Business

Some €100bn in excess corporate tax could be saved in new sovereign wealth fund

Legislation published to establish two new State funds aimed at future-proofing the State’s finances

The Minister for Public Expenditure Paschal Donohoe (left) and the Minister for Finance Michael McGrath. They have published legislation to establish two new State funds. Photograph: Gareth Chaney/Collins

Eoin Burke-Kennedy
Thu Apr 4 2024 - 14:13

The Government is planning to amass €100 billion of excess corporation tax receipts over the next decade in a new sovereign wealth fund to deal with future spending pressures.

Following Cabinet approval, Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe on Thursday published legislation to establish two new State funds aimed at future-proofing the State’s finances.

About €4 billion or 0.8 per cent of gross domestic product (GDP) generated from the business tax will be diverted each year – starting in 2024 – into the new Future Ireland Fund. The aim is to have an additional reservoir of cash to support State spending from 2041 onwards. Taking account of annual contributions, growth in GDP and potential return from investments, Mr McGrath said the new fund had the capacity to grow to €100 billion by 2035 and that there was no limit to its potential size.

This will “give the State substantial firepower to manage the increased demands on expenditure in the decades ahead”, he said.

READ MORE

Pension and health costs associated with an ageing population plus the additional costs involved in moving to a low-carbon economy are expected to cost the exchequer an additional €7 billion to €8 billion in “standstill” costs by 2030.

The new fund will be seeded with an initial €4.1 billion, on top of the first annual tranche, from the dissolution of the National Reserve Fund.

“Ireland’s public finances are currently in a strong position, underpinned by record corporation tax receipts, which last year reached nearly €24 billion,” Mr McGrath said. “It is essential that we take action now to secure the public finances over the long term to ensure we can meet the future expenditure requirements we know will arise.”

Mr McGrath and Mr Donohoe also published legislation establishing a separate infrastructural fund – the Infrastructure, Climate and Nature Fund – designed to ensure that capital spending is maintained in the event of a future economic shock.

It is intended that €2 billion will be invested in this fund each year from 2024 to 2030. The €14 billion contribution equates to the average annual amount of capital expenditure under the National Development Plan over 2023-2028, the department said.

“The fund will provide support for the economy in times of exceptional need, helping to smooth the investment cycle and avoid the ‘stop-start’ public capital investment that we have experienced in the past,” said Mr Donohoe.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times

LATEST STORIES