Ireland detailed on Tuesday how it intends to turn some of the healthiest public finances in Europe into a 100 billion euro sovereign wealth fund to ease future healthcare, pension and climate costs linked to its growing and aging population.
WHY LAUNCH A SOVEREIGN WEALTH FUND NOW?
Ireland was one of the few European Union countries to post a budget surplus last year and has forecast that its surpluses could keep rising in the coming years from the already high 2.9% of national income recorded in 2022.
The surplus has so far been driven entirely by a six-fold jump in the last decade in the amount of corporate tax Ireland collects. The taxes are mainly paid by a small number of foreign multinationals, whose European headquarters are based here.
The country's finance minister has said that investing much of that windfall rather than adding it to already generous annual budgets is a "once in a generation opportunity" to make the nation's finances safer.
WHERE DID THE CORPORATE TAX BOOM COME FROM?
Ireland's annual corporate tax take averaged 4 billion euros a year from 2009 to 2014 before a global clampdown on countries that did not impose any corporate taxes prompted some large multinationals to transfer massive amounts of intellectual property to Ireland, which charges a low rate of 12.5%.
The finance ministry has warned of the risks of relying on the decisions of a handful of firms to source so much income and estimates that around half of the 24 billion euros in corporate tax due this year cannot be relied upon to keep flowing in.
WHAT DOES IRELAND WANT TO USE THE FUND FOR?
The government wants to build up the fund each year and make a sufficient return to eventually meet rising long-term costs such as pensions, healthcare and funding the twin climate and digital transitions.
The proportion of Irish people aged 65 and over as a share of the working age population is set to rise to 46% in 2050 from 25% in 2020, according to Eurostat, while Ireland's fiscal watchdog estimates that the cost of meeting climate targets in full could cost 2% of gross national income a year from 2026.
A second, smaller 14 billion euro infrastructure and climate fund will also be built up to catch up on nearer term climate spending and act as a buffer against capital spending cuts in any future downturn.
WHAT SOVEREIGN WEALTH FUNDS HAS IRELAND EXAMINED?
The finance ministry has pointed to Norway, Australia and Japan as countries who have built up future-focused funds using budget surpluses or windfalls, or oil-related revenue in the case of Norway.
Norway's $1.4 trillion sovereign wealth fund is one of the world's largest investors, while Japan has built up a similarly large pension fund over the last 17 years. Australia's $131 billion Future Fund, also established in 2006, is much closer in scale to Ireland's ambitions.
