DUBLIN (RockedBuzz via Reuters) – Ireland explained on Tuesday how it plans to turn some of Europe’s healthiest public finances into a 100 billion euro sovereign wealth fund to alleviate future health, pension and climate costs linked to growth and aging population.
WHY LAUNCH A SOVEREIGN FUNDS NOW?
Ireland was one of the few European Union countries to record a budget surplus last year and forecasts that its surpluses could continue to increase in coming years from the already high 2.9% of national income recorded in 2022.
The surplus so far has been driven entirely by a six-fold increase over the past decade in the amount of corporation tax Ireland collects. Taxes are paid mainly by a small number of foreign multinationals, whose European headquarters are based here.
The country’s finance minister said investing much of these earnings rather than adding to already generous annual budgets is a “once-in-a-generation opportunity” to make the nation’s finances more secure.
WHERE DOES THE BUSINESS TAX BOOM COME FROM?
Annual corporation tax in Ireland averaged €4 billion a year from 2009 to 2014, before a global crackdown on countries that imposed no corporation tax prompted some large multinationals to transfer large amounts of intellectual property in Ireland, which applies a low rate of 12.5%. .
The Finance Ministry has warned of the risks of relying on the decisions of a handful of companies to generate so much income and estimates that around half of the €24 billion in corporate tax due this year cannot be relied upon. year to continue to flow.
WHAT DO YOU WANT TO USE IRELAND FOR?
The government wants to build the fund every year and earn a sufficient return to eventually meet rising long-term costs such as pensions, healthcare and financing the dual climate and digital transitions.
According to Eurostat, the share of Irish people aged 65 and over in the working age population is set to rise to 46% in 2050 from 25% in 2020, while the Irish Tax Authority estimates that the cost of fully reaching Climate targets could cost 2% of gross national income per year from 2026.
A second, smaller €14 billion infrastructure and climate fund will also be created to catch up on short-term climate spending and act as a buffer against capital spending cuts in any future recession.
WHICH SOVEREIGN FUNDS HAS IRELAND EXAMINED?
The Ministry of Finance pointed to Norway, Australia and Japan as countries that have accumulated future-focused funds using budget surpluses or windfalls, or oil-related revenues in Norway’s case.
Norway’s $1.4 trillion sovereign wealth fund is one of the world’s largest investors, while Japan has created an equally large pension fund over the past 17 years. Australia’s $131 billion Future Fund, also established in 2006, is much closer to Ireland’s ambitions.
(Reporting by Padraic Halpin; Editing by Christina Fincher)