Budget expected to replenish rainy day fund

Finance Minister Paschal Donohoe is expected to have a better idea of how much the State can afford to set aside once the August tax returns are available.

Ireland's rainy day fund is set to be replenished under proposals being worked on as part of next month's budget.

Ministers are eager not to spend all of this year's tax take and are examining a more "prudent" approach of setting money aside for the rainy day fund which was raided during the pandemic.

"In my view, it would make sense to put a proportion of this year's surplus, if there is one, into the fund," said one senior Government minister.

"We need to prepare for future risks and liabilities ranging from short-term ones like the possibility of gas shortages and long-term ones like pensions."

Public Expenditure Minister Michael McGrath has previously warned that the Government will not use excess corporation tax income to commit to a "giveaway budget" and that Finance Minister Paschal Donohoe has asked his officials to examine whether a rainy day fund should be re-established.

'We do have a surplus'

Another Government source said: "It's being considered because we do have a surplus."

However, the exact amount that will be put away has yet to be decided with one source stating that "a lot of it will depend on the public pay deal and how much we are committing to one-off measures."

It is expected Mr Donohoe will also have a better idea of how much the State can afford to set aside once the August tax returns are available.

The emergency fund was established in 2019 when €1.5bn was transferred from the Ireland Strategic Investment Fund (ISIF). However, plans to invest €500m in the fund each year were quickly scrapped with Brexit being cited as the main reason.

The total fund was drawn down in 2020 to help pay for the costs of the Covid-19 pandemic.

However, it is now seen as a prudent move to replenish at least part of this by ministers. Government sources said that the economy has had to withstand a number of shocks in recent years and having a fund for such an occasion represented "a better use of funds" than additional spending.

'Strange' talk

It is understood that there would be broad support for the measure if it is approved in Government, but leading economist Austin Hughes said such talk is "strange".

Writing in the Irish Examiner on Monday, he said that "the best way now to ease long-term problems is to enhance the Irish economy’s capacity to grow rather than squirrel money away".

Meanwhile, Departments have been asked to have their list of budget requests submitted by later this week, which both Mr Donohoe and Mr McGrath will then examine.

Ministers are also expected to have some initial engagement on the budget around a Cabinet meeting next week.

While Fine Gael is focusing on tax changes, the Green Party will be asking for changes in three main areas. The first is a childcare package, which Children's Minister Roderic O'Gorman has been working on; the second is a continuation of reduced public transport fees, and, finally, the party wants targeted social welfare increases.