In response to the effects of the COVID-19 pandemic the Minister for Finance. Paschal Donohoe. T.D., has announced that the Government, at its meeting today (Tuesday) approved the drawing down of the €1.5 billion of the National Surplus (Exceptional Contingencies) Reserve Fund, also known as the Rainy Day Fund (RDF).
In announcing the Government’s decision Minister Donohoe said: ‘The drawdown of the €1.5 billion of the Rainy Day Fund is in order to remedy or mitigate the exceptional circumstances arising from COVID-19. The drawing down of the Fund was already reflected in the Stability Programme Update (SPU) published in April 2020 and has been considered as part of the Budgetary process since that time. I consider that the requirements of the RDF Act are met and it is appropriate to draw down the resources of the Fund in respect of Budget 2021’.
“The drawdown of the Fund requires a resolution to be passed by Dáil Éireann, following a proposal made to the House by me as the Minister for Finance. My intention is that a Motion to this effect would be introduced on Budget night, 13th October. Subject to approval by Dáil Éireann, shortly thereafter I will direct the NTMA to transfer the €1.5 billion to the Exchequer. We are in exceptional times. The fact that our public finances were so carefully managed in recent years put us in a good position and allowed us to provide for such contingencies. It is appropriate now that we release the funds that are at our disposal, as we work to meet the needs of our people, support businesses and strive towards stabilising our economy once again.”
Note for Editors
The Act (National Surplus (Reserve Fund for Exceptional Contingencies) Act 2019) which established the Rainy Day Fund was commenced on 31 October 2019. The Fund was subsequently seeded with a €1.5 billion transfer from the Ireland Strategic Investment Fund on 15 November 2019.
Under Section 5(2) of the Act, the Minister for Finance shall, from the Central Fund or the growing produce thereof, pay €500 million into the Rainy Day Fund in each of the years, 2019, 2020, 2021, 2022 and 2023. However, under Section 6 of the Act, in light of the uncertainties arising from the prospect of a no deal Brexit, a Dáil Resolution of 17 December 2019 authorised the Minister for Finance not to transfer the €500 million contribution into the Fund in 2019. Therefore, the current size of the Rainy Day Fund is €1.5 billion.
The unforeseen impact of the COVID-19 pandemic has had a major impact on the level of public expenditure in areas such as employment supports, social welfare and public health.
The April 2020 Stability Programme Update (SPU) provided for drawdown and has been considered as part of the Budgetary process since that time. The Minister for Finance considers that in order to remedy or mitigate the occurrence in the State of exceptional circumstances posed by the COVID-19 pandemic, the drawdown of €1.5 billion from the Rainy Day Fund is warranted to prevent undue burden on the public finances. In this basis it is appropriate to draw down the resources of the Fund in respect of Budget 2021.
Under the European System of Accounts, 2010 (ESA 2010) this is not counted as general government revenue, i.e. it does not improve the General Government Balance (GGB). Equally, when the money was transferred into the RDF it did not count as general government expenditure. The receipt by the Exchequer will be used to offset funding requirements necessitated by the decline in taxes this year and the increase in (Covid-19 related) expenditure. Similar to returns to the Exchequer from NAMA, using the Rainy Day Fund means the State can provide for additional COVID-19 measures without having to borrow more, saving the burden of repayment or refinancing costs on future generations.
Under Section 9(1) of the National Surplus (Reserve Fund for Exceptional Contingencies) Act 2019, monies shall not be paid out of the Rainy Day Fund other than pursuant to a resolution passed by Dáil Éireann, following a proposal made to that House by the Minister for Finance.
However, under Section 9(2) of the Act, the Minister for Finance shall not make such a proposal unless satisfied that it is necessary in order to:
- remedy or mitigate the occurrence in the State of exceptional circumstances;
- prevent potential serious damage to the financial system in the State and ensure the continued stability of that system; or
- support major structural reforms which have direct long-term positive budgetary effects within the meaning of Article 5 of Council Regulation (EC) No. 1466 of 1997 as amended by Regulation (EU) No. 1175 of 2011.
Section 1 of the Fiscal Responsibility Act 2012 defines exceptional circumstances as:
- a period during which an unusual event outside the control of the State has a major impact on the financial position of the general government, or
- a period of severe economic downturn,
within the meaning of the Stability and Growth Pact.
Such a proposal can be made when the Minister for Finance is satisfied on reasonable grounds, after consultation with the Minister for Public Expenditure and Reform under Section 9(3) of the National Surplus (Reserve Fund for Exceptional Contingencies) Act 2019, that, the impacts of COVID-19 constitute an unusual event outside the control of the State which has the potential to have a major impact on the financial position of the general government and that drawdown of €1.5 billion in order to finance the remedy or mitigation of such exceptional circumstances in the State is warranted under subsection 9(2)(a) of the National Surplus (Reserve Fund for Exceptional Contingencies) Act 2019. It is considered that the pandemic presents an appropriate basis for deciding to draw down the Fund.
In response to Minister for Finance’s proposal, Dáil Éireann may then pass a Resolution authorising the Minister for Finance to draw down the €1.5 billion from the National Surplus (Exceptional Contingencies) Reserve Fund to the Central Fund.
Should the Resolution be agreed by the Dáil, the NTMA would then be directed by the Minister for Finance to transfer the €1.5 billion to the Exchequer as soon as possible thereafter. The use of the monies after they are transferred to the Exchequer must be approved by the Dáil in line with the existing procedures for voted funds.