Ibec: No need to reinvent the wheel with sovereign debt fund

Minister for Finance Michael McGrath maintained the new fund has a different mandate to Isif, as the investment is in areas 'such as housing and green transition and so on'. Picture: Sam Boal/Rollingnews.ie

Ibec chief economist Gerard Brady expressed caution about Minister for Finance Michael McGrath’s plan to bring back a formal sovereign wealth fund, as it may merely replicate what is already there.

Mr Brady said that Ireland already has a sovereign wealth fund in the form of the Irish Strategic Investment Fund (Isif) which has about €9bn in assets, and it invests them and produces a return.

“There’s a good argument that there’s no need to reinvent the wheel here. You could add another portfolio into what is already an established sovereign wealth manager of national funds,” said Mr Brady.

Mr Brady also said the proposed new rainy day fund is similar to the National Pension Reserve Fund, which was raided in the crash with the residual amount re-purposed in Isif.

Mr McGrath maintained the proposed new fund has a different mandate to Isif, as the investment is in areas “such as housing and green transition and so on”.

While we will give consideration to any possible relationship between Isif and the proposed new fund, it does have a different mandate.

Mr Brady made his comments following the publication of a Department of Finance paper titled Future-proofing the Public Finances, which officially proposed the establishment of a new wealth fund to cushion Ireland's economy from “serious fiscal challenges on the horizon”.

According to the report, should the Government decide to put €90bn into the fund by the end of 2030, it would return €111bn under the “more favourable real-return scenario”.

If that money is then reinvested, returns could reach €142bn by 2035.

Mr McGrath said the wealth fund will be capitalised by windfall taxes and some fraction of any future budgetary surplus.

He added that Ireland’s “public finances are currently in a sweet-spot” but, “digging below the surface, however, it is clear that fiscal vulnerabilities are building up”.

These vulnerabilities include significant costs associated with financing an ageing population and a high concentration of corporation tax receipts.

The Department estimates that windfall corporation tax receipts will be in the region of €12bn this year.