Finance Minister Michael McGrath is taking steps to ensure that this fiscal strength is not a fleeting phenomenon. To this end, he has announced plans to enshrine in law an obligation for the government to allocate 0.8% of nominal GDP, which amounts to approximately 4.3 billion euros, annually to the newly proposed "Future Ireland Fund." Starting in 2024 and extending through 2035, this fund is projected to grow to around 100 billion euros by 2035, assuming a reasonable average rate of return. The fund's primary purpose is to address future pension and climate-related expenses, thereby securing Ireland's financial future.
In addition to the Future Ireland Fund, the government is setting up a smaller 14 billion euro infrastructure and climate fund. This secondary fund is earmarked to support Ireland's efforts to meet stringent greenhouse gas emissions reduction targets and serve as a financial buffer against potential cuts in capital spending that could arise during economic downturns.
The budget contains a suite of measures designed to alleviate the cost of living pressures on the citizens of Ireland. These measures encompass income tax cuts, a 6.1% increase in recurring government spending, and one-off financial support to help those grappling with rising living costs. Collectively, these initiatives aim to ensure that household incomes outpace expected inflation, which is forecasted to decrease to 5.3% in 2023 and 2.9% in 2024.
Nonetheless, it's worth noting that while this budget is expansive and intended to bolster Ireland's financial resilience, a similar approach in the preceding year did not provide significant political momentum for the three-party governing coalition. The left-wing opposition party, Sinn Fein, continues to lead in the polls, and elections are slated for early 2025. Furthermore, the Irish Fiscal Advisory Council (IFAC) has expressed concerns regarding the budget's generosity. IFAC warns that it could contribute to inflation increases in the coming years and notes that the government may deviate from its own spending rules, potentially undermining fiscal credibility and stability.