Asset AllocationOctober 20, 2023

Ireland to Establish Sovereign Wealth Fund

The Irish government will also launch a fund focusing on infrastructure, climate, and nature.

Reported by Michael Katz

The government of the Republic of Ireland has unveiled plans to establish the Future Ireland Fund, a sovereign wealth fund it says could be worth 100 billion euros ($105.6 billion) by 2035. Irish Minister of Finance Michael McGrath said the government will feed the fund with 0.8% of GDP generated from excess corporate tax receipts, starting in 2024.

The aim of the Future Ireland Fund is to help the country deal with future expenditure pressures, including aging, climate and digitalization. It is also intended to support the Irish government’s expenditure in strategic areas that cause inevitable strains on the public finances.

“The Future Ireland Fund will provide multi-generational benefits and deliver the widest benefits to the public,” McGrath said in a release. “It will also prevent the reliance of current expenditure on temporary or ‘windfall’ sources of income.”

Ireland’s Department of Finance announced there will be no limit on the potential size of the fund, and contributions will be made until 2035, after which a decision will be made regarding additional contributions. According to the department, the forecasted level of contributions to the fund is approximately 70 billion euros over the period, roughly 6 billion euros per year from 2024 through 2035, equal to about 0.8% of GDP. Another 4.1 billion euros will also be transferred from the dissolution of the National Reserve Fund in 2024.

The government also announced it plans to launch the Infrastructure, Climate and Nature Fund, which will seek to deal with the pro-cyclicality of capital spending. A reserve of funding will be set up to provide resources for capital spending necessary in a future downturn.

“The Infrastructure Climate & Nature Fund will help smooth the investment cycle and avoid a ‘stop-start’ approach and help provide support for the economy in times of exceptional need and capital spending in periods of economic dislocation,” McGrath said.

McGrath said this would help avoid generating backlogs in capital projects during economic downturns. He also said that 2 billion euros are expected to be invested in the fund each year from 2024 through 2030, building it up to approximately 14 billion euros.

Under the law approving the creation of the sovereign wealth fund, the finance minister will be tasked with evaluating each year whether a significant deterioration in the public finances has occurred to determine whether it is appropriate to amend or halt contributions to the fund the following fiscal year.

The Department of Finance also announced that the resources of both funds will help support climate-related initiatives over the medium and long term. However, there is a need for additional investment to help the country deal with the transition to climate neutrality.