I will continue from where the Minister of State, Deputy McEntee, concluded. She was taking the House through the different sections of the Bill.
Section 1 is a straightforward definitions section.
Section 2 sets out that the "National Surplus (Exceptional Contingencies) Reserve Fund" will be established on its commencement and that the fund's purpose is to hold assets for purposes specified in section 9(2).
Section 3 places an €8 billion cap on the value of assets and money that may be held in the fund but allows any return on the fund to be held in the fund.
In our current interest rate environment, we can expect a near zero return or a small carry cost for holding the fund as near cash. However, the fund is unlikely to reach the €8 billion cap for some years. It is to be expected that the interest rate environment will normalise over that period.
Section 4 provides that the fund is to be managed and controlled by the Minister for Finance, and includes standard provisions on the keeping of accounts, audit formalities and laying of audited accounts before the Oireachtas. In this regard, I want to clarify that my intention is to delegate my investment responsibilities in respect of the fund under this Bill to the National Treasury Management Agency, NTMA, under section 28 of the National Treasury Management Agency (Amendment) Act 2000. This is an appropriate use of the operational expertise of the NTMA.
Sections 5 and 6 relate to the transfer of assets to the fund. I want to explain these provisions in a little bit more detail. Section 5(1) requires the Minister, within 30 days of commencing the section, to transfer assets not exceeding €2 billion in value to the fund from the assets of the Ireland Strategic Investment Fund. I want to clarify that my intention remains, as set out in budget 2018 and budget 2019, that the transfer will be €1.5 billion. I have specified a higher maximum for two reasons: first, to allow for some headroom in case some of the transferred assets are non-cash and transpire to have a slightly higher realised value; and, second, to allow me to consider transferring a larger amount if there is a high degree of consensus that this should be done. Section 5(2) sets out that in each year from 2019 to 2023, the Minister is to transfer €500 million from the Central Fund to the national surplus (exceptional contingencies) fund. This is subject to subsections (5) to (7), to which I will come shortly.
This House has a function under subsection (4). The Dáil can pass a resolution authorising transfers to the fund. This facility could be used to transfer additional money to the fund in a range of circumstances - for example, if there are windfall tax receipts, or similar one-off income to the Exchequer, or if we have a substantial budget surplus. It might also be used to further augment the fund in the years after 2023.
Subsections (5) to (7) create a form of in-year contingency reserve for then period from 2019 to 2023 when a payment of €500 million will normally be due under subsection (2). Those payments will generally be made towards the end of the year. However, if there is a serious event during the year requiring substantial unanticipated expenditure, it will be possible to reduce the amount of the payment into the fund. The type of event is deliberately not described in greater detail than “a natural or other disaster”. I anticipate this contingency being activated if, for example, there is an exceptionally severe weather event. It is not intended to substitute for prudent contingency budgeting by public authorities. It is only for events that are inherently exceptional, or exceptionally repeated, in a given year. That might arise if there are repeated storms, for example. If this facility is used, any payment made will be directly from the Exchequer under the normal public financial procedures. In addition, the Minister for Finance will make a report to the House, in accordance with subsection (7), as to the reasons for reducing the payment being made into the fund.
Section 6 operates as an escape clause in the years from 2019 to 2023. If, during that period, we move into substantial deficit, it clearly will not make sense to borrow money to put into the national surplus (exceptional contingencies) fund. Section 6 is designed to deal with this. It allows the Minister at the time to propose a type of negative financial resolution - specifically, a resolution authorising the Minister not to make the normal €500 million payment. If the Dáil passes the resolution, then the payment will not be made in that year.
Section 7 is a technical amendment to the National Treasury Management Agency (Amendment) Act of 2014 to allow the Minister to direct the NTMA, as the custodian of the Ireland Strategic Investment Fund, to transfer assets out of it to another specified fund.
Section 8 sets out the high-level investment strategy for the fund. It is designed to be conservative and highly liquid. The fund will most likely be held in cash deposits or in short-term investments that can readily be cashed in at no or minimal loss. This is to ensure that if a crisis gives rise to an immediate funding requirement, the money will be available straight away. There is a specific provision which is intended to address the sustained low-interest environment in which we currently find ourselves and in which deposits are actually attracting negative interest - that is, we are being charged to keep money on deposit. Subsection (3) gives specific authority to consider the net Exchequer position in deciding where and how to invest the fund. This is to take into account that if we are placing the fund on deposit in the Central Bank and are charged an interest rate for that which will, in due course, be remitted to the Exchequer. This provision allows us to take a broad overview of the State’s net position when determining how to invest the fund. When I delegate my investment functions under this legislation to the NTMA, I will also be giving them investment guidelines based on the mandate set out in this section.
Section 9 sets out the criteria for drawdown of the national surplus (exceptional contingencies) reserve fund. It has a triple provision in place. The Minister must be satisfied there are reasonable grounds for drawdown. My Department is working on what those indicators might best be but I am reluctant to be strongly prescriptive within the Bill. An economic crisis can be quite unpredictable in its effects and there is simply no point having the money available to mitigate a serious event but being unable to access it because a specific threshold or condition is not met. However, a Minister must have reasonable grounds to believe that the proposal is necessary. Those grounds could include a sharp and significant increase in unemployment or a dramatic fall-off in tax receipts. The second element is that the Minister brings a memorandum to Government in the normal way in order to obtains its approval. If Government gives its approval, the third and final element is that Dáil Éireann decides whether or not to approve that decision. These kinds of decisions will take place under the full light of democratic scrutiny.
There is a modification to this procedure set out in subsection (4). If the Minister believes - again, based on reasonable grounds - that a payment to the Exchequer is urgently necessary before the next sitting of the Dáil and the Government approves it, he or she may make the payment. The Minister must then report to the Dáil on the payment and the reasons for it at its next sitting. I stress that this could arise only in situations such as a full-blown liquidity crisis in which normal State payments could not be made unless the money was transferred to the Exchequer. Even in the darkest days of 2008 and 2009, it is likely that this threshold would not have been met. I very much hope we never will need to use this provision, but I believe that it is useful to include it in the Bill.
Section 10 requires the Minister to comply with a resolution of Dáil Éireann or the emergency Government decision and transfer the amount specified to the Exchequer. I want to be clear: drawdown is only to the Exchequer. A resolution cannot direct that the money go to any other place. It will, of course, be possible to transfer money on from the Exchequer, depending on what is required. Any such onward transfer will be subject to the full rigour of the public financial procedures and can be made only where this House consents to it by a further resolution.
Section 11 is a fairly standard expenses provision. However, I should explain that any expenses incurred in investing the fund will be chargeable on the fund. Given the conservative nature of the investment mandate, I do not expect this to be a significant cost.
Section 12 sets out the Short Title and includes a standard commencement provision. I intend to commence this legislation later in the year if and when it has received Oireachtas approval and when the delegation order and investment guidelines are ready and the NTMA confirms to me that they are ready to make the transfer of money or assets from the Ireland Strategic Investment Fund.
This is a robust Bill. The fund that will be established as a result of its enactment can help in the future. The Bill delivers on a commitment in A Programme for a Partnership Government. It also delivers on my ongoing commitment to creating resilience in the future to deal with risks that are as yet unknown.
I commend this Bill to the House.