Committee on Budgetary Oversight has published its Report on Sovereign Wealth Funds

This Report comes after the Department of Finance published a scoping paper entitled “Future-proofing the Public Finances – the Next Steps” detailing the merits of establishing a long-term savings vehicle to assist with funding the additional fiscal costs associated with future demographic and other structural changes.

Speaking on the Report Committee Cathaoirleach Deputy Barry Cowen TD said “the establishment of a sovereign wealth fund is an important step in helping to secure the future fiscal needs of the State. The proposal notes that Ireland has experienced a significant increase in corporation tax revenue in recent years and it is proposed that a significant portion of these receipts will be used to capitalise such a fund. Recognition must be given to the fact that these increased tax receipts are a result of the hard work and resilience of our business community and the dedication and ambition of our citizens working within and alongside this community.”

Deputy Cowen said “Our Committee is aware that the wellbeing of our citizens has to be a priority and that they should enjoy a dignified and comfortable life into their older years. The wealth fund as proposed should assist in addressing this task and will act as a source of stability and support to our ageing population and help to guarantee their access to essential services.

The importance of climate change and the costs associated with addressing and adapting to climate change and moving to a low carbon economy are becoming increasingly evident. This requires action and the State is committed to playing its part in addressing these challenges. The fund under discussion will go some way in allowing us to invest in sustainable infrastructure and to support initiatives that protect our environment.”

The Deputy added “We are living in an age where the digital environment is constantly changing and advancing, and it is this digital transition that will need to be catered for also, through supporting people to adapt their skillsets to a new digital reality.”

Deputy Cowen said “The Committee has made recommendations that we hope will contribute to the discussion on how such a fund could operate in the Irish context.”

Read the full Report here 

Some of the Recommendations contained in the Report are:

·       The Committee wishes to highlight the importance of the proposed fund having a strong investment policy regarding responsible environmental, social, and governance issues.

·       The Committee recommends that the legislation underpinning the proposed fund, provide for the strict regulation and limitation of investments in the context of their environmental, social and governance. The legislation should set out strict parameters outlining the types of investments that may be entered into with regard to the ethical, environmental, social effects, etc

·       The Committee recommends that design and strategy of the proposed fund should be focused on securing an acceptable rate of return over the long-term, and not on short-term gains, subject to accepting adequate risk.

·       The Committee recommends that the broad investment strategy be set out in legislation.

·       The Committee recommends that the proposed new fund be focused solely on international markets and not the domestic market.

·       The Committee notes the potential negative consequences associated with investing a new fund in the domestic economy and highlights the need to operate the fund as distinct from the ordinary fiscal budget.

·       The Committee recommends that management of the proposed fund be assigned to the National Treasury Management Agency, and that the NTMA be given the additional and adequate resources (staffing, expertise etc) to do so effectively.

·       The Committee recommends that the legislation underpinning the fund require the fund operate in a fully transparent manner, including the regular publication of all investments, fees, and performance-related compensation.

·       The Committee wishes to highlight the importance of such a fund having strict withdrawal rules and recommends that the withdrawal rules, requiring parliamentary agreement, be clearly set out in legislation.

·       The Committee recognises the merit in a counter-cyclical public investment fund and looks forward to greater detail being provided. The Committee however notes that by pooling resources a single fund is likely to be in a better position to maximise returns.