FINANCE MINISTER MICHAEL McGrath has said that it is “blindingly obvious” to put away windfall corporate tax receipts into a sovereign wealth fund to deal with an aging population.

McGrath said windfall corporation tax receipts are estimated to total €12 billion this year.

“It will not last indefinitely into the future. We know we’re going to be meeting enormous costs down the line.

“We have to make provision for the future.”

Speaking previously, the Finance Minister said that the Government expected to see a €16.2 billion budget surplus next year.

McGrath was speaking at the launch of a scoping paper on “future proofing” Ireland’s public finances, which included the development of a long-term savings fund – or a sovereign wealth fund.

Other countries, like Norway and Saudi Arabia, use a sovereign wealth fund to help pay for pensions and other welfare benefits into the future.

In Norway, the main sovereign wealth fund was created in 1990 as part of the Norwegian government’s efforts to invest excess revenue generated by the oil sector. The fund is valued at €1.1 trillion.

In particular, McGrath said that public spending will increase by between seven to eight billion before the end of the decade, due to increased age-related spending.

He said Government will also need to finance a climate and digital transition and this provided a strong case for a “longer-term savings vehicle”.

McGrath said this would ensure that current windfall tax receipts would not be used for permanent expenditure commitments or tax reductions.

However, he said that even if all windfall receipts are saved it would not fund all ageing costs and therefore other structural reforms would be necessary.

Corporation tax

He said there had been an effective doubling in corporation tax revenues since before the Covid-19 pandemic, which McGrath said suggested was evidence of windfall gains.

He said there was also a fivefold increase last year compared with a decade ago.

McGrath said there was a growing dependence on these receipts and a growing concentration of them were from a small number of companies.

The minister said the boom in receipts was directly linked to profitability and there was real strength in tech, pharmaceuticals and life sciences.

He said profitability was also linked to intellectual property and royalty payments.

McGrath said there was a need to plan for medium to long-term challenges such as the ageing population and not just “the current political and fiscal problems that we may face”.

“In headline terms, it is fair to say that our public finances are currently in a sweet spot,” he said.

The Department of Finance is projecting an expansion of the surplus in coming years, assuming no major shock to the economy.

While McGrath has previously played down the idea of a giveaway budget in October, he told reporters today that there was enough funds in recurring tax receipts for a significant Budget 2024 package.

Additional reporting by Tadgh McNally