At the outset, I thank committee members for facilitating this session this morning. I know it is out of their normal calendar cycle, so I do appreciate the co-operation of colleagues in that regard.
I will say a few words on section 8 first and I will then deal with some of the specific issues that colleagues have raised. Section 8(1) provides the mechanism for contributions to the fund. Subject to section 9, section 8(1) requires that 0.8% of relevant GDP is contributed to the future Ireland fund, FIF, from the Exchequer in each of the 12 years between 2024 and 2035. The 2035 end date is intended to recognise first that the windfall corporation tax receipts may be finite. It also recognises that there is the potential for extra demands on the Exchequer over time. By halting the payments from 2036, the State will have additional flexibility to use the money that would otherwise be contributed to the fund for other State expenditure. The term “relevant GDP”, which is defined in section 2, is used to calculate the level of contribution to the future Ireland fund in a given year. By way of example, the 2026 payment will be allocated in the budget in 2025, based on the latest available GDP outturn figures at that time, which will be the 2024 GDP figures.
Section 8(2) provides for further payments above 0.8% of GDP to the fund between 2024 and 2035 following a Dáil resolution. It will be a choice for the Government of the day to decide whether to provide more resources to the fund. There is no upper limit on the size of any potential contribution. Section 8(3) provides for the possibility of making further payments in any given year. This may be particularly useful after 2035 when the normal payments to the fund are due to cease. This is an option for the Government of the day. As with section 8(2), there is no limit on the scope of such payments.
We have set contributions to the future Ireland fund at 0.8% of GDP because this takes into account estimates of the level of potential windfall corporation tax receipts, as well as the medium-term budgetary projections. The 0.8% of GDP to the future Ireland fund accounts for just under half of the projected windfall corporation tax receipts over the medium term. This means there is a buffer to take account of potential risks that may materialise.
On the question of flexibility, which has been raised by colleagues, it is important to note at the outset that there is no perfect approach to setting contributions to the future Ireland fund, and there will always be trade-offs in the approach that is chosen. In this case, there is a trade-off between introducing flexibility in the contributions to the FIF and ensuring that a long-term asset is built to contribute to future long-term costs. The Bill gives the Minister of the day the flexibility he or she needs to contribute to the FIF while ensuring the contributions continue to be made where there is no deterioration in the economic or fiscal position of the State. One of the main rationales for the FIF is to save windfall corporation tax receipts. The contribution amount of 0.8% of GDP was calibrated, as I said, so that approximately half of the estimated annual windfall corporation tax receipts would be contributed to the funds. This provides a buffer to take account of potential risks that may materialise. This is the default and at normal times this rule will determine the level of contributions to the FIF.
Another primary rationale for the FIF is to build up financial assets to help offset future fiscal pressures. It is in this context that I note that the longer the fund receives the full contributions and the longer it is invested, the larger the fund will grow and the more resources will be available to deal with future financial pressures on the State. The flexibility contained in this Bill means that where the Minister is satisfied that there is, or is likely to be, a deterioration, payments to the FIF may be halved to 0.4% of GDP. Furthermore, when a Minister is satisfied that there is, or is likely to be, a significant deterioration, payments to the FIF may be paused. This gives the Minister the flexibility he or she needs, while also ensuring the contributions are made in order that a financial asset is built up to contribute to future long-term challenges.
It is certainly the case that a lot can change. We are looking well into the future time horizon, which is into the 2030s and 2040s. Yet, based on the information I have available to me today as Minister, I am convinced that this is the right course of action. In broad terms, it is worth pointing out the support this proposal has received from the Irish Fiscal Advisory Council, the European Commission, the IMF, the OECD, our own Central Bank of Ireland and, indeed, many other independent institutions, which have recognised the risks to Ireland of being dependent on windfall corporation tax receipts.
This does help us to provide for costs that we know are going to come our way. I am satisfied overall that there is adequate flexibility built into this legislation. Ultimately, it is a judgment call for the Minister and Government of the day with regard to whether to reduce or ultimately to halt the contributions into the fund. In making such a decision, the Minister and the Government will have to take into account a range of factors, which we will come to in more detail in section 25, regarding the assessment of the Irish Fiscal Advisory Council, IFAC, but also in section 26 with regard to the Minister's own assessment.
On the question of Exchequer deficit versus general Government balance, Deputy Doherty has rightly taken us on a walk-through of reconciliation in broad terms between the Exchequer balance and the general Government balance. Again, however, I would make the point that the flexibility is there within the legislation. If it is the view of the Minister of the day that it is inappropriate in the context of a deficit, where there is borrowing taking place, to continue to make a contribution to the fund then that decision can be taken to either reduce or not to do so. Of course, to reduce by half means that the other half is then available in terms of additional resources available to the State in that context. That point is important.
On the question of why not allow the Minister and Government to put in €1 billion, €3 billion or €4 billion year on year, that is a very ad hoc approach in my view. That does not provide a sound and consistent structure for the establishment and operation of such a fund. Also, when it comes to the work of the agency, namely, the National Treasury Management Agency, NTMA, which will be responsible for managing this investment, I believe it is important that we give it as much certainty as possible, while acknowledging that there may be changes, circumstances change and there will be downturns. There could be shocks. Who knows what will happen over the next 15 to 16 years? From the perspective of enabling it to professionally manage the fund, however, it is important that it has as much certainty as possible about the level of contribution that is going to go into the fund over the period ahead. That is why we set it at the 0.8% or 0.4% or, indeed, 0%. Ultimately, however, that is a matter for the Minister of the day. There is, therefore, significant flexibility there. While it is true that on the fiscal side we have projections out to 2027, in the stability programme update, SPU, we do have macroeconomic projections out to 2030, including GDP. Because of that lag effect, it means we can show and have all the projections there. What the contribution is can be worked out directly from the SPU in terms of GDP to 2030, which means the contribution up to 2032 can be drawn directly from the data provided within the SPU that was published a couple of weeks ago. I know there will be a fair bit of over-and-back on this. I just want to give my broad perspective on section 8 and my view that there is adequate flexibility within the parameters of the legislation to take account of the concerns colleagues have expressed.