THE CABINET HAS approved the drawdown of €1.5 billion from the State’s ‘rainy day’ fund for Budget 2021.

Budget day is taking place next Tuesday, 13 October and will set out how the government plans to plan for the pandemic and Brexit. 

Ever since the bank bailout, there has been discussions about a rainy day fund, with the then Finance Minister Michael Noonan proposing the idea back in 2016. Fianna Fáil’s Michael McGrath, now Public Expenditure Minister, had previously floated a similar plan the year previous. 

Announcing the establishment of the fund in 2018, Donohoe said money would start going into the fund in 2019 – first with an initial deposit of €500 million, followed by further annual contributions of €500 million in 2020 and 2021.

Whether those additional contributions will now be made in light of the public helath crisis, has not yet been clarified.

Donohoe had said that the medium-term plan is to get the fund up to approximately €8 billion. However, due to the pandemic, the government has been forced to raid the coffers early.

Last year, the minister said the fund would not be raided to deal with the Brexit fallout.

A Department of Finance briefing note for Finance Minister Paschal Donohoe on the fund, which was released under Freedom of Information last year, notes that the fund would only ever be used “for an extreme outcome”.

A submission by Fianna Fáil on the fund last year noted that the fund should be used in the case of a “natural or other disaster but it also could be another threat”, such as Brexit.

The Finance Department stated that the fund can only used to mitigate severe events, as opposed to the normal fluctuations of the economic cycle. 

The Rainy Day Fund can only be deployed for:

• An unusual event outside the control of the Member State and with a major impact on the financial position of general government or
• A severe economic downturn.

In announcing the Government’s decision Donohoe said:

“The drawdown of the €1.5 billion of the Rainy Day Fund is in order to remedy or mitigate the exceptional circumstances arising from Covid-19.”

The move to withdraw the funds was previously flagged back in April.

The drawdown of the fund requires a resolution to be passed by Dáil Éireann. 

“We are in exceptional times. The fact that our public finances were so carefully managed in recent years put us in a good position and allowed us to provide for such contingencies. It is appropriate now that we release the funds that are at our disposal, as we work to meet the needs of our people, support businesses and strive towards stabilising our economy once again,” he said.