Treasury Secretary Michael McGrath is expected to come forward with proposals to segregate billions of euros in corporate tax revenues in the coming years into a fund for future needs, effectively saving tens of billions of euros through the 2030s.
Party leaders and senior officials will hold preliminary discussions on the plans, which have been flagged internally by Mr McGrath since projections of large budget surpluses in the coming years.
As Mr McGrath and Public Expenditure Secretary Paschal Donohoe prepare for major spending increases in the fall budget, the two believe current corporate income tax revenues should be set aside for future needs.
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Treasury officials have estimated that €12bn of the €24bn in corporate tax revenue expected this year is a “windfall” – and therefore cannot be trusted to continue in the coming years .
Ministers are likely to advise party leaders and colleagues that Ireland should build up its reserves quickly over the coming years to provide a buffer against a future drop in corporate tax revenues and a resource to draw on when the cost of catering for an aging population rises. population emerges. A briefing paper shows that dwelling on current levels of care for the elderly will cost €9 billion by the end of this decade.
A reserve fund was set up in last year’s budget, to which EUR 6 billion has been transferred so far. However, that fund is limited to €8 billion.
Sources say the government is unlikely to make any final decisions for now, and no decision has yet been made on whether to establish a new fund or extend the remit of the existing fund.
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In any case, it is expected that legislation will be introduced to give the scheme a legal basis. This would mean that any future government wishing to stop transfers to the fund to use the money for other purposes would have to pass legislation through the Oireachtas.
The new fund is also expected to have a more diversified investment strategy than the current reserve fund, which mainly holds Irish government bonds and short-dated paper, sources said.
It is understood that the new fund will have three phases. In the first case, the fund will be built up as quickly as possible with transfers of many billions of euros, financed by huge corporate tax revenues. Once it is large enough, the return on investment can contribute to the operating costs of the state. Later, the capital fund itself could be used for treasury purposes.
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The National Treasury Management Agency, which manages the national debt, will likely be tasked with managing the fund when it is established.
Meanwhile, in the upcoming budget, the government is likely to break its spending rule and increase spending by more than economic growth for the second year in a row. The move is likely to be announced in the Summer Economic Statement (SES), which Mr. McGrath will publish in July.
The SES will signal the parameters for the October budget, but the huge surplus, as well as the prospect of elections in late 2024 or early 2025, is expected to mean a generous budget is on the horizon.
When asked by Sinn Féin’s Pearse Doherty in the Oireachtas budget committee last week whether he would “comply with the 5 per cent rule this year”, Mr McGrath declined to make a commitment to abide by the government’s own rule. to hold. But it is widely accepted in government circles that the rule — which is supposed to limit core spending growth to the rate of underlying economic growth in the economy — will be broken again.
