The announcement that two new funds were being established into which some of the excess corporation tax coming into the exchequer will be paid is an important and welcome one. Following the confirmation of this in the budget speech, Minister for Finance, Michael McGrath published the general scheme for the two funds – the intended direction of the legislation which will govern them.
The Future Ireland Fund is intended to be a long-term investment, from which the State would be able to benefit from 2040 onwards due to the return on its assets. The forecasts are that this could reach €100 billion by 2035, though this depends on contributions being maintained at the level of 0.8 per cent of GDP and on investment returns,.
The Infrastructure, Climate and Nature Fund , on the other hand, is intended to act as a support for State investment if tax revenues become tight and also as a way to fund climate investment. It is to be capped at €14 billion.
There is no question but that it would be unwise for the State to spend all or most of the corporation tax now coming into its coffers. The shape of the proposed funds to accommodate the excess cash has changed in recent months, notably to accommodate the second fund designed to support infrastructure investment. Here, the vital issue remains delivery on a faster timescale, while ensuring value for money.
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The longer-term fund, supported by the Fiscal Advisory Council, could reduce the need to raise taxes in the years ahead to meet higher bills coming down the line.
Two key points need to be noted. First of all, while legislation will underpin annual contributions, there will be some opt-outs depending on economic data. And ,of course, a future government could decide that the need for existing cash is more urgent, and change the rules.
The second is that the presence of the funds should not distract us from discussing how the big extra bills the State will face in the years ahead will be paid for, including via higher taxes.