Shay Brennan Questions Government Borrowing and Climate Risk

Thanks again Minister for your time and taking these questions. I just have questions under three or four categories here so maybe I'll just come back to you a couple of times. The first one is related to infrastructure and I'd be curious to know are there any infrastructural projects that are currently being delayed or deprioritised purely because of financing. I have seen figures suggesting we need about 200 billion in infrastructure investment between now and 2035 so 10 years seems like a low figure to me. If we do need and I'm excluding housing from this by the way so I'm talking about other general infrastructure we're seeing even today reports of Ishka Aaron needing 10 billion and you know the the consensus around the current state of our infrastructure is that we have a lot of catching up to do. In order to do that and given the low debt to GDP ratio I think our GNI debt GNI ratio is about 65 percent which is 22 points below the European average we would seem to have headroom to borrow for infrastructural development and given that infrastructural investments tends to bring a positive return and given that we have a low GNI to debt ratio it would certainly make a lot of sense to front load much of that investment. Would you be able to comment on that? Sure thanks very much deputy for your question. So there are always projects that are ready to go but need funding whether they are delayed or not depends on your perspective but every single state body will have projects that they want to deliver which they need funding for and they have to make the case to government for that funding and I know you're not suggesting that every single project within our country should be funded immediately but I'm answering your question directly. I don't consider those being projects that are delayed I consider that being the normal prioritization that a government has to make in relation to your point regarding borrowing like I think it would be a very dramatic swing for Ireland which I would want to avoid to go from a large surplus to borrowing quickly. I think we are in a better place that we are able to position ourselves as being a surplus economy and I would make the case for a large swing for example if we were to get into an environment in which our economic fortunes were really beginning to change and we needed to borrow to put in place a big injection of demand within to our economy to keep jobs to stimulate our economy if our growth is beginning to go down. We're not in that position at the moment I hope we won't be and I've outlined my view of the economy here today but I also know as you know how quickly things can change and instead the approach that Minister Chambers and myself are working on which I think is the right approach to use for now is we have at least 14 billion euro of funding that will be available via the Apple judgment we have a number of other billion euro that are available from various decisions that we've made with regard to our banks and then we have existing capital ceilings that already show growth up to 2028 or 2029 but the money has not yet been allocated to different government departments and between the combination of both of those things it will be a very big additional capital allocation that the government will make to individual departments and I would only countenance borrowing to try and answer your question clearly if we found ourselves in a position that economic growth was really beginning to change and the number of people at work within our economy we had a concern that that was going to go down otherwise I think we would run into real issues regarding are the people available within our economy to do the work and despite everything that's going on I still deputy encounter so many employers that tell me the issue they have is getting and keeping talent and we do need to be conscious of that as well as I know you'll understand okay I appreciate that answer uh the second question it's in relation to the climate targets um what is the confidence level in the department of finance uh around meeting those targets because it is a financial risk and we're likely on the hook for they're saying eight to 26 billion potentially uh so so given that there's an estimate as to how likely we are to incur that cost finally uh is the money being ring ring fenced uh for if and when or is it that we will just proceed hope we don't get fined and if we do we'll have to take it out of that year's budget so we um have a very high level of confidence that all that can be done to meet the targets while assisting our economy and still growing is happening and I can see a gigantic activity amount of activity that's now underway in truth to meet the targets at the moment will be extremely challenging very very difficult many countries are going to struggle to meet them but we face a particular challenge due to the features within our economy in terms of how we would account for how we would pay uh the fines in the future firstly we're going to do all we can to avoid having to pay them by being able to show good faith and I hope uh our evidence to meet or come closer to the targets if they were then to be paid they will come out of have to come out of three different way two different ways the first one would be either the budget surplus as I hope we would still have at that point in time or the money that we would have built up on our balance sheet uh as a state uh which we are very slowly but significantly building up and obviously we have a particular part there the climate and nature fund though my preference would be to rather use the climate and nature fund to spend money to minimize the targets rather than to having to leave aside money to pay for fines okay and yeah go talk about the the sovereign wealth fund essentially um so there's two funds there accruing money uh two savings accounts essentially for for want of a better way to put them what are we saving for uh what is the government's ambition for these and hopefully they won't have to be spent on the actual fines but these funds is there an ambition down the road to build these up to 50 100 billion and at that point start to look at what projects are available so in terms of what they're used for so just emphasize again my preference would be not to use these funds to have to pay any fines my expectation is if we were in a position where we'd have to pay for them uh it would unfortunately become a budgetary decision and we would have to look at the money that we have available across uh our country as a whole but what is the money being used for i think the climate and nature fund i think has a clear enough narrative around us which it is to have the money to available to invest in a climate related activity to reduce emissions or to fund miss really reduce emissions and to help in the decarbonization of our economy and the rubber on all the rubber is really about to hit the road and all of that deputy in the next few weeks because one of the issues that minister chambers will be considering is an early allocation of that fund uh to help fund uh projects that different government departments have that would assist in decarbonization for me the really important fund is the future ireland fund and you know how it's going to work and we would basically have a stock of money that we would build up in the event that our country ever got into terrible difficulty again but hoping that we can avoid that the real benefit of it then is the government agreement that we would use the returns from that fund we were counted as government revenue and we would use it to deal with the costs of demography in the time ahead um i mean we do believe it is possible by the late 2030s early 2040s we could have nearly 100 billion euro in these funds which would be a colossal amount of money for an economy of our size and from where i sit at the moment the late 2030s is a long long way away but even to be where we are at the moment with 15 or 16 billion euro built up by the end of this year you know i have to say that that gives me uh some comfort that if we were to get into difficulty we have money available for us to use and i hope that doesn't happen but the real benefit of it is not so much having it as an insurance policy it's that if you have a fund built up of let's say 40 or 50 billion euro and it's sensibly managed by the state as it will be that the return that will give back to us per year will make such an impact in dealing with costs that we know are coming our way which is not only that we're going to have more people living in ireland which is amazing not only that we'll have more people will be living for longer which is great but they'll be older and there will be costs with that that we're currently not set up well enough to be able to pay for great just ancillary to that so with an eight billion surplus uh per annum give or take are there any plans for additional sovereign wealth funds or is it just going to be confined to those two no we're doing well with what we have we'll be doing well to put the deposits in that we want to uh thankfully the government is committed to doing that and the t-shirt can tarnish there are very personally committed to it as well uh but as uh as much as a of a of a budget hawk as i am even i would not be proposing to be setting up another fund at the moment uh we have too much going on at the moment and too many demands many of which are you know real and will need investment in relation to global economic turmoil and tariffs in particular um what what will be your outlook on the lasting effects so if mdd for example falls to one percent um do you see the economy being robust enough and resilient enough to actually rebound from that or is it likely to be a shift that says look we're until these tariffs are taken away uh we're permanently going to be operating at a lower level so my best judgment at the moment is that in most scenarios it is one in which the irish economy still continues to grow but grows at a slower pace and that slower pace of growth would still compare really well to many of them all of the parts of europe and still deliver more people at work in ireland than uh when i began working and that's in most scenarios there are extreme scenarios that could happen uh which would relate to what would happen with regard to taxation and trade policy um and that could affect uh first our public finances and then broader growth within our economy and um really what is is so important is the work that's underway from my own officials at the moment uh in you know dealing with our negotiations with regard to tax and then the work of the teacher cantonista in influencing the eu and trying to make points to the us regarding trying to avoid the worst happening uh and um i think that's the best answer i can give you you know there's many a finance minister confidently predicted what will happen uh i've learned the value of a bit of humility in the predictions that we have but i've also seen now on two different occasions that our economy has recovered far faster and far stronger than most expected and i think there's an enormous strength within us uh but we have to make a few decisions ourselves to make that strength uh at a higher level yeah i agree with that just the very final and goes back to the point you opened up and indeed regarding investment um you know i've just outlined to you the uncertainty that is there lots of different scenarios like i tend not to spend too much time contemplating all of them instead we focus on what we can do that can make a difference and you know you opened up with a good example of that which is how can we invest more and how we can get more out of that investment thanks um yeah just the very last question then and it's actually to do with scenarios so in your opening statement you you spoke about um stress testing for a 10 tariff scenario and how that would uh reduce mdd by about one and a half percent so so down to just above one percent uh i note deliberately mentioned not testing for a 20 scenario which is is a likely uh tariff outcome here uh albeit you know possibly one of the worst case scenarios which i imagine just extrapolating would take growth initially to a to a negative figure why did the department not test for a 20 scenario because we found ourselves in a situation that if we were to test for let's say higher than 10 percent it was very difficult for us to figure out when do we stop with scenarios and uh as we do more and more of those scenarios it became harder and harder for us to understand what would be the sector specific effects on our economy and what that would mean for the national performance of our economy overall so um if you look at 20 figure that would have a very negative effect on our economy overall but there's particular sectors within our economy in which that effect would be even higher and as we get into those more extreme scenarios we find it very difficult to forecast what would be the impact on a particular sector and then what would that mean for our macro figures uh and the macro forecasts that we have uh so that's the reason why and also you know when we were preparing the annual progress report at that time 10 percent was the figure that you know president trump had been talking about and most analysts were referring to obviously everything's changed again since then okay okay okay thank you thank you you