Purpose of the Act
The purpose of the National Surplus (Reserve Fund for Exceptional Contingencies) Act 2018 is to provide the legislative basis for establishment of a new Fund, the National Surplus (Exceptional Contingencies) Reserve Fund. The Fund is intended to be a reserve into which sums will be transferred from the assets of the Ireland Strategic Investment Fund, and from the Exchequer. The Fund may be drawn on when certain conditions are met.
The 2018 Act provides for the establishment of the Fund, and sets out that the purpose of the Fund is to hold relevant assets until they are transferred for the purposes specified.
The maximum amount that may stand to the credit of the Fund by virtue of transfers under the Act shall be €8 Action. Income accruing to the Fund by virtue of its investment is exempted from the cap on the Fund’s value.
The Fund will be managed and controlled by the Minister for Finance, who will be responsible for keeping the accounts of the Fund. The accounts will be subject to audit by the Comptroller and Auditor General, and the accounts and the audit report on them will be laid annually before the Houses of the Oireachtas.
Assets totalling not more than €2 Action are to be transferred to the Fund from the Ireland Strategic Investment Fund, within 30 days after commencement of the section. The Minister is to transfer €500 million to the Fund from the Exchequer in each of the years 2019, 2020, 2021, 2022 and 2023. Where, in a year in which a transfer of €500 million is due to be made, additional and unforeseen expenditure is incurred to mitigate the effects of a natural or other disaster, the €500 million may be reduced by an amount not exceeding the additional expenditure actually incurred. Where such a reduction is made, the Minister is required to report to the Dáil.
Dáil Éireann may, by resolution, authorise the Minister not to make the €500 million payment in a given year specified in section 5. Such a resolution may be brought forward by the Minister no earlier than November of that year, where he is satisfied on reasonable grounds that exceptional circumstances exist meaning that making the payment would be an undue burden on the public finances.
The 2018 Act inserts a new section into the National Treasury Management Agency (Amendment) Act 2014, in the part of that Act which is the legislative basis for the Ireland Strategic Investment Fund (ISIF). The new section provides the legal basis on which the Minister for Finance may direct certain transfers to be made from the ISIF.
The purposes of a fund to which such a transfer may be directed are aligned with the functions of the National Surplus (Exceptional Contingencies) Reserve Fund and with the circumstances set out in the fiscal rules under which the State may deviate from compliance with the medium term budgetary objective. The National Treasury Management Agency, as custodian of the ISIF, is required to comply with a direction under the section.
The policy intention is that the fund will be held in cash deposits or short-term “near- cash” instruments, to ensure that when required the Fund can readily be drawn down to the Exchequer. The mandate is to preserve the nominal value of the Fund to the extent possible having regard to the liquidity requirement and the rating of any instrument or issuer. Where full nominal value cannot be conserved (e.g. by virtue of charges and / or negative interest rates), the Minister may, in deciding where to deposit the Fund or part of it or in what instruments to invest, take into account the net position of the State resulting from any central bank profits remitted to the Exchequer or any reduction in Exchequer debt servicing costs resulting from investment in short term State debt instruments.
Drawing from Fund I
The 2018 Act prescribes the circumstances in which the Fund may be drawn from, and the formalities required for drawdown. The Minister must firstly be satisfied on reasonable grounds that drawdown is required to remedy or mitigate exceptional circumstances, or to prevent serious damage to the financial system of the State, or to support major structural reforms.
Having formed such a view, there is a requirement to consult with the Minister for Public Expenditure and Reform and to have regard to the views of that Minister. The Fund can then be drawn on if Dáil Éireann passes a resolution proposed by the Minister for Finance. (Cabinet procedures further require that the Minister’s intention to propose a resolution would be approved by Government prior to any Dáil vote on the matter).
Drawing from Fund II
There is provision for the procedure in case of extreme urgency when the Dáil is not sitting. Where the Minister is satisfied on reasonable grounds that drawdown is urgently required to remedy or mitigate exceptional circumstances, or to prevent serious damage to the financial system of the State and the urgency is such that the payment is needed before Dáil Éireann could next sit, then the Minister may, where the Government so approves, draw moneys from the Fund into the Exchequer. If this exceptional urgent procedure is used, it is further required that the Minister report on the payment and the reason for it at the next sitting of the Dáil.
A technical exemption to the general drawdown procedure is provided to allow for payment of expenses incurred by or on behalf of the Minister in managing the Fund.
The Minister may make payments from the Fund into the Exchequer where Dáil Éireann has passed an authorising resolution or, in the exceptional case of urgency, Government has approved such a payment