Wasting Money On Savings We Already Have


From top: Minister for Finance Paschal Donohoe at the Department of Finance: Michael Taft

The Government is planning to introduce a Rainy Day fund – a fund to be used when the economy starts to slow down or enters a slump.

This sounds very prudent, very far-sighted. For instance, it makes good sense for a household to put aside some savings in the case of emergency expenditure (that’s if people have the ability to generate such savings; we know that so many don’t).

The Government will fund this via two sources. First, it is going to take €1.5 billion from the Strategic Investment Fund (which is, essentially, the successor to the National Pension Reserve Fund which was emptied out to invest in the banks). Second, the Government is going to take €500 million out of each annual budget for the foreseeable future.

There are two issues here.

First, we already have rainy day funds – a considerable amount in fact. There’s the Strategic Investment Fund itself which has nearly €20 billion. Nearly half of that is ‘invested’ in the banks and so can’t be accessed easily in the case of an emergency. However, we have €8.5 billion in what is called the ‘discretionary’ portfolio. Not all of this may be easily accessible but there are over €3 billion in stocks, bonds and cash.

There’s another source of funding: the Government’s cash balances. This is the money the Government (through the National Treasury Management Agency) keeps in cash and other short-term investments. In October 2017, the Government had nearly €15 billion. This rose to over €20 billion by April 2018.

Not all this money is accessible in the case of an emergency. The Government needs to keep a healthy balance for cash-flow purposes and to refinance debt. Still, there are considerable funds already in place to help us out in an emergency.

In short, between the ISIF and the Government’s cash balances, we already have a rainy day fund, even if it’s not called that. The Government’s proposal appears to be just a costly duplication.

The second problem is that the Government’s proposal may not actually be a rainy day fund. The Parliamentary Budget Office had this to say about the Department of Finance’s consultation paper:

‘ . . . the Department of Finance uses inconsistent terminology. Rainy day fund and contingency fund are used interchangeably which makes the specific proposals difficult to analyse.

In particular, the paper repeatedly refers to rainy day funds. In the context of government finances, a rainy day fund generally refers to money set aside during times of budgetary surpluses to fund future deficits.

However, the consultation paper seems to conflate this with a fund to meet unexpected expenditure for one-off events. These are more usually referred to as contingency funds.’

So which is it? Money set aside to fund future deficits (such as during a recession when tax revenue falls)? Or money set aside to meet unexpected expenditure (such as a natural disaster like flooding)? We will have to wait and see but it is not a particularly helpful way to conduct a debate, especially as the Government aims to build up the fund to €8 billion over time.

The Parliamentary Budget Office also suggested the Government’s rainy day fund might be wasteful:

‘Holding cash in this manner (i.e. a rainy day fund) has a high opportunity cost as the funds being held in the fund could be used to invest in means to boost productivity and improve the quality of life of citizens.’

Despite the economy needing more housing, healthcare funding, and crucial investment such as high-speed broadband or public transport – the Government intends to withhold half a billion Euros a year from the budget. That means less spending on these crucial areas. This makes no sense given that we already have rainy day funds.

A better approach would start with abandoning the rainy day fund, thus freeing up €500 million a year. This would, first, require the Government developing a long-term strategy of ring-fencing funds in the ISIF and its own cash balances that could be utilised in the case of an emergency.

Second, the €500 million should be assigned to investment projects in order to, as the Parliamentary Budget Office puts it, to ‘boost productivity’ and ‘improve the quality of life’.

We may have different priorities but my own preference would be to build houses. High rents and property prices are a drain on the productivity economy, while depressing workers’ life quality.

Third, the Government should plan for unexpected expenditures. This, of course, can be difficult; after all, they’re unexpected. But we can anticipate some – even if we can’t anticipate when. For instance, with erratic weather arising from climate change, the risk of flooding will increase. Therefore, the Government could anticipate this with increased flood defenses.

There’s no reason to set up a rainy day fund – we already have the funds. What we need is economic and social investment. We need to ensure that when the next downturn comes (and it will come – that’s what market economies do: rise and fall like a roller-coaster ride), the economy is strong enough to see us through with minimal social damage.

If we sacrifice vital investment in order to accumulate savings which we already have, then the next downturn will be even worse and will require us to spend even more repair money on the other side. And the €500 million? It will disappear into mounting deficits.

What at first sounds prudent can turn out to be reckless and wasteful.

And who can afford that?

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Tuesday


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26 thoughts on “Wasting Money On Savings We Already Have

  1. postmanpat

    short version: we don’t need to save more, we need to spend spend spend! sorry “invest” in subsidized housing for people who are already bad with money so they have more cash to spend on IPhone X’s for themselves and IPhone 8s and scramblers for there kids, 60″ TV’s , low profile tyres with sweet rims. A couple of boxer pubs that yer man is sellin down the street. Nikes, another PlayStation 4 because little Dillon wants one for his own room. Multi room Sky sports package and internet. Garden Trampoline!!! Hire a bouncy castle for the birthday party. Kegs, Hire a stretched hummer from that nice gangster to get to the hen party, off to Spain again for the second time this year. Who needs cheap smokes on the duty free? Kids are wiped out after the communion BBQ. Get the charlie out!

      1. postmanpat

        “de HSE wont help me wehh ’em, I tried everytin even stopped gehhin him McDonalds after skoool, but his da brought him yesterday and didin tell me” ” I cant afaard priva counsillin!”

    1. Dr.Fart MD

      the people you’re attacking have homes. ya see .. the issue is that there aren’t homes for, well, homeless people. Also, there aren’t homes for people who are working. It’s almost like you .. don’t understand anything and just have a vendetta against people in council houses who have TVs and phones. Which is weird. You’re weird.

    2. johnny

      why is spending money bad,does that mean miserable,sad and pathetic people like you are good ?
      why do you need judge others choices, your own life so miserable,tight and pointless that you require constant validation by putting others down?
      ever heard off the multiplier effect off all the fun?
      you are truly one miserable d**k.

      1. postmanpat

        If you want to spend your money on obnoxious pseudo SUVs, oversize flat screens, the latest smartphones and feel entitled to a sun holiday 2 or 3 times a year? fine. Just don’t be blaming the government when times get though , you lose your job and you have zero savings, then hide behind your kids and say if not fair on them. Do you think the 1000 euro you give to Apple for the latest smartphone that plays candy crush no better than a 100 quid nokia trickles down to stimulate the economy? In this day and age of transnational mega corporations? the multiplier effect? WTF? Go ahead, spend ALL your disposable income, and then some with all this credit freed up . have fun, that’s the main thing. I used to live up near Kilinarden and every March, year after year, there is kids plastic go karts, broken toy trams, bikes, smashed nurf guns and scooters with flat wheels abandoned on the side of the main Whitestown road, I guess the kids were done with there fun and the parents didn’t want to pay for a skip. But it not there fault. It sure was a nice view for me and driving over broken plastic in my car in the morning is fantastic. But why are the property prices not shooting up when people are go well off in this area that they can chuck aside thousands of euros worth of stuff only a few months old onto the street? I know ! its the councils fault for not cleaning up the street immediately after the stuff is fly tipped. Smyths toystores make there Xmas sales targets and the economy is doing great. Go out and get a 182 car on PCP. It will be old in 6 months time when all the cool people are driving the 191s but you’ll get at least 5 months of this “fun” you like so much before feeing inadequate again. Leave yourself exposed on all sides if you should ever lose your job. It’s okay, its not your fault , its the bad car dealer that prayed on you. Harvey Norman are coming back for all that gear you got on the HP and stopped paying for? Bastards! It was there advertisements that forced you to get the internet connected fridge and coffee maker so its there fault , not yours. Its Visas fault that you spent the 5 grand credit card limit. Not your fault, Never your fault.

      2. johnny

        why should everyone be forced to live by your fear based view on life,people lose jobs and go bankrupt daily,then they restart or they dont,but they sure had some fun,why judge them,so that you feel better?
        not everyone is so fearful and terrified to live the life THEY want,why should they adhere to your’s,why are you so bothered by it?

        the real ‘villans’ are in the Dail,in fact the biggest one is in court again on allegations of defrauding the state,why does Ireland have the highest mortgage rates in Europe,because off overspending at toy stores-yeah right!

        save your self righteous anger for the real problems,how much are the pensions,golden handshakes that the ‘regulators’ who failed miserably at their jobs to supervise the banking sector get ?

        1. postmanpat

          Most decent ,responsible people don’t presume times are good and can only get better and if they don’t… sure planned bankruptcy waa hayyy!! . Why am I bothered by people living beyond there means and plan to default on loans when things go bad? Well, I have been paying USC for the last ten years to pay the last lot of chancers off. I didn’t stop paying my mortgage when I lost my job. I had money saved. I knew things were getting bad, months before I lost my job because people I knew were steadily losing theirs , the writing was on the wall so I cleared any credit card debt. I stepped up my saving to cover myself and dusted off the CV. I didn’t feel the need to burn every penny of my income as soon as I got it. Using charlie like a lot of construction workers were doing every weekend and losing there safe pass cards and wallet during some coked up drunken bender, then moaning about not being able to work without it to the staff at SOLAS every Monday morning. I didn’t spend my redundancy payment then file for bankruptcy and on top of that have the cheek to try to keep the “family home ” for my “children” who are in there late twenties and have there own houses anyway. I paid my negative equity mortgage and got on with it. I don’t have a fear based view of life, I’m very comfortable and happy with what I have. Good food, a nice house for 1/3 of what a greedy landlord would be taking me for a month and enough to spare for a few nights out. All because I held off on a few silly luxuries for 10 years. (and had a no Taxi policy, and still do) A shiny iPhoneX marketed to Saudi oil barons or a 182 isn’t going to make me feel any better. The tubbys who drive them seem stressed to bits they’ll get a scratch anyway. Maybe if your out of shape and have a bald spot, and/or a spouse whos out of shape and has a bald spot, it will make you feel a bit better, temporarily , I wouldn’t know. I could have a new car and top of the line tech next week if I wanted , we all could, with a simple stroke of a pen. These companies would bawk if you offered them the cash . they don’t want your cash, they want your debt. And none of it will trickle anyway down the line to stimulate the economy or help everyday people ,this stream on debtors money is moved out of the country. Before you know it , your stuck with an old fuel guzzling car and antiquated technology that IOS updates will make useless. then you lose your job and you blame all your problems on the government. pot holes keep wrecking the tyres of your already too expensive to run SUV . But it wont be the decisions you made that put you in this situation. Its always someone else’s fault.

          1. johnny

            is your pint half full or half empty ?
            depends on your view,you may try have a little more gratitude for what you have and stop moaning about others choices.
            many are financially illiterate and preyed upon by the media and banks,bombarded with property porn and promises that everything will be better if they buy this,buy that…
            Drumm is getting sentenced June 20th,if it was up me i’d give him a few years community service,that service to be teaching financial planning 101 to inner city kids and adults.Locking him up at 70,000 a year is pointless,its not like the streets are going be safer or he’s going reoffend.
            but Ireland is still a priest riddled country with outdated catholic values on guilt and shame,its also financially immature when it comes to bankruptcy.

            (ps a few lines of blow on weekends by hard working people is hardly the problem,one easiest place get some,is in any golf club/tennis club/rugby club)

      3. Ron

        Jeysus! Steady on Johnny thats a wee bit over the top. Would you not consider his money-minding as perfectly sensible in financially unstable Ireland?

        1. johnny

          Hi Ron,I’m all for education and prudent money management,but shaming,guilt tripping and passing judgement on ordinary decent working class people isn’t the answer.
          Yeah some go over the top with celebrations,I’ve attended quite a few and enjoyed them too,had my fair share ‘charlie’ too :)

          This is a fantastic initiative by the govt and deserves recognition,but it would be great if they made some financial planning/education part off it,to stop predatory lending.

          Better education in financial matters is the answer.

          “We are committed to more than doubling the number of new apprentices registered to 9,000 by 2020. In Budget 2018 we allocated €122m for apprenticeship training, an increase of almost 24% on the previous year. This will allow for the delivery of 10 more apprenticeship programmes and over 6,000 new apprenticeship registrations in 2018. The provision of this further funding shows the Government’s commitment to our apprenticeship system.”


  2. Cian

    I don’t think the ‘rainy day’ fund is literally a fund for flooding. So your comment on flood defences is moot.
    The government ‘cash balances’ is equivalent to a current account – this is for day-to-day spending. Any contingency monies should be in a separate ‘saving’ account. Otherwise it gets lost in the day-to-day. So that is also moot.
    But the rest is interesting. The State needs to invest more in social housing – that is true.

  3. curmudgeon

    So no chance of just lowering taxes then? Like VAT which went up for the crisis but now remains at a painful 23%, or just provide/build affordable housing – not “affordable” housing with schemes and/or modular rubbish. Surely the goal of government is to provide for the people not figure out how best to fleece them now that the unemployment rate is low and consumer confidence is high. After all “Dublin is now more expensive to live in than both Abu Dhabi and Silicon Valley” – http://www.thejournal.ie/dublin-eca-survey-4065970-Jun2018/

  4. Fact Checker

    On the one hand Ireland suffers from unusually high volatility in tax revenues. It is better for everyone if you balance tax and spend as much as you can over the medium term to avoid sudden stops and starts in projects.

    So it is indeed wise to set some money aside for a downturn.

    The issue is scale. €500m p/a built up over ten years is €5bn which sounds like a lot.

    But remember tax revenues are VERY volatile. Corporation tax alone came in €2.3bn higher than expected in 2015.

    In the downturn things were worse. The total tax take in 2009 was a full €7bn lower than in 2008. And another €2bn lower again in 2010.

    While a fund of €5bn would be very useful in these circumstances to keep spending up, it is relatively small in the scheme of what can happen to taxes coming in.

  5. johnny

    Hi Michael great post,i assume Irelands deep state the NTMA will mange this money,my first thought is the FEES for the bankers,given that the boys and girls at the NTMA are outside the lines on salaries they need more and more money to manage,in order to justify their outrageous salaries and benefits.

    Their performance in this area has be considered awful,if they were in the private sector they all have been fired years ago.

    “2017 preliminary figures indicate an investment return of 4.0% on the ISIF portfolio, made up of 4.1% on the global portfolio and 3.4% on the Irish portfolio.”

    This is truly abysmal,depressing returns,they should all be on performance based salaries,not a chance they should get any more money to mismanage,it was actually difficult to generate in 2017 such rubbish returns.

    They supervise NAMA which simply refuses to report its returns,preventing any comparisons while its CEO is on over half a million and its x most senior RE expert,goes off to run Dennis O’Briens crumbling property portfolio.


    1. Cian

      ISIF aren’t there just to generate money. They are there to supporting the Irish economy AND make money.

      You added a link, and if you look at the remainder of the page you can see some of the other stuff ISIF is supporting (while still making money):

      •5 platforms with a pipeline to deliver more than 9,500 homes by 2021
      •€52m infrastructure funding to unlock over 4,000 residential units in Cherrywood SDZ in Dublin
      •Supporting 3,200 bed student accommodation project in Dublin City University (DCU)

      •Investments in fibre-optic cable linking Ireland with North America and Britain; Shannon Airport runway upgrade; Port of Cork relocation

      Renewable energy
      •Supporting investments behind 376MW renewable energy (enough to power 165,000 homes) and Dublin waste-to-energy generating clean power for an additional 80,000 homes

      Funding SMEs
      •€663m of ISIF commitments supporting over 1,700 SMEs
      •9 lending platforms – enhancing the supply and diversity of SME funding solutions
      •€125m to BGF, the biggest ever growth capital fund for Irish SMEs; €45m to Muzinich for debt/mezzanine SME funding; US$100m to Insight Venture Partners for growth-stage software companies
      •Direct investments in individual high-growth companies: €19m in Kaseya (IT solutions), €10m in Cubic Telecom (mobile connectivity)

      •€176m invested in food and agri sector, supporting dairy farmers, food exporters, forestry and a specialist AgTech fund (with US-based Finistere Ventures)

      •Nearly €600m investments in tech sector including genomics, data technology, med tech and decarbonisation

      1. Johnny

        So they operate in a “metric” free zone,Cian you seen like a nice polite chap,but they are mostly announcements!
        It’s all smoke and mirrors with the NTMA (deep state) and NAMA,they simply don’t use ANY metrics so how can you claim they doing a good job ?
        You have admit the senior property chap from the NTMA jumping ship,to go work on DOB’s dog breakfast of a RE portfolio stinks !

        1. Cian

          I dunno. When NAMA was set up it was with a limited 10 years life (they had a fixed amount of property to be sold off over the 10 years ). It must be nearing closure now. So I see this as a senior NAMA chap moving on to a new job as his current one is finished.

          1. johnny

            Ah stop Cian,NAMA is worst example of mission creep ever,it will never end try getting their snouts out that trough-they outside and off the pay scales.Would make the Kremlin blush,the nonsense they up to,today in Dail it was revealed that they are actively shredding and deleting ALL x employees emails-why?

            He was privy while at NAMA (doesn’t have employees its the NTMA) to tons and tons of inside skinny on every major developer/builder,his next stop is running Dennis O’Briens little property shop-from running the largest state asset management company in Europe to that !

            They refuse like the NTMA to use industry standard ‘metrics’ cause they special,which means you cant compare them to other similar organizations.

            Home building you say-yeah they teamed up with notorious vulture fund KKR to gouge Irish builders with usurious interest rates-thanks a lot NTMA !

  6. samwise_gangee

    He wears that smug “I just slept with your sister and now we’re off to Lillies Bordello to meet the lads” expression that Brian O’Driscoll does so well.

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