I am pleased to appear before the House to take Second Stage of the Bill. The Bill is an important plank of the medium and long-term policies of the Government, putting our national finances on a sound and sustainable footing and building our resilience to external shocks. The national surplus reserve fund for exceptional contingencies, or rainy day fund, will be an economic buffer available for drawdown in the event of exceptional circumstances resulting in a sharp economic downturn. It has the potential to act both as a countercyclical tool and a contingency fund to support Government fiscal policy in mitigating the effects of a downturn. Steps taken by the Government and its predecessor, including proactive mitigation measures and the preparation of better crisis management plans, give me confidence that we are now better prepared to meet future crises. Nevertheless, with a strongly performing economy, setting reserves aside now will further strengthen our position.
I will now outline the Bill's provisions. Section 1 is a straightforward section comprising definitions. Section 2 sets out that the "National Surplus (Exceptional Contingency) Reserve Fund" will be established on commencement and that the fund's purpose is to hold assets for reasons specified in section 9.
Section 3 places a cap of €8 billion on the value of assets in the fund but allows any return to be held in the fund. In the current interest rate environment, we can expect a near-zero return or a small carrying cost. It is unlikely, however, that the cap will be reached for a number of years and it is expected the interest rate environment will normalise before then. While the cap has been influenced by a number of factors related to the carrying cost, a Dáil Committee Stage amendment provides for the Dáil to amend the cap up or down following a proposal from the Minister for Finance. The proposed overall size and contribution levels to the fund reflect that the carrying costs are effectively a trade-off in not reducing the national debt as they reduce the funds available for increases in public services, reductions in taxation or both. Concurrently, the existing State cash balances serve to reduce the required size of the fund as they would be the first draw in the event of a requirement for additional funds.
Section 4 provides that the fund be managed and controlled by the Minister for Finance and includes standard provisions on the keeping of accounts, audit formalities and the laying of audited accounts before the Oireachtas. The Minister's intention is to delegate his investment responsibilities in respect of the fund to the National Treasury Management Agency, NTMA, under section 28 of the National Treasury Management Agency (Amendment) Act 2000.
Sections 5 and 6 relate to the transfer of assets to the fund. Section 5(1) requires the Minister for Finance within 30 days of commencement to transfer assets not exceeding €2 billion to the fund from the Ireland Strategic Investment Fund, ISIF. The intention remains that the transfer will be €1.5 billion but a higher maximum has been specified to allow for some headroom in case some of the transferred assets transpire to have a slightly higher realised value. The Irish Fiscal Advisory Council, IFAC, has previously suggested that higher payments should be provided to ensure sufficient countercyclicality to offset faster-than-prudent growth rates. This would give the Oireachtas no clarity, however, as to the amount of ongoing payments and would further complicate the making of budgetary decisions. Instead, subsection (2) sets out that in each year from 2019 to 2023, the Minister for Finance is to transfer €500 million from the Central Fund to the rainy day fund, subject to subsections (5) to (7), inclusive. Under subsection (4), the Dáil can pass a resolution authorising additional transfer to the fund in a range of circumstances, such as if there are windfall tax receipts or a substantial budget surplus. It might also be used to augment the fund further in the years after 2023.
In the Dáil, some Opposition amendments were opposed by the Government on the grounds they sought to undermine the intention to have the fund provisioned as quickly as possible. As the fund is intended to protect the State in uncertain times, it is necessary to establish it now when the State has the resources to do so. Once established, use of the fund will be influenced by our wider preparedness for further crises but tail risks will always remain. As State funds are fungible, however, the rainy day fund cannot be viewed as being distinctly for one purpose. The most recent economic and financial crisis saw the State's financial reserves being used as contingency funds for funding public services and for countercyclical purposes for employment initiatives. As such, subsections (5) to (7), inclusive, create a form of in-year contingency reserve for those years 2019 to 2023, inclusive, where a payment of €500 million is due. Those payments will generally be made towards the end of the year and, therefore, if there is a serious event requiring substantial unanticipated expenditure, it will be possible to reduce the amount of the payment by the amount of the additional expenditure incurred.
The type of event is deliberately not described in greater detail than a natural or other disaster, as it is intended to refer to inherently exceptional events or those exceptionally repeated in a given year. Examples might be an exceptionally severe weather event causing enormous damage or a major health risk such as a significant outbreak of foot-and-mouth disease. The facility is not intended to substitute for prudent contingency budgeting. If used, any payment will be made directly from the Exchequer under the normal public financial procedures. In addition, the Minister for Finance will report to the Dáil on the reasons for making a reduced payment into the fund. If between 2019 and 2023 we move into a substantial deficit, it will not make sense to borrow for the fund.
Therefore, section 6 is an escape clause to allow the Minister to propose a resolution authorising that the €500 million payment not be made. The Minister must be satisfied that making the payment would place an undue burden on the public finances and the resolution must be passed by the Dáil.
Section 7 is a technical amendment to the National Treasury Management Agency, NTMA, Acts allowing the Minister to direct the NTMA, as custodians of the Ireland Strategic Investment Fund, ISIF, to transfer assets out of it to another specified fund. It also obliges the NTMA to comply with that direction.
Section 8 sets out the high level investment strategy for the rainy day fund. It is designed to be conservative and maintain a highly liquid fund to ensure that, if a crisis gives rise to an immediate funding requirement, the money will be available at short notice. Subsection (3) gives specific authority to consider the net Exchequer position in deciding where and how to invest the fund, when it is not possible to conserve its full nominal value. When the Minister delegates the investment functions to the NTMA, investment guidelines will be drawn up based on this mandate.
Section 9 sets out criteria for drawdown of the fund which are of vital importance for effective operation. These criteria act as a triple lock. The first element is that the Minister is satisfied on reasonable grounds that drawdown is necessary to remedy or mitigate exceptional circumstances, to prevent potential serious damage to the financial system in the State or to support major structural reforms with long-term positive budgetary effects. The EU's fiscal rules do not currently make specific provision for the development of a rainy day fund. However, the fund could be used as a countercyclical buffer in response to exceptional circumstances rather than normal fluctuations within the economic cycle.
An economic crisis can be quite unpredictable in its effects, and there is no point having the money but being unable to access it because a specific threshold or condition is not met. For this reason, Government is reluctant to be strongly prescriptive within the Bill itself, but we are working on indicators which might best be used to assess whether exceptional circumstances exist. The second element is that the Minister brings a memo to obtain approval of a proposed resolution. Following Government approval, Dáil Éireann decides whether or not to approve the resolution.
Decisions on drawdown will take place in the full light of democratic scrutiny. There is a modification to this procedure set out in subsection (4), for cases of serious urgency. If the Minister believes, again based on reasonable grounds, that a payment into the Exchequer is urgently needed before the next sitting of the Dáil, with Government approval, the Minister may make the payment into the Exchequer. The Minister must then report to the Dáil on the payment and the reasons for it at the next sitting. I very much hope we never need to use this provision, but it is necessary to provide for a situation which might arise from an extreme crisis.
Section 10 requires the Minister to comply with a resolution of Dáil Éireann or the emergency Government decision and transfer the amount specified into the Exchequer. Drawdown is specifically only to the Exchequer. Any onward transfer will be subject to the full rigour of the public financial procedures and can only be made with Dáil Éireann's consent.
Section 11 is fairly standard in that expenses, which are not expected to be significant, incurred by investing the fund will be chargeable to the fund. Section 12 sets out the Short Title and includes a standard commencement provision. Commencement is intended later this year, subject to Oireachtas approval, when the delegation order and investment guidelines are ready and when the NTMA confirms it is ready to make the transfer from the ISIF.
The constructive and meaningful engagement on this Bill thus far has contributed to a robust proposal. As such, this fund could help proactively mitigate a future serious downturn and deliver on a commitment in A Programme for a Partnership Government that it would also deliver on this Government's ongoing commitment to creating substantial financial stability and developing economic resilience. I commend the Bill to the House.