Ireland’s Ibec says ‘Why Reinvent the Wheel?’ with Sovereign Debt Fund

"Irish Economist Cautions Against Minister's Plan to Bring Back Sovereign Wealth Fund, Argues Existing Fund Already Sufficient"

Ibec chief economist Gerard Brady has expressed caution over Minister for Finance Michael McGrath’s plan to reintroduce a formal sovereign wealth fund, stating that it may simply replicate what is already in place. Ireland already has a sovereign wealth fund in the form of the Irish Strategic Investment Fund (ISIF), which currently has around €9bn in assets, and it invests these assets and generates a return. Mr Brady argued that there is no need to reinvent the wheel, and that another portfolio could be added to an already established sovereign wealth manager of national funds.

The proposed new rainy day fund is similar to the National Pension Reserve Fund, which was raided during the financial crash, with the remaining amount repurposed in ISIF. Mr McGrath has maintained that the proposed new fund has a different mandate to ISIF, as the investment will be in areas such as housing and green transition. While Mr Brady said that he would consider any possible relationship between ISIF and the proposed new fund, he acknowledged that 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, if the government decides 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 has stated that 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.

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