting for so long. In the future-proofing document, the Department stated, "In 2019, the Government established the National Reserve Fund; the objective was to provide sufficient funds to mobilise counter-cyclical fiscal support in the event of a severe economic downturn."

Does the National Reserve Fund face any limitations in terms of its use for the counter-cyclical expenditure in response to an economic slowdown or shock? What are the limitations around the pension reserve fund?

Mr. Pat Leahy

Yes, the National Reserve Fund when it was established had money from the Ireland Strategic Investment Fund put into it - around €1.25 billion.

That was drawn down in the context of Covid-19 and clearly was then replenished with some money both last year and this year up to the value of approximately €6 billion. There are limitations in the legislation as to how it can be used, for an economic shock or unexpected event, I do not have the exact wording in front of me. It is in the 2018 legislation. Clearly, when we look at the design of this fund, what we will do with the National Reserve Fund, NRF, is part of that process. I should say, regarding any comments related to the fund, as there has been no decision by the Government on this yet, anything I say is said in that context. The Government has yet to decide on how that will be structured and how it will all work. Clearly, the future of the NRF must be considered in that context given that because of Covid-19, it was decided not to put money into it for long periods. It is only recently that money has been put into it. The design of the whole process needs to take into account the existence of the NRF and whether we retain it needs to be considered as part of that.

An Cathaoirleach

Are there limitations in its present configuration?

Mr. Pat Leahy

Yes.

Deputy Rose Conway-Walsh

What I am trying to get at is whether, in the event of an economic slowdown and a drop in tax revenue, this €6 billion could be used to fund Government spending to avoid budget cuts or borrowing from the international markets. Or does it have to be for-----

Mr. Pat Leahy

Sorry, but as it is now, there is quite a restricted set of criteria in the legislation. I do not have them to hand but effectively, the three things are to remedy or mitigate the occurrence in the State of exceptional circumstances - Covid-19 would have fallen under exceptional circumstances - to prevent potential serious damage to the financial system in the State and then to support major structural reforms that have direct long-term positive budgetary effects. The 2018 legislation is quite prescriptive and is intended as kind of in-emergency-break-glass measure, as opposed to a fund that could be used to mitigate anything else. That is why it is part of the consideration of this long-term fund, as to what will happen to it.

Deputy Rose Conway-Walsh

We could find ourselves in a situation where we have €6 billion or more in a fund but would not be able to access it as an alternative we would have to borrow or-----

Mr. Pat Leahy

Yes, that certainly is a possibility.

Deputy Rose Conway-Walsh

Any changes to that would have to be done by legislation.

Mr. Pat Leahy

It would. The criteria are set out in section 9 of the Act, so that would require a change to legislation to get the kind of flexibility the Deputy is proposing.

Deputy Rose Conway-Walsh

It would, yes. The future-proofing document states there are numerous examples of advanced countries establishing sovereign wealth funds to build a fiscal buffer. Are there any international examples of states establishing reserve funds or other forms of fiscal buffers that are stored in the debt issued by the same state?

Mr. Pat Leahy

Sorry, I do not know.

Deputy Rose Conway-Walsh

I am trying to get at how they are stored.

Mr. Matthew McGann

Is the Deputy asking about the investment strategies of sovereign wealth funds in other states?

Deputy Rose Conway-Walsh

Just in other countries, are there are examples of how the sovereign wealth funds are stored?

An Cathaoirleach

What sort of investment funds are they put into to generate income in their own right?

Mr. Matthew McGann

There are quite a lot of examples in our paper. For the sake of brevity or tractability we just chose three to look at, namely, Australia, Japan, and Norway. I am not sure whether it was the former CEO of the Norwegian fund who appeared before the committee-----

Deputy Rose Conway-Walsh

Yes, and I have that part of it. The fund we have at the moment is held solely in Irish sovereign debt in the form of Exchequer notes, is that correct?

Mr. Matthew McGann

Yes.

Deputy Rose Conway-Walsh

Were we to draw down the funding of any type from the National Reserve Fund, say in exceptional circumstances, would it require cashing in some or all of the Exchequer notes? Are they redeemed by the Irish State or is there a secondary market for those notes?

Mr. Matthew McGann

On the broader question it depends on the nature of the fund. A lot of the sovereign wealth funds have very long-term objectives. The New Zealand one is a pension fund they set up, and the Japanese one. The investment strategies depend upon the objectives of the fund. If it is long-term, they can afford to invest in less liquid assets and look for higher returns and smooth it out over the years so they can afford to take more risk. Whereas something that is a short-term fund, a counter-cyclical fund, or a reserve fund needs to maintain relatively liquid assets in order that they can draw down the fund quickly if they need to. I think that is the principal motivation for, not the current National Reserve Fund, holding largely Exchequer notes because they are essentially close to cash and they can cash it out if needed to be able to get access to it.

Deputy Rose Conway-Walsh

Okay.

An Cathaoirleach

Or soon after its usage - and we are now finding our own feet again - and if the economy is in such a way that we can predict income and take a calculated risk, depending on the Government's intentions towards the end of the year regarding what this vehicle will be like.

Deputy Rose Conway-Walsh

In the context of the corporation tax increase from €11 billion to €22.5 billion, is there any correlation with productivity in the multinationals? Are measurements being done to explain why? In terms of pharmaceuticals, there was an increase during Covid-19 and all of that but do we have any measurements?

Mr. Matthew McGann

It is a very good question. I am aware of work done regarding productivity in what was called the superstar firms, the large multinationals. We did some work in the economics division of the Department as part of our joint research programme with the Economic and Social Research Institute, ESRI, probably three years ago which found that the level of productivity in the multinational firms in Ireland is many times higher than the level of productivity in our domestic firms, which is intuitive, if one thinks about the size of the profits in those firms compared with the numbers of workers etc. That is essentially what is driving the productivity measurement. I do not have the details on that to hand but we can certainly send on that paper.

Deputy Rose Conway-Walsh

I thank Mr. McGann.

Mr. Matthew McGann

Underlying the Deputy's question is about what is driving the increase in corporation tax receipts. What we see in general is that it is correlated with the increase in operating surplus, essentially profits, in the multinational sector in Ireland. As we are all aware, our corporation tax receipts - and this is a big part of the risk attached to them - are extremely concentrated with more than half of them coming from ten firms. The Irish Fiscal Advisory Council, IFAC, recently estimated that maybe a third of it is from just three firms. I do not want to sound crass in how I am saying this but the sectoral composition of those firms meant they had, for the want of a better phrase, a good pandemic in terms of pharmaceutical, ICT etc. The profits associated with those firms were Covid-19-proof. Again, I do not want to sound dismissive of the pandemic but we saw very large increases in the operating surpluses of those sectors.

Deputy Rose Conway-Walsh

So, it has nothing to do with the OECD changes and the global taxation changes?

Mr. Matthew McGann

When we are dealing with such an incredible concentration risk, where so much of our receipts are coming from such a small number of firms, we are of course subject to the individual performance of those firms. That is why it is very difficult to accurately forecast corporation tax receipts. Generally, when you are forecasting, the aggregate is your friend. If we are forecasting growth in the economy, some firms will be up, some firms will be down but on average, there is a driver that is working for them. However, when dealing with two, three, five or ten firms, we lose that law of large numbers working for us. That concentration risk is part of the vulnerability of our corporation tax receipts.

Deputy Ged Nash

I understand when the witnesses say they are circumscribed in terms any elaboration they can provide the committee in respect of departmental thinking on what ultimately might be the framework in developing an initiative such as this, because the policy decision ultimately has not been taken.

The summer economic statement published yesterday gives us some insight into the evolution of the Department’s thinking and, therefore, the Minister’s thinking on the design of a fund or an innovation like this, which, broadly speaking, in principle, is to be welcomed. How it is shaped over the coming period will be interesting. We all intend to input into that. From the details provided and the commentary provided by the Minister yesterday, it seems that, essentially, there appears to be at least three pillars in terms of how corporation tax windfall surpluses, if I can describe them as such, will be used. Even though, like Deputy Durkan, I would quibble and query the definition of “windfall” being applied to it, given that it has assumed - I will not say a permanency - but it has become consistent feature of the system in recent years and appears likely to continue to be a feature of the system into the next few years. That being said, we need to be prudent and responsible because of the risks associated with it.

It is fair to say, at least from the Minister’s perspective, this seems to be moving towards a fund that will address, as he said yesterday, age-related spending. It will provide a resource as well. The €2.25 billion capital commitment was crystallised yesterday. It will be a capital support programme of some description. In addition, another function of the surplus will be to pay down debt. We can all identify a range of other calls that may be placed on those resources over the next period. That will be a matter for the political system to work out, with the witnesses’ advice.

I have a couple of questions. The Ireland Strategic Investment Fund has worked reasonably well. It was established in 2014. What seems to be unclear from the commentary on what we do with the additional resources available to us is the function of the fund. Does Mr. Leahy anticipate that the Ireland Strategic Investment Fund will continue to operate on the same basis it has operated on since 2014 or will it be folded into this new process? What is the thinking on that?

Mr. Pat Leahy

Once again, no decisions have been taken on all of this. The Ireland Strategic Investment Fund performs a useful function-----

Deputy Ged Nash

Is there a future for the fund?

Mr. Pat Leahy

-----in terms of its engagement for Ireland. It has proved useful in investing in areas, bringing other investors on board and bringing kind of commingling investment in. It has quite a good track record in its ability to bring people on board to have a circa €8.5 billion between the domestic fund and the foreign fund. It also has the €6 billion sitting in the direct investments. Regarding the non-direct investments, there is an important role for the Ireland Strategic Investment Fund in its engagement with the Irish economy. It has proved useful in engaging, in particular, in long-term investment-----

Deputy Ged Nash

Does Mr. Leahy see a repurposed Ireland Strategic Investment Fund coming out of this process, namely, an entity with more resources to invest? Will it have a function in this? I am assuming it will. Again, it the policy decision-----

Mr. Pat Leahy

It is a policy decision but the point is that the Ireland Strategic Investment Fund is concerned – it may have expressed this – the extent of how much money it can invest without crowding out other investment as well as private-sector investment.

Deputy Ged Nash

Avoiding dead weight.

Mr. Pat Leahy

Yes. There is a balance to be struck to between the extent of how much money it can invest usefully in the economy. As the Deputy knows, it has the double-line mandate. It invests in Ireland. It has to make profitable commercial investments as well. I think that would have to be maintained in any future structure, should the Ireland Strategic Investment Fund be there.

Deputy Ged Nash

I am glad reference was made to the fact that whatever approach is taken in respect of covering age-related expenditure, it will not be at such expense. There will be difficult policy decisions over the next period with regard to the PRSI base, which is crucial to ensuring the long-term viability of the Social Insurance Fund, given the demands that we are very aware of.

It was not long ago when we were talking in this committee and elsewhere about the Department’s advice, which is not that old, that probably this year we will be looking at a €2 billion reduction in corporation tax revenue. The interaction between pillars 1 and 2 will be interesting over the next period of time. Pillar 2 will be proceeding next year. We look forward to dealing with the complex legislation that will be required to implement pillar 2 and the 15% corporation tax rate. I assume that in the Department’s analysis with regard to its forecasts on corporation tax revenues over the next period of time that it not only included pillar 1 but the prospect of pillar 2 as well. We are probably some way off pillar 1.

Mr. Matthew McGann

I have to admit, we do not have colleagues from our tax policy division with us, but I will do my best.

Deputy Ged Nash

That is understood.

Mr. Matthew McGann

I might have to follow up. We had an estimate of €2 billion overall cost from the base erosion and profit shifting, BEPS, process. That is a relatively long-standing estimate from an original tool that the OECD produced and distributed to member states for estimating their costs a couple of years ago. The process or the negotiations have gone through many changes and they are dynamic. We are just not in a position, given the ever-evolving nature of the negotiations, to update that figure yet. The Deputy is correct that that figure is built into the corporation tax projections out the line. I think, subject to correction, it will hit in 2025 now. The anticipation is that even if the pillars were in place for 2024, the actual impact on revenues would only occur in 2025.

Deputy Ged Nash

I refer to international experience and, again, I accept that the policy decision ultimately has not been made but it is heading in one direction. We have read the scoping document and the examples of Australia, Japan and Norway provided. We are not Norway and let us be frank about that.

Deputy Bernard J. Durkan

That is right.

Deputy Ged Nash

What we want to achieve is important but albeit modest in a Norwegian context. Let us not compare ourselves against Norway. However, the engagement with the Norwegian representative was useful in terms of our own thinking on the direction of travel of this. Is there a fund or vehicle that – though every case is different – might be more directly applicable to Ireland and Irish circumstances? Is that one model that is favoured over another that may not appear in the scoping documents?

What are the witnesses’ thoughts on drawdown thresholds? I am interested in what was in the scoping documents around capitalisation and drawdown - 3% and 5% - all very modest and prudent. We are clear on what the drawdown thresholds are in terms of the NRF and the 2019 legislation. Should it be – how to describe it – less open to exploitation or, dare I say, abuse from the political system? There is a national consensus perhaps that we need to have an intervention and vehicle like this and it should be less subject to the political vicissitudes. For example, one could anticipate a situation arising where, at some point in the future, a Government or a Minister might decide ahead of an election to withdraw significant resources from the fund.

Mr. Matthew McGann

It is fair to say that is all still in the mix and will require a policy decision. Even when we launched the paper, the Minister was clear that he will have to go back to Government and those kind of things are still to be decided. However, I note that Professor Kinsella and – I do no want to get his name wrong – the representative from the Norwegian fund, Mr. Gjedrem, both highlighted the importance of having robust structures around the potential drawdown.

With most of the funds internationally, that is the case.

I will take the opportunity to put in a little plug here. We have a seminar next Tuesday, hosted in the Central Bank, at which we will have a couple of experts, including the CEO of the New Zealand fund. He will be talking about many of these issues and New Zealand's experience in setting up a similar fund, which it has had going for about 20 years. I think all the members of the committee received invites. They will need to register by the end of this week if they hope to attend.

An Cathaoirleach

I call Deputy Michael Healy-Rae.

Deputy Michael Healy-Rae

I join the Chairman in sincerely apologising for delaying Mr. McGann, Mr. Roche and Mr. Leahy earlier, but it could not be avoided. We appreciate that their time is very valuable and we thank them for coming here.

We talk about the future-proofing of our finances. The Government and the Ministers with responsibility for finance find themselves in an unusual situation, having money, trying to balance the prospect of future-proofing as best they can, satisfying the political wants and needs of now, allowing for orderly growth and development and investment in infrastructure and trying to strike a balance. However, the one thing which is critical to the future - Mr. McGann highlighted it - and which is very worrying is the projected demographic for Ireland in a number of years' time. I refer to the percentage of older people versus younger people who will be working and paying tax. At this time, we see a massive number of people leaving our country. An awful number of young people are leaving. In many cases, it is what could be called a choice in that they want to go. It is great to see young people who want to go, but it is a horrible thing to think of people feeling that they need to go. People want to go away for a while and see other parts of the world, perhaps make a bit of money to come home with and have different life experiences. What seems to be happening, though, is that when people go to far-away places like Australia, it is no different from when, say, our aunties, uncles and so on left in the 1950s and went to America. The number of the latter who came home was minuscule. I am afraid that, in particular over the past seven years, many people have left. Are they coming back after two or three years? They are not. These people are the real key to our financial success in the future. In other words, politically, it is incumbent on all of us to try to do everything we can to encourage people to stay here now. Of course, the basics have to be adequately paid jobs and housing, whether that means people getting planning permission on home farms or being able to afford to get their foot on the property ladder. That is where we are falling down financially for the future. Every one of them who is leaving would have a lifetime of work, would have paid tax and would be a benefit to the countryside. Then, of course, there is the next generation after that. We are losing them as well. They are the grandchildren of tomorrow. The cycle goes on and on. For instance, if the people who left here in the 1950s could have somehow or other been encouraged to stay, look at the difference they would have made to the last 50 or 60 years. Every one of us can reach into our own families' experiences. Very few families would not have had people who left like that, whether through the wave of emigration in the 1950s and 1960s or later, particularly those ten years from the early to the late 1980s. The vast majority of those people did not come back.

We are talking about what I would call mam's purse. If mam's purse is all right, the rest of the country is all right as well. I see that as being the biggest stumbling block we have. There is all the convolution, whether it is the tax regime or whatever we are looking to put in place. One of the first things we should be looking at is how we can keep young people in Ireland. If we can do that, it will be a massive investment in our futures and in all that would be good to come in the future. With everyone we will lose, it would be millions. It would be impossible to quantify the difference they could make because of the repeated knock-on effects.

That is all I want to say. I just wanted to make that point about the youth. Again, I thank the witnesses most sincerely. Mr. McGann's presentation was excellent, and I really appreciate their coming here.

An Cathaoirleach

I call Deputy Ryan. We are on notice of a vote in the Dáil.

Deputy Patricia Ryan

I thank our guests for being here. Given that pensions make up the largest portion of age-related costs, could any action be envisaged such that corporation taxes on profits made by the domestic banks that were recapitalised at the expense of the National Pensions Reserve Fund be paid directly into a purpose-built, ring-fenced pension reserve fund and, instead of exempting those same banks' profits from corporation tax, that those taxes be directed back to restore the funds to utilise them better?

Mr. Matthew McGann

If I understand the Deputy's question correctly, it is that the losses the banks are carrying forward be allowed to be set against their corporation tax liabilities and that that should be looked at in order that the increased tax would be used to replenish the fund. Is that it?

Deputy Patricia Ryan

Yes.

Mr. Matthew McGann

I have to admit that this is not my area, but my understanding is that the carry forward of losses is not specific just to the banks but is just a part of the general tax system. I am not sure about the tax system implications of that. We would need one of our tax colleagues here to answer that question.

Deputy Patricia Ryan

In view of the current spate of mortgage interest rate increases, will the profits be made by the banks and the financial institutions as a result of those rate increases be viewed as windfall profits for the purpose of being considered as eligible for the fund?

Mr. Pat Leahy

I would not think so. To the extent that those profits are made, they are made on whatever trading businesses they are doing at the moment, so no, the profits we are talking about are profits by the foreign multinationals here as opposed to profits made by domestic entities like the existing banks.

Deputy Patricia Ryan

I thank Mr. Leahy. I apologise - I had other questions but I am aware of our vote and the witnesses' timeframe.

Mr. Pat Leahy

I appreciate that.

Deputy Patricia Ryan

I thank the witnesses for being here.

An Cathaoirleach

We are bringing our meeting to a close and adjourning until next week. We thank the witnesses again for their presentation, their patience and their answers to the questions.

The select committee adjourned at 8.19 p.m. until 5.30 p.m. on Wednesday, 12 July 2023.