DUBLIN –Ireland will put more than €6 billion a year from tax collected from U.S. multinationals based in the country into two new sovereign wealth funds.
The government detailed the commitment Tuesday as it unveiled a cash-rich 2024 budget full of tax breaks and increased spending.
While much of Europe is battling deficits amid rising finance costs, Ireland’s government faces a different challenge: how to manage its rosy finances prudently without losing the next election.
The Irish find themselves in this situation principally because of their wooing of more than 1,600 multinationals – including most of America’s top pharmaceutical, technology and social media firms – that now drive the Irish economy and keep setting new records in corporate tax payments. These are expected to top €23 billion this year, more than double the level of only three years ago.
Paschal Donohoe, the president of the Eurogroup ― the gathering of eurozone finance ministers ― and Ireland’s minister for public expenditure, told lawmakers it could be difficult to win popular support when “making the case for not spending every cent we have.”
Yet he and Finance Minister Michael McGrath stressed the government was determined to learn from Ireland’s calamitous 2008 property and banking crash that drove the nation into a humiliating EU-IMF bailout. Never again, they said, must Dublin be forced to go cap in hand to Brussels, Frankfurt or Washington because of its own failure to plan for inevitable downturns – with signs that the corporate tax bonanza might finally be slowing.
Therefore, they said while presenting the budget, the government would put a hefty portion of its ongoing collection of taxes from multinationals into two new long-term investment vehicles.
“We have a window of opportunity now that we must grasp,” McGrath said.
The Future Ireland Fund will pool funds starting with an €8.4 billion injection next year. It will be topped up annually to a level equivalent to 0.8 percent of Ireland’s gross domestic product (GDP), currently €4.3 billion. With expected investment gains, the Department of Finance expects this fund to top €100 billion by 2035.
The government will be required by law to make the annual payments, while the fund itself can’t be touched until 2040 – when it can be tapped by the health service and state pension to meet the ever-growing costs of an increasingly elderly population.
The second investment vehicle, the Infrastructure, Climate and Nature Fund, will take €2 billion injections annually and provide a countercyclical buffer against recession or external shocks. The government would tap this fund in down times to maintain the flow of finance to key infrastructure projects, including the development of electricity generation from wind power off Ireland’s Atlantic coast.
McGrath said the ability to tap this fund at times when Ireland’s public finances weaken would “prevent a reoccurrence of ‘stop-start’ public capital investment.”
Both funds will be run by the National Treasury Management Agency, which manages Ireland’s debt.
Whether there’s any votes to win from building long-term savings, rather than even more short-term spending, will be demonstrated when Ireland next goes to the polls.
An election is widely expected next autumn. Donohoe’s Fine Gael and McGrath’s Fianna Fáil parties badly trail in the polls to the opposition Sinn Féin party, which lambasted the government for failing to commit to a massive new program of public housing construction.
Housing – and the dire lack of supply or affordability, particularly in Dublin – looms as the top campaign issue.
“We needed a budget for renters. Instead we got a budget for landlords,” said Sinn Féin finance spokesman Pearse Doherty. “The housing crisis is the government’s greatest failure.”
