The emergence of a big budget surplus gives the Government some opportunities which it needs to use wisely. One is to put aside some cash in a fund, or funds, to help pay future bills. This is a good idea, but it is important that the goals are clearly set and such arrangements are properly structured. Plans by Minister for Finance, Michael McGrath, to publish a discussion paper on the issue in the coming weeks are welcome, as it is important to get this right.
We already have the National Reserve Fund, of course,which has ¤6 billion in cash . Commonly called the Rainy Day Fund, Taoiseach Leo Varadkar said yesterday that this was a misnomer as it should really be seen as an anti-austerity fund. Cash saved can indeed help the exchequer if tougher times hit, but it is important to set the right objectives. The key goal should be maintaining investment at a high level to build the capacity of the economy – too often in the past investment spending has been slashed when tough times hit.
The finance minister has floated the idea of a wider fund, more akin to a sovereign wealth fund, which would invest and help pay costs down the road in areas like an ageing population. This would presumably take in the cash in the current National Reserve Fund, which is currently capped at an unrealistically low ¤8 billion, and add substantially to it over the coming years.
The Fiscal Advisory Council has made a similar suggestion, saying the presence of budget surpluses gives Ireland a once-off chance to put the funding of the State pension on a more substantial footing. Now, it is paid out of current tax revenue. A future model might see it funded in part by the proceeds of an investment fund and by social insurance payments from employers and employees.
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There may be few votes in " sensible” policies. And there will be other calls on available State cash. But the forecasts of large surpluses over the next few years provide a real opportunity to kick-start some longer-term policies with much greater benefits than trying to spend more or tax less in an economy already at full capacity.