I invite the Minister, Deputy McGrath, to take the floor.
Future Ireland Fund and Infrastructure, Climate and Nature Fund Bill 2024: Second Stage
Question proposed: "That the Bill be now read a Second Time."
I am pleased to be in the Seanad this afternoon to take Second Stage of the Future Ireland Fund and Infrastructure, Climate and Nature Fund Bill 2024. This debate follows an extensive engagement to date, including with the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach for prelegislative scrutiny, on Committee Stage in the Dáil and also with the budgetary oversight committee. I express my thanks to Deputies for their contributions to date. I know Senators will also want to contribute to the debate on this important Bill.
This Bill provides the legislative basis for two new funds - the future Ireland fund and the infrastructure, climate and nature fund. It will also provide for the dissolution of the national reserve fund, NRF, the assets of which will seed the new funds. These new funds are a significant development in the Government's fiscal policy. This has been welcomed by the IMF, the OECD, the Fiscal Council, the ESRI and the Central Bank of Ireland in their economic analyses of Ireland. There are two key motivations to the development of these funds. The first is based on the assumption that a large proportion of the increase in corporation tax seen in recent years is potentially windfall in nature, which means it is not linked to economic activity within the domestic economy. It is important that the State does not build up permanent fiscal obligations on the basis of revenues that could prove transitory. The second motivation for these funds is based on the fact that there are known and unknown structural challenges facing the public finances in the medium term posed by the so-called four Ds, which are demography, decarbonisation, digitalisation and deglobalisation. The Bill provides the structure to save and invest resources to deal with known and unknown long-term pressures on public expenditure, to support countercyclical expenditure and to help to address specific climate and nature problems. As part of the overall structure underpinning the establishment of the funds, the Ireland Strategic Investment Fund will continue to maintain a stream of investment in the domestic Irish economy.
As was a common theme of debate during the passage of this Bill through the Dáil, the Government recognises there is a need to maintain capital expenditure across a range of priority areas. This is reflected in the ongoing capital expenditure programmes across different Government Departments including housing, and in the creation of a countercyclical fund as part of the infrastructure, climate and nature fund. The Bill has four main features which are the establishment of and the rules underpinning the future Ireland fund; the establishment of and the rules underpinning the infrastructure, climate and nature fund; an annual economic and fiscal assessment to determine whether it is appropriate to make the full contribution to the funds and a potential accessing of the infrastructure, climate and nature fund; and the management of the funds by the NTMA.
The purpose of the future Ireland fund is to support State expenditure from the early 2040s. Each year from this year to 2035 - that is for a 12-year period - 0.8% of GDP will be paid into the fund from the Exchequer. This year that is approximately €4.1 billion. In 2024 a further €4.2 billion will be transferred to the fund from the national reserve fund before it is dissolved. With the contributions, growth in GDP and return from investments over the long-term horizon, the fund could grow to more than €100 billion by the time of drawdown. The Bill allows that up to 3% of the future Ireland fund can be drawn down each year from 2041. These resources will be available to help to support future expenditure pressures faced by the State, such as those relating to an ageing population, to climate and to the digital transition. They are not directed at any specific expenditure as the use of the resources from the fund is a matter for the Government of the day.
The infrastructure, climate and nature fund is the second fund proposed under this Bill. The purpose of this fund is twofold: first, to provide a fiscal buffer to support State expenditure during a period of significant deterioration in the economic or fiscal position of the State; and second, to provide support to projects that directly or indirectly contribute to climate change, nature, water quality and biodiversity objectives. An annual figure of €2 billion will be paid into this fund from 2024 to 2030, inclusive, which is a total of €14 billion.
The contribution in the current year will come from the distribution of the national reserve fund. The countercyclical element can cushion the public finances in future economic shocks to help maintain investment in schools, hospitals and homes throughout the economic cycle. Subject to an annual assessment from 2026, up to 25% of the fund can be drawn down in a given year to support State expenditure. It is intended that this will avoid generating backlogs in capital projects due to a lack of spending during economic downturns.
Separately, in each year from 2026 to 2030, up to 22.5% of the fund can be drawn down to support State expenditure on designated environmental projects, subject to an overall cap of €3.15 billion. The process for the allocation of resources to specific projects will be managed by the Minister for Public Expenditure, National Development Plan Delivery and Reform, with guidance developed by his or her Department, and will be managed as part of the existing budgetary process.
The Bill provides an annual assessment process to vary or pause the payments to each fund and to draw down from the infrastructure, climate and nature fund in a downturn. This process is central to the adaptability of the two funds. Each year, the Irish Fiscal Advisory Council, IFAC, will assess the economic or fiscal position of the State, having regard to a number of indicators including, but not limited to, corporation tax receipts, GDP, employment figures and the general government balance of the country. The Minister for Finance will produce his or her own assessment and have regard to the report of the council.
Where the Minister of Finance is satisfied that there has been a deterioration, he or she may make a proposal to Dáil Éireann to reduce or pause the contributions to each fund in the following year. Where there is a deterioration in the economic or fiscal position of the State, the Minister, following consultation with the Minister for public expenditure, may propose to Government and then to Dáil Éireann that the contribution to the future Ireland fund is reduced to 0.4% of GDP in the following year. Where the deterioration is of such significance that it is appropriate to take more drastic actions, the Minister for Finance may, again following consultation with the Minister for public expenditure, propose to the Government and then to Dáil Éireann that the contribution to the future Ireland fund in the following year is paused entirely. When such a proposal is made, the Minister for Finance may also propose to pause the contribution to the infrastructure, climate and nature fund. The Minister may, again following consultation with the Minister for public expenditure, propose to Government to withdraw up to 25% of that fund to respond to the economic or fiscal situation facing the country. I should be clear that where the criteria allow for a drawdown of the countercyclical element, and when there is climate and nature expenditure, in a year for 2026 up to 2030, up to 47.5% of the assets of the fund can be drawn down in one year, potentially.
The structure of each fund aligns with the existing structure for the Ireland Strategic Investment Fund, ISIF, which I know Senators will be very familiar with. The funds will be vested in the Minister for Finance and managed by the National Treasury Management Agency, NTMA. Each will have an overarching investment policy and a requirement for the NTMA to develop and publish an investment strategy. The investment strategy will detail how the NTMA will hold and invest the assets of each fund in accordance with the investment policy. It will be prepared by the NTMA with input from the Ministers for Finance and Public Expenditure, National Development Plan Delivery and Reform. The investment strategy for each fund will be provided to the Government for noting and will be published on the NTMA's website.
Each strategy will embed environmental, social and governance, ESG, matters across the funds. The NTMA will be required to describe how it takes into account ESG factors in its investment decisions, describe the types of investment it will not invest in, and describe how it determines the basis for making such investment decisions. This provides a framework for the NTMA to engage pre- and post-investment on important topics such as ethical conduct, human rights, labour practices and environmental compliance.
I will briefly set out the main provisions of the Bill. Part 1 contains standard general provisions, namely, the Title, commencement, definitions and expenses.
Sections 4, 13, 24 and 27 provide definitions applicable to specific Parts. There is some symmetry between Parts 2 and 3, which establish each of the new funds.
Sections 5 and 14 provide for the establishment of each fund, respectively. Sections 6 and 15 set out the investment policy for each fund. The assets are to be held on a commercial basis, so as to seek to secure the optimal total financial return, having regard to the level of risk, including ESG risks, and the likely timings of payments out of each fund. Sections 7 and 16 provide that the NTMA shall determine, monitor and keep under review the investment strategy for the assets of each fund, in accordance with the overarching investment policies. Sections 12 and 22 provide for a mechanism to delay the payment from either fund to the Exchequer, where there are potential challenges to liquidating assets of either funds.
In Part 2, section 8 provides for payments to the future Ireland fund. It provides that 0.8% of “relevant GDP” is paid to the future Ireland fund from the Exchequer each year between 2024 and 2035. It allows for further payments following a Dáil resolution. Section 9 provides the mechanism to reduce or pause these payments. Section 10 requires the NTMA to report to the Minister for Finance on the amount of the investment return the NTMA believes is appropriate to be drawn down in the next five years. Section 11 provides for withdrawals from the future Ireland fund from 2041.
In Part 3, section 17 provides for payments to the infrastructure climate and nature fund. It requires that €2 billion is paid to this fund from the Exchequer, in each year between 2025 and 2030. Section 18 provides the mechanism to pause these payments and section 19 provides for withdrawals from the infrastructure, climate and nature fund to support State expenditure in a downturn. Section 20 provides for the designation of environmental projects. The process of allocation of resources will be managed by the Minister for Public Expenditure, National Development Plan Delivery and Reform. Section 21 provides for withdrawals from the infrastructure climate and nature fund to support spending on such projects. Section 23 provides for the Minister for Finance to prepare a review on the operation and effectiveness of the infrastructure climate and nature fund in 2031.
In Part 4, section 25 requires the Irish Fiscal Advisory Council to assess the economic or fiscal position of the State annually and make recommendations to the Minister for Finance in respect of actions to take in the following year regarding: the contribution to the future Ireland fund; the contribution to the infrastructure, climate and nature fund; and whether to draw down from the infrastructure climate and nature fund. Section 26 requires the Minister for Finance to determine, each year, whether there has been or is likely to be a deterioration in the economic or fiscal position of the State. He will have regard to the fiscal council’s report in his own assessment. The purpose of this assessment is to determine the action to take in the following year regarding: the contribution to the future Ireland fund; the contribution to the infrastructure, climate and nature fund; and whether to draw down from the infrastructure climate and nature fund.
In Part 5, section 28 outlines the responsibilities of the NTMA in relation to the funds. Section 29 requires the Minister for Finance to provide the NTMA with notice of payments into either fund. Section 30 provides for the expenses incurred by the NTMA in its functions under this Bill to be paid from each fund. Section 31 obliges the NTMA to endeavour to ensure that the assets of either fund are not invested in fossil fuel undertakings. This follows the template of the Fossil Fuel Divestment Act 2018. Section 32 provides for material to be included on the funds in the NTMA's annual report.
In Part 6, section 33 amends the National Treasury Management Agency Act 1990 to increase the board by two members, and to enable the establishment and dissolution of sub-committees. Section 34 amends the National Treasury Management Agency (Amendment) Act 2014: to incorporate a specific requirement for the NTMA to have regard to any risk posed by the ESG matters of relevance to the holding or investment of the assets of the Ireland Strategic Investment Fund, and to provide a revised mechanism for the transfer of assets from the ISIF from 2035, to align with the process of the future Ireland fund, including the reporting of a five-year rolling plan. Section 35 provides for: the transfer of €2 billion of the assets of the national reserve fund to the infrastructure, climate and nature fund; the transfer of the balance, that is, approximately €4.1 billion, to the future Ireland fund; and the dissolution of the national reserve fund by order. Section 36 repeals the Act which provided for the national reserve fund.
Finally, section 37 provides that the two new funds shall be exempt from domestic taxation, including the relevant amendments to tax law set out in the Schedules.
There has been constructive and meaningful engagement on this Bill so far, and I have no doubt that will continue in this House. The Bill arises from the need to deal with the future fiscal challenges faced by the State. The establishment of the future Ireland fund will help lessen the fiscal burden for the following generations. It would also deliver on the Government's ongoing commitment to creating and sustaining financial stability and developing economic resilience. The legislation also recognises the need to deal with present environmental challenges and to help preserve public expenditure throughout the economic cycle through the establishment of the infrastructure, climate and nature fund. The provisions of the Bill are balanced in a way that seeks to maximise the contribution to both funds yet recognises the need to have mechanisms in place to reduce or pause contributions to help deal with the potential economic or fiscal shocks. I commend the Bill to the House.
Before we move to the Fianna Fáil spokesperson, Senator Ollie Crowe, I welcome our visitors from Archbishop McHale College, Tuam. You are very welcome to the Seanad.
I welcome the Minister, Deputy McGrath, to the House. I am covering this issue as Senator Pat Casey could not be here this afternoon.
I welcome the establishment of these funds. This is about protecting public services and living standards for current and future generations. We know today that our rising population and increased demand for services will create pressures. The future Ireland fund will be there to protect vital State supports like pensions and health services. The future fund is an historic development. It will be there when our people need it to deliver real and sustained benefits to every part of our country. We also need to make sure that vital investments can continue even in a downturn, when they are needed more than ever. That is why we are creating the infrastructure, climate and nature fund. This fund will be ready to ensure sustained investment in areas such as transport, health, nature restoration and community facilities and will support the expansion of new affordable and sustainable energy sources. All Members are aware of how volatile the global economy is. It is vital that Ireland is prepared for all possibilities, and this fund is crucial in our being prepared.
As a result of the new investment funds we are creating, Ireland will have in place a major buffer to protect public services and investment plans, using money that we know with a high degree of likelihood is not a long-term and secure basis for increasing spending. We will create funds that mean we can expand services and plan investments with much greater efficiency and certainty. The larger fund is what economists term a countercyclical investment fund. In normal language, this is about investing money to make sure that one can cope with the difficulties when they emerge in the future. The other fund is about underpinning both general and capital investments and, critically, funding our investment of carbon neutrality and enhanced biodiversity.
These funds show that Ireland is doing things differently. We are determined to show that we can underpin major improvements in public activity, not just today but well into the future. As well as increasing the available funding due to their investment activity, they will strengthen confidence in our economy and public finances. This will have a direct impact on our ability to borrow at better rates, reducing interest payments and increasing the funds available for public services. The investment fund means that there will be much greater security for the major capital plans, which we will set out and build upon. There has always been a conflict between the need to prepare for annual budgets and capital investment projects which operate over many years. By providing this extra security, there will be a number of vital benefits. It will help to build the capacity and maintain confidence to deliver the plans and it will encourage long-term innovation.
The future Ireland fund will help deal with future expenditure pressures, including ageing, climate, digitalisation and other fiscal and economic challenges. Its purpose is to support government expenditure in areas that are recognised as being future demands on public finances.
There is no specified limit to the size of the fund. Contributions will be made to this fund until 2035. The forecasted level of contributions to the fund will be €70 billion over the period, with a contribution of 0.8% of GDP each year. With projected contributions, growth in GDP, and expected returns from investments, the fund could grow to €100 million by 2035.
I greatly welcome this move and believe it is essential planning, which prepares Ireland, as is required, for a time when uncertainty goes hand in hand with the global economy. I will leave it at that for now.
I welcome the Minister here today to discuss this all-important Bill. It is very important because it is about future-proofing. It is not just for us, it is for our children and our children's children. It is looking to the future. The fact is that while finances are good we are looking at putting away money so that in the future if any recessions or other events occur there will be no slowdown in State services. That is very important.
Everybody talks about the current housing crisis, which is a fact, but we are turning it around, whereas if we go back to the last recession, social housing slowed down and then it stopped altogether. We must avoid slippages like that in the future because our population is expanding quickly and we must make sure that we can continue with State services even if we do not have the finances, and there is a recession. The fact is that the Minister is putting away the money, but also there is a watchdog in the sense that he must go to the Dáil if he wants to spend it, and also if he has to put a stop to the finances being put into the fund.
When we look at it, it is not just about housing, it is about health, infrastructure, and also about climate. We are all very aware of how important that is at this time and how we must future-proof. For some years Ireland has lagged behind and now we are playing catch-up. We are bringing in a lot of very important measures. People are moving to electric cars and solar panels. We see that more and more when we are out canvassing. Even in rural areas we see that more people are making that change. It is about incentivising, but it is also about the provision of resources to help people to do it. That is why the fund is so important.
I compliment the current and previous Governments on the fact that we have the resources to future-proof the future. That is a very good position to be in. I am certain that not every country is in that position in terms of Exchequer funds and the amount of companies that are now looking to Ireland. We can use those resources and that money and put a certain amount of it into the fund to protect our future. Many children that are still in primary school will appreciate what the Government is doing, and what the Minister is doing to protect their future.
Given the population growth, people are looking for the provision of playgrounds and measures to help the environment, but also for infrastructure such as roads and hospitals. The situation in University Hospital Limerick is not due to a lack of resources from the Government. A review is going on at the moment to see if another hospital is needed in the area. The fund may be about providing money for projects like that down the line. It need not necessarily be just Limerick, it could be in any part of the country. It is very important that we protect our future.
I compliment the Minister and his officials on these prudent and meaningful measures. I wish the Bill all the best.
I thank the Minister, Deputy McGrath. I support this Bill, which I am delighted to see coming before the House. The old adage of fixing the roof while the sun shines comes to mind, but we are not just doing that. We are also putting the money away so that we can buy the tools if there is a leak in a roof that we are unable to fix in the future. People often make the accusation that politics is short-termist or fixed around election cycles and that politicians tend to be profligate when we have a surplus. It is good to see prudence being shown in the approach to both the future Ireland fund and the infrastructure, climate and nature fund.
I am delighted the Minister is here today. I will juxtapose the Minister being here proposing this Bill at this Stage with the decision of another minister for finance on this island to reject a measly £28 million for climate funding projects in the North, which were bids from her ministerial colleagues. This shows two things. The first is the lack of ambition of those ministerial colleagues in bringing forward proposals costing only £28 million. The second is the duplicity of many of the political parties in question because, while they spoke of their support for radical climate and biodiversity action, now that they have their hands on the levers of power, they fail to actually pull them. That juxtaposition is a really important point.
It is imperative we have a framework to adapt and compensate for the challenges facing the State in the coming decades, with reference to this Bill. The Minister spoke about the "four Ds" - decarbonisation, digitalisation, demographics and a fourth that I cannot remember - and the impact they will have, particularly with regard to the climate crisis as well as on the State. I think about the Johari window or Mr. Donald Rumsfeld's statement about "known unknowns" and "unknown unknowns". We had a very recent unknown unknown in that we did not expect a global pandemic. That provides a kind of impetus for putting this money aside. It prepares us so that if we have other incidents like that, we will have the resources to deal with them.
We must ensure the ability of the State to adapt to unforeseen challenges and allow ourselves the financial headroom to fund infrastructure and community projects and counteract the worst effects of the climate crisis. We can achieve this with the infrastructure, climate and nature fund. The Bill makes specific reference to the funding of those infrastructure projects through the mechanism. However, there is a challenge we need to think about, namely, how we do that on an island that has two jurisdictions. We know that the climate and biodiversity crises recognise no borders. Issues around energy infrastructure, encouraging people to get out of their private cars and onto public transport and around water and air pollution are all-island challenges. I would like to see something more specific in the Bill to reflect those. It is an opportunity to do so and I hope the Minister takes that suggestion constructively. I will feed that message through my party colleagues as well.
The State cannot ensure a natural thriving environment and diverse ecosystem within its borders without supporting those same ecosystems north of the border. It is impossible to have effective infrastructure which protects our communities from the worst effects of the climate crisis without collaborating with the authorities in the North and taking an all-island approach to security, the environment and biodiversity. The funds created by this Bill present a perfect opportunity to support cross-Border environmental and biodiversity initiatives and all-island infrastructure projects, such as the investment we are exploring in terms of cross-Border rail. That could be transformative for this island.
In previous iterations, projects such as CANN produced excellent results in protecting habitats and species across Ireland, Northern Ireland and Scotland, with the assistance of EU funding between 2017 and 2022. CANN is one example of such projects. There is a plethora of others and they are worthy of support. I hope we will see that referenced more explicitly in the Bill.
It is important to reiterate that the North has a shameful environmental record.
Often the reflex in the North is to point to the bigger island and blame the Brits or blame the Tories. I accept austerity, Tory ideology and more than a decade of cuts will have had an impact, but we have had devolved government in one form or another for 26 years. Therefore, surely there is some responsibility for devolved ministers in respect of their environmental record, as well as the perilous state of finances in the North.
I will give the Minister some headlines for cognisance of the challenge ahead of us. In the North, we are the 12th worst place in the world for biodiversity loss. We emit the highest per capita emissions of greenhouse gasses across these islands. Zero of our 495 rivers, lakes and coastal plains meet a good standard and we know hard water impacts across the island. We have the largest illegal dump in western Europe at Mobuoy, with no independent investigation into how that happened, despite the assembly supporting a Green Party proposal for a public inquiry. In the city of Belfast, one in 20 deaths is because of air pollution and the toxic air in the city, which is caused by our over-reliance on private cars. Our rates of household recycling are stagnating. We had fewer than 3 km of cycle lanes in Belfast in 2019. Fast forward five years, and we still have fewer than 3 km of segregated cycle lanes. Our soils are polluted with nutrients because the Executive chose a “going for growth” strategy, which was about industrialised farming for export markets rather than supporting and nurturing smaller-scale farms and family holdings. Of course, everyone will be familiar with the disaster at Lough Neagh. However, often what we hear is “Oh gosh, how did this happen?”, when actually we need to examine the policy decisions that were made by recurrent ministers locally that exacerbated the blue and green algae bloom at Lough Neagh.
We also have an aversion to revenue raising. It is 108 days since the return of the assembly in the North and so far it has ruled out all opportunities for revenue raising. This comes off the back of misgovernance, poor governance and lack of accountability. I refer, for example, to the NAMA, Red Sky and RHI scandals of the past decade. We heard the eviscerating evidence from the Covid inquiry last week, when the solicitor of the bereaved families talked about the families' disappointment about how the Executive coped with the crisis of Covid.
The challenge for us is to step up, put the challenge to our colleagues in the North and say they must do better. We must, with the future Ireland fund and the infrastructure, climate and nature fund, take cognisance of historic underfunding in the North for infrastructure and the overspend over four decades on security because of the conflict, and support them in cross-Border initiatives that will be transformative for this island.
As has been mentioned a number of times, this Bill provides for the establishment of two funds - the future Ireland fund and the infrastructure, climate and nature fund - to support State expenditure from 2041 in a sustainable and consistent manner. However, there are risks to these proposals that could be disastrous in terms of the State’s ability to spend and respond to the housing and health crises as well as meet our climate targets. The serious flaws with these proposals mean that Sinn Féin will not be supporting this Bill today.
The future Ireland fund is being established to help to deal with future expenditure pressures, including ageing, climate, digitisation and other economic and fiscal challenges. Annual contributions will be made to these funds – to the future Ireland fund from 2024 to 2035, after which future contributions can be provided through a Dáil resolution. There is no limit to the potential size of this fund. For each year from 2024 to 2035, 0.8% of GDP will be invested in the fund, with approximately €4.1 billion also to be transferred from the dissolution of the national reserve fund in 2024. Taking account of annual contributions, growth in GDP and potential return from investments, the fund has the capacity to grow to €100 billion by 2035.
Here is the fundamental problem with this legislation. At present, we have a severe housing and homelessness crisis which is forcing young people to emigrate in their thousands. Housing is the number one issue facing our country. The housing crisis is also undermining our ability to attract investment and employment and is hampering growth. Yet, as a result of this proposed legislation we could potentially face a situation where, in any given year, the Government would be obliged, in law, to transfer billions of euro into the future Ireland fund without regard to the housing and social needs of our country.
Under this Government, the rate of home ownership is falling and homelessness is rising and an entire generation is locked out of affordable accommodation. There is also a need to significantly increase public investment and the capacity of our health service and hospitals, which are also in crisis. Under this proposed legislation there is fear and a real possibility that despite the need to increase public investment in housing, health and the economy, the Government would be transferring billions of euro into this fund and risking further under investment in those key areas.
The stated purpose of the climate, infrastructure and nature fund is to make resources available in a future downturn to support expenditure through the fiscal cycle. Under section 21, it will allow for the drawdown of funds not exceeding €3.15 billion between 2026 and 2030 for designated environmental projects. That is an average of €630 million per year, which just shows the lack of ambition from the Government to meet its greenhouse gas emissions targets.
It is also hard to believe that the legislation makes no provision for the drawdown of money from this fund to invest in housing. Regardless of how well or not public finances are doing, the housing crisis will require substantial investment in social and affordable housing for years to come.
I want to talk for a moment about corporation tax. As recently as 2022, I think, the Department was talking about a fall off in corporation tax revenues. The proposed establishment of the future Ireland fund and the infrastructure, climate and nature fund has taken place in the context of significant growth in corporation tax receipts in recent years and a recognition that a substantial proportion of these receipts are potentially volatile and windfall in nature. We have seen a significant increase in the corporation tax revenue in recent years but only ten companies account for more than 50% of all corporation tax revenue. Foreign multinationals paid 87% of all corporation tax receipts in 2022. Sinn Féin has consistently warned that the use of this revenue must be treated carefully. Sinn Féin has also said that the establishment of a sovereign wealth fund providing funding for future challenges and current crises makes good use of the significant growth of corporation tax revenues. While we remain supportive of a sovereign wealth fund, Sinn Féin will be opposing this legislation. Under these provisions, we could face a situation where the public finances record a surplus - which could be modest - while at the same time, our people continue to face acute housing need and chronic housing shortage. Yet, under this legislation, the Government would be obliged to transfer billions of euro into this fund without regard to the housing and social needs of our people. That is a fundamental problem with the way this legislation has been designed and drafted. Payments into this fund and by extension, the expenditure policy, will be tethered to a metric - gross domestic product, GDP, - that is universally acknowledged to be an inappropriate measure for the Irish economy. Yet, it is GDP that will determine the amount of money - the billions of euro - the Government must transfer into the fund, possibly at the expense of the investment in housing, health and other infrastructure. What is the basis for the decision that GDP is the appropriate metric for transfers into this fund, rather than gross national income, GNI?
It is inevitable that the economy and the position of the public finances will change. Under this legislation we could face a scenario whereby, despite the need to increase public investment in housing, infrastructure and the economy, the Government would be required by law to transfer an amount equivalent to the entire Government surplus into this fund. Hamstrung by this legislation and restricted by its rigid requirements, the State would risk under investment and undermining our economy and its prospects, so we will be opposing this legislation today.
I thank the Minister for bringing forward this legislation. I have absolutely no doubt that the creation of these funds, at some stage in the future, will be viewed as one of his finest legacies. Indeed, it will have a profound impact on this country.
I have no doubt - and I say this with respect to my colleague, Senator Warfield - that at some stage in the future, Sinn Féin will sing the praises of the creation of these funds. Much as the party changes its position on corporation tax, it will welcome these as long-term investments in our country.
It is welcome that our economy is so robust that we have the resources to create these sovereign funds. To establish these funds and to invest in the future is critical. Colleagues have referenced this but I would comment on the three big challenges we will face as a society, how we respond to them and the roles these funds will play, namely, the question of climate challenge, the biodiversity challenge and sustainability. We know that we are facing those as a country at present and that we will face even greater challenges in those spaces. I think about issues such as coastal erosion in my own, and the Minister's, part of the world and how we, as communities, respond to that and how the State can be prepared in a big way in this regard.
As for the technological revolution that is happening, we do not even know, technologically, some of the challenges we will face in the coming years but the Minister will be aware of the impact of generative AI; he was speaking about it this week. The convergence of so many other new technologies is going to have profound negative and positive impacts on employment and society more generally. We have to be prepared for those changes.
While they are not frequently debated within these Houses, the demographic changes we are going to see, which these funds will need to underpin, are crucial. As colleagues will be aware, more than 60,000 students will sit the leaving certificate shortly. For those who are sitting the leaving certificate, they will be working into the 2070s. Most of them will live into the 2090s and on current projections, one in five of them will live to see the 22nd century. I am not sure how many in this House right now will see some of those changes, but this legislation and the provision in this fund have to be in a position to be able to meet those and have to be thinking in that kind of long-term way. We are living longer. Some of us are living healthier lives but not in every case. Again, this fund has to look at facing those big, future challenges.
I hope, within this legislation, particularly in respect of the role of IFAC, that there will be regard to the sustainable development goals to which the Government and the State are very committed.
There needs to be a question around the role of the Oireachtas, not necessarily in overseeing the spending but in considering some of those bigger-picture issues. For too long, in many ways, Oireachtas committees have been reactionary to things that have happened. In Finland, as the Minister will probably be aware, there is a standing parliamentary committee for the future, which examines the big-picture issues that impact on Finland, including those that I have mentioned. It examines how state policies, both fiscal and indeed more widely, are adapted to be able to respond to that. It is critical there is parliamentary scrutiny of the general direction in which these funds go. In many cases, it should not happen after the fact, in the same way that committees call people to discuss where money has been spent, but rather look at how we shape it.
In time, this legislation will be seen to be hugely significant. The creation of these sovereign wealth funds is critical for Ireland’s long-term development. I welcome the Minister’s personal championing of this but he can be assured that it deserves the full support of the House.
I welcome the Minister to the House today.
I am delighted to speak about the Future Ireland Fund and Infrastructure, Climate and Nature Fund Bill. Despite the attendance here today, this is a really significant moment for us as a country. It shows that we have been able to bring economic stability and are now in a position, because of the national reserve fund and economic prudence, to take a serious step in the direction of resilience for the future. I see the creation of both of these funds as an insurance policy. It is an insurance policy in the short term because we know that we cannot rely on windfall corporation taxes indefinitely and should not be using them for day-to-day spending. It is also an insurance policy because of the obvious changes that are happening in this country. We have seen our health outcomes improve. We now have the highest life expectancy in Europe and 50% of our hospitals cater for those over 70. These are all really positive markers. As we need to be able to afford to pay for our healthcare and pension pot into the future, it is just common sense that we would take that into consideration.
The third insurance policy relates to the fact that this country has suffered because of economic downturns. What I really like about this policy is that it can ensure that major infrastructure projects that are essential and that are currently in the pipeline, like DART+ West, or the metro north project that was stopped previously, can continue. Such projects, wherever they are at a given time, can continue. Not only that, it also means that we do not face the repercussions that we faced following the global financial crash when we lost our construction workers and the institutional resources needed to turn things around quickly. We are still dealing with that ten years later in respect of the housing crisis. We need to make sure that we break the cycle of boom and bust. I understand that this might be politically challenging for people, especially if they have never had the responsibility of power, but we have made a commitment to the Irish people that we will stop the cycle of boom and bust and will take hard decisions that may not be popular on a given day. I have heard the main Opposition party talk about the fact that we have never needed a national reserve fund or a rainy day fund because it is pouring out there already but the truth is that we do need to think sensibly and ensure that whatever financial resources we have are still here, no matter what happens around the corner. In the time since that comment was made, we have faced a global pandemic, for instance, with all of the repercussions that followed.
The fourth insurance policy relates, of course, to the climate. We have to ensure that we transition, future-proof our country and make it a climate-resilient economy and society but that costs money. Some political parties may not be really and truly committed to that in the way that others are and what this Bill does is lock it into legislation and ensure that the legacy of prudence lives on. I remind colleagues that there is now a 40% productivity gap between the North and South. The politics of now has to be accompanied by the politics of the future and making tough decisions. I want to mention a project that should be considered in the context of the infrastructure, climate and nature Fund. The population of Dublin is growing substantially and is expected to reach 1.5 million by 2035.
Green spaces have never been more important. I am in a constituency that has the Liffey Valley. In the 1990s, it was recognised in a national policy document as an area of untapped resource for green infrastructure and recreational space. This Government needs to invest in public lands and protect the Liffey Valley as a public park and make it more accessible to the population of Dublin. Dublin needs a hero project from which people can benefit. This fund would be perfect for that. In previous years, we missed opportunities-----
Time, Senator, please.
-----to invest in public lands. I do not want that to happen again.
I welcome the Minister of State, Deputy Richmond, back to the House. He is very welcome.
I welcome the Minister of State in his new role and congratulate him. It is fantastic to hear about the new future Ireland fund and the infrastructure, climate and nature fund. It is fantastic they have been welcomed internationally and here by the Irish Fiscal Advisory Council. It looks in particular at four areas, including demography. I believe our population is now 5.2 million and it is getting older, living active and healthy lives. The other areas are decarbonisation, digitalisation and deglobalisation. I come from the west of Ireland. Any time you talk to the Western Development Commission, it will tell you clearly about the balance of investment in this country and that at European Union level, the west and the north west are designated as a different region because we do not see the same level of investment. My request of our Ministers is for balanced regional investment of this fund when it is used across some of the areas mentioned.
I have always talked to our colleagues, Ministers and former taoisigh about the electronic health patient shared record. It is a care record. I think it is now called a shared care record. It is hard to know. The name changes every few years. We still do not have electronic digital online access for every person in this State in respect of the care he or she receives across the country. This is a major lack in our health service. It would incredibly transform the type of care in primary care and within our communities. Sláintecare is all about delivering care in the communities and I am at a loss as to how that can be done when we are looking to keep people in their homes. We are talking about demography and digitalisation and how we can have assistive technologies for older people, people with additional needs and children's additional needs. Those are the things we need to see. Those are things that indigenous innovative Irish companies, start-ups and VCs coming out of colleges would have so many ideas about. I previously worked in Health Innovation Hub Ireland. I have seen those companies with amazing ideas. The challenge is that it is really difficult to access data, statistics and knowledge about our systems because we do not have online health records. This is crucial and it would transform. It is about building with digitalisation and linking in with our demography and the fact that our population is getting older.
The fund is particularly around decarbonisation. I come from east Galway and Roscommon. Those two areas are included in the European Union Just Transition Fund. That EUJTF is being rolled out. Part of that, that is, more than €180 million, half of which is from the Exchequer, is being rolled out to those counties and the midlands. The challenge is that it comes through Fáilte Ireland, which is wonderful if businesses and individuals can apply for these funds. The challenge is that we do not have the tourism infrastructure. It is also extremely limited. As for the type of companies that can apply, to give an example, a wonderful restaurant and café may look for additional accommodation or log cabins. Put simply, it needs to have planning permission in place. The deadlines for these processes and programmes for funding is June this year for expression of interest and December.
Those businesses may not be able to avail of the €180 million that is coming down through a number of different strands.
When it comes to decarbonisation, I want to see the balanced measures for local employment and driving investment into our regions. To me, the lack of balanced regional investment is visible in many ways. One of these is transport, in terms of local links. The Aircoach service between Dublin and Galway and the X20 and 20 Bus Éireann services have been removed. We want balanced regional investment and we need to see how this fund will provide that. We need to tackle demography, decarbonisation, digitisation and deglobalisation, which means local communities driving this.
I hope to have the opportunity to engage on Committee Stage. In respect of this new fund, it is important that we learn from some of the challenges we faced with previous funds and areas of investment of the State. The record of the State has been mixed. Section 6 refers to investment policy and the focus is very explicitly on commercial aspects and seeking the optimal total financial return. We need to consider investment now not solely in terms of the financial return, but also value for money in the wider sense which includes societal, environmental and other inputs. Unfortunately, the framing of the fund around commercial investment has been very narrowly interpreted.
I proposed legislation to reform the mandates of Coillte and Bord na Móna. We know the shareholder letters sent by Ministers to Coillte opened very explicitly with reference to commercial returns on a cash basis and payments of dividends to shareholders. The focus is on what is cash generative, which is a narrow interpretation of what is of value and benefit to the State. If we want investment, it needs to be long term. State investment is different from commercial and private investments because the State can take a long view and consider where the value is in a wider way. The value may be in money that will not have to be spent if we fail to take action on climate or deliver on areas such as social cohesion or just transition, in terms of the breadth of businesses across the State.
I am worried that the same approach seems to apply to the new fund. I sit on the finance committee, as the Minister of State did. We had lengthy and laborious hearings on divestment from the occupied territories and illegal settlements. There was a painstaking approach taken to try to unpack how the NTMA might divest from those situations. While I recognise that there are provisions in respect of fossil fuels in the fund, they are all downstream from investment policy and strategy. There needs to be deeper thinking in respect of the investment policy and strategy.
The NTMA has an exclusions mechanism. Will we be able to tease out some of the exclusions and areas we should not be investing in and which have been identified, such as fossil fuels? I will have to dive further into the detail of the Bill. Our legislation on cluster munitions is explicitly clear in that there are certain areas where the State should not invest. Perhaps that legislation stands alone. We need to examine how we intersect with areas where we have legislative provisions for divestment mandates, such as in respect of fossil fuels and cluster munitions, and that we send a signal that it is not a case of money above all.
We must ensure that we do not tie the hands of this new bank so it is in a position where it cannot say that it is concerned in relation to illegal settlements in occupied territories.
This is Ireland and these are the examples I am giving. We hope that much of this investment is happening in Ireland but there have been ethical issues in Ireland as well. For example, the Irish State in its previous investments was investing in vulture funds, which are competing with local authorities for housing. We had a situation where the State invested in a company that rebranded itself, after some controversy, as Genuity Science, which was a DNA database that was then bought by China and is quite problematic. There have been some very problematic investments and situations where the State as investor is working against the interests of the State as public representative and as the body entrusted with the public good. There is sometimes too broad and too untrammelled an investment mandate of “Go forth and make money for us”, which can end up working against the public good. Fundamentally, where it is public money, it needs to serve the public good.
The Senator said she would be brief.
This is me being very brief. In that context, I want to signal that I will be bringing forward some amendments. I would also genuinely appreciate it if the Minister of State could look at how we can learn from some of these other pieces and from the mistakes made or the things not foreseen by the NTMA. We have been many years waiting for the review of NAMA to tell us all the things that may or may not have gone wrong with NAMA. We have had situations where the State has put in a lot of money or acquired significant assets and then almost found itself in a situation where Minister after Minister was forced to say “There is nothing we can do about it.”
Again, this is a huge opportunity. I believe we should be investing in our future. The portion assigned to sustainability and climate action is woefully inadequate and I genuinely think that all of it should be. It does not all have to be climate-focused but it should all be climate-proofed at this point. It is one thing to say that 22.5% can be drawn down but that is less than a quarter, which is not good enough. Separate to what the Government may explicitly be investing in areas of climate and nature restoration, there also needs to be climate-proofing of what we have. I wonder how this fits with the new EU guidance in respect of climate-proofing investment. That guidance is itself problematic because, unfortunately, it included gas, which is crazy, but it is still something that merits examination.
I am a little concerned in general. I believe some of the core areas that we need to act on with regard to climate will not be intensely profit-generative. When we are making a big turn and a big shift and we have to reduce emissions quickly, some of the things are not going to make a lot of money but they are going to be of huge value. If we force our climate funding and climate action through a commercial filter, we may end up with actions that can make a business case rather than climate actions that are best at reducing emissions by the date we need to reduce them, which is 2030.
I call the Minister of State to respond to the debate.
I thank Senators from across the political divide who have contributed to this very important debate. I acknowledge the array of points raised and I will go through them individually in due course.
The Minister, Deputy McGrath, and I look forward to engaging further with Senators, as has been flagged, on Committee and Report Stages on the issues raised this afternoon. As the Minister stated, the Bill legislates for two new funds, the future Ireland fund and the infrastructure, climate and nature fund. This is an important step towards ensuring the continuing resilience of the public finances. By setting aside part of our tax receipts now, we can deal with foreseen and unforeseen challenges in the future.
Ireland's public finances are currently in a strong position underpinned by record corporation tax receipts, which last year reached nearly €24 billion. The strong performance of corporation tax in recent years has increased the risk of relying on these volatile and unpredictable receipts to fund permanent increases in expenditure. We also know changes to the international tax regime in the coming years could negatively impact corporation tax receipts. The best way to mitigate the risk of an over-reliance on corporation tax is to keep public expenditure growth at sustainable levels, which will be achieved by continuing to follow the appropriate budgetary strategy. These funds will take advantage of Ireland's current favourable conditions, while acknowledging the assumption that a large proportion of the increase in corporation tax in recent years is windfall in nature.
This is a common sense decision. It is the sort of thing everyone should be able to relate to and consider sensible. Those from political entities not represented in the Chamber who said we need to spend while we have it are running a serious risk, not just to the budgetary status quo but to the future of the people we are trying to safeguard in this State.
I will address points raised by a number of Senators. Senators Byrne and Currie raised the purpose of the funds. As has been laid out, the future Ireland fund will help to deal with future expenditure pressures, including ageing, climate, digitalisation and other fiscal and economic challenges. Other actions are likely to be taken to deal with these pressures, yet this fund should be of enormous benefit in resolving these issues. Its purpose is to support State expenditure in a consistent and sustainable manner. The legislation does not provide for these resources to be directed at any specific expenditure, as the use of resources from the fund is a matter for the government of the day. It would be impractical and imprudent for the Government now to determine the priorities of a government in the 2040s and beyond. I am sure that sentiment is shared by those in opposition who aspire to be in government.
The infrastructure, climate and nature fund will seek to deal with the cyclicality of public spending and to assist with climate change objectives and with nature, water quality and biodiversity issues that no one is running away from. The fund will provide resources for spending in a future downturn to support expenditure through economic and fiscal cycles. It has been raised consistently that we cannot have the situation we had before of a boom-and-bust cycle with huge amounts of spending. When economic storm clouds gathered, all of a sudden it had to be turned off. That is something we have to move away from.
I will address the point made by Senator O'Hara. We have not engaged in this Chamber yet. I congratulate him on his elevation to the Upper House and look forward to having more discussion with him and ensuring his voice is heard as the voice of the entirety of this island and of the globe. I welcome his perspective and agree with him that this is an extremely ambitious undertaking by the Government. The process outlined in the Bill provides for the designation of projects as environmental projects where a relevant Minister is satisfied the project contributes, directly or indirectly, or is likely to contribute to a reduction in greenhouse gas emissions; the achievement of environmental objectives derived from a number of EU water regulations; the achievement of conservation objectives; the implementation of conservation measures or of administrative or contractual measures established under the birds and habitats directives; or the implementation of a planned programme or strategy, the national biodiversity action plan or guidelines under the Wildlife Act 2000. Some examples of projects that may be provided under this are the expansion of the national barriers mitigation plan; the delivery of the nature restoration plan for Ireland; the decarbonisation of industry; and increased deployment of renewable energy generation and strengthening of the grid.
The allocation of funding for designated environmental projects will be overseen by the Minister for Public Expenditure, NDP Delivery and Reform in consultation with the relevant Ministers, in line with the normal Estimates process. The fund will also be subject to a formal review in 2031, so we can see the lessons to be learned from use of the fund.
Senator Byrne also raised the important issue of maintaining investment in housing and health, as well as infrastructure more generally.
There are significant existing commitments under the national development plan over the coming years. Capital expenditure has increased from €3.7 billion in 2015, when the Senator and I were still councillors as was the Acting Chairperson, to almost €13 billion in 2023 when thankfully all three of us are back in the Oireachtas. The overall level of capital funding is now at an all-time high, including expenditure on social housing, roads, bridges, hospitals, schools and public transport projects.
On top of that, we must bear in mind that there are capacity constraints in our ability to use significantly more resources for expenditure projects in terms of current expenditure given that we have a concentration of corporation tax receipts and nearly half those receipts are estimated as being windfall in nature. It would be unwise to embed permanent expenditure measures on the back of these receipts.
We all acknowledge that housing is the biggest challenge facing us domestically. We need to allow people the opportunity to have their own home, to be able to rent their own home, to be able to own their own home or to be able to engage with their local authority in securing a social home. That is why it is so welcome that in the first four months of this year more than 30,000 homes have commenced construction in the State. That means that every working day, 337 new homes are started to be built in this State. That is massive progress compared with 2015 or when our party came into government back in 2011. Much more needs to be done. When I talk about the lessons being learned from the last time, we need to remember the importance of the State continuing to build homes, the importance of the continuation of the delivery of social and indeed affordable housing regardless of the economic climate. That did not happen in the last decade or so. With more social homes being delivered now than 50 years ago, we must continue that momentum. We cannot allow that absolute social and community requirement of providing homes be jeopardised by a downturn in global economic trends.
I wish to address a point made by my dear friend Senator Warfield when I entered the Chamber. I congratulate St. Patrick's Athletic on its new manager, which I know is a particular delight for the Senator. I move from the glamour of St. Pat's to GDP. Regarding the use of GDP as the basis for contributions to the funds, it is important to note that there is no perfect metric on which to base contributions and there will always be trade-offs. Regarding the Future Ireland Fund, GDP has a strong correlation with windfall corporation tax receipts in particular. The Senator asked why we did not use GNI as is used in other bases. It is because the correlation between corporation tax and GDP is stronger than the correlation between corporation tax receipts and GNI. We need to use the same bases and metrics; we cannot keep moving the goalposts.
I wish to make a slightly more general comment based on points made by a number of Senators. Senator Higgins made what I would have definitely termed a brief intervention on an array of points which I am aware she raised during pre-legislative scrutiny as well. I look forward to debating her amendments when they come to the House in due course. It is a really good opportunity. She and I will generally disagree on ideology seven days out of seven, but I think we can agree on the need for and importance of these funds. I share the Senator's concerns beyond that ideology. The strategy that funds be invested on a commercial basis so as to seek to secure the optimal total financial return is basic common sense. These are not spending measures; they are investment measures. These are investments that can allow us to continue current or capital spending in an era when our corporation tax receipts might dry up to an extent or we find more difficult economic times as inevitably we will. We are creating these funds to ensure we can manage them as best as possible so that we can maintain that level of societal investment from the Government as a whole.
I will touch on one or two areas that Senator Higgins raised which I think are fair. It is our job as the Government to ensure that we provide her with assurance over her concerns. In areas where we disagree with her, we need to say that. That is fair and is why we are all here. We need to achieve that level of balance and commercial return which we believe is intrinsic to this. We need a strong balance to make sure that the level of risky assets, including any risk posed by environmental, social or governance matters, is fully taken into account.
I acknowledge the Senator's points on making sure that these investments are climate-proofed. I understand his criticism of the Government and EU. The Senator will recall we had the debate at various stages in Strasbourg, in and out of the chamber, at the Conference on the Future of Europe but under the proposed legislation, there will be an extensive ESG approach, not only for these two funds but also for the ISIF. That is a clear undertaking by the Government, acknowledging the concerns the Senator raised. This is not only about a commercial return; this about that level of societal return by making sure these investments invest in better outcomes for everyone in society and genuinely investing in a true just transition and to make it much quicker for us to meet our legally binding targets under climate action legislation brought in by this Government.
I understand that the world is on fire and we have to use these funds to make sure we can mitigate that as much as possible and move Ireland into a much better place in our collective response. The NTMA will be required to consult with the Ministers for Finance and Public Expenditure, NDP Delivery and Reform in preparing the investment strategies. As I outlined in reply to Senator O’Hara, bringing in the specific line managers will also be crucially important to ensure that we have that level of political oversight and to ensure that this is not a separate entity but one of the government by the government of the day. It will ensure a return for Ireland to make sure that we can maintain our daily levels of expenditure, both current and capital, and that those investments give that level of societal return that Senator Higgins so eloquently laid out. I share that and everyone should be able to share those goals regardless of where they sit on the political spectrum. We all sit on different parts of the political spectrum depending on the issue.
The Minister and I look forward to engaging further with Senators on Committee and Report Stages. I appreciate the Acting Chairman’s chairing of this part of the debate and all the contributions this afternoon.
Can I come back in?
No, the Senator cannot come back in, I am afraid.
I am sorry; the Senator's point was not covered. I fully understand what she said about the importance of regional investment. That might be outside the frame of debate for these two funds; rather is general government expenditure or the role of ISIF, but I understand her concern. Investments will be made outside the State, which is important to acknowledge, and we will make sure investment in the State provides for investment in the State as a whole, whether it is in Dublin, Roscommon, east Galway or wherever. I fully understand the concern and the responsibility of these funds. Where appropriate, they will be taken into account.
Question put and declared carried.
When is it proposed to take Committee Stage?
Next Tuesday.
Is that agreed? Agreed.
Committee Stage ordered for Tuesday, 28 May 2024.
Cuireadh an Seanad ar fionraí ar 4.38 p.m. agus cuireadh tús leis arís ar 5.30 p.m.
Sitting suspended at 4.38p.m. and resumed at 5.30 p.m.