There is a commitment in the Programme for a Partnership Government to establish a Rainy Day Fund. Creation of the Fund forms part of Government’s policy to stabilise the public finances and increase the State’s resilience to external economic shocks.
The National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018 was published on 24 October 2018 and is now before the Seanad.
The actions of this Government and its predecessor including pro-active mitigation measures and preparation of better crisis management plans give me confidence that we are now better prepared to meet future crises. That said, with a strongly performing economy setting reserves aside now will further strengthen our position.
The RDF is intended as a reserve fund which may be drawn upon under certain circumstances, particularly severe economic downturns. Creation of the Fund forms part of the Government’s policy to stabilise the public finances and increase the State’s resilience to external economic shocks.
One criteria for drawdown of the Fund is that it can be used to remedy or mitigate the existence of “exceptional circumstances” in the State. Under the Fiscal Responsibility Act 2012 “exceptional circumstances” are defined as either a period of severe economic downturn or a period during which an unusual event outside the control of the State has a major impact on the financial position of the general government.
It is also envisaged that the occurrence of a force majeure event could justify deployment of the Fund. This could include events such as: a natural disaster; public emergency; or other unforeseen one-off occurrences.
The RDF is intended therefore to be used as a defined-purpose instrument to address severe events as opposed to the normal fluctuations within the economic cycle.
This approach would align it with the current EU fiscal rules framework, whereby it could be accommodated as an “unusual event” under the existing Stability and Growth Pact (SGP) provisions.
In the event of a severe downturn, the Fund could be used to support capital investment. This would enable us to maintain the infrastructural development to support future economic recovery and growth.
It is proposed that withdrawals from the RDF will be transferred to the Exchequer so as to support the State’s expenditure with positive supply side effects.