The ESRI has thrown the Minister for Finance a lifeline he clearly does not want to catch. The institute's Medium Term Review 2003-2010 published last Friday puts a forward a cogent argument for suspending payments to the National Pension Reserve Fund (NPRF) and diverting the money back into the exchequer, where it is desperately needed.

The proposal comes as the half-year exchequer returns indicate tax revenues will fall short of their Budget day target by €500 million, pushing this year's borrowing requirement up over €2 billion.

Included in the returns is confirmation that the Government has paid €552 million into the NPRF and will pay something like the same again by the end of the year, bringing the full-year contribution up to 1 per cent of GNP.

It is pretty obvious that if the Government was to follow the ESRI's advice to suspend the remaining payments into the fund, then it might have some chance of bringing this year's exchequer figures in on target.

It is not quite that simple, however. The ESRI has not said that the pension reserve fund is a bad thing and that money currently being paid into it should instead be diverted into the exchequer to plug the gaps.

Its position is somewhat more nuanced. It agrees that it is prudent to makes some sort of provision now while the economy enjoys a "demographic dividend" in the form of a relatively low ratio of pensioners to workers.

But what it does is question whether paying 1 per cent of GNP into the NPRF for the next 25 years is the way to go. It puts forward an alternative strategy, which is that the Government should concentrate on building infrastructure over the next 10 years.

Once the infrastructure has been built the State will have a large asset that will continue to provide service for future generations. In addition the 5 per cent or so of GNP being spent by Government on infrastructure at the moment can then be diverted into the NPRF.

The ESRI argues that making larger contributions later on in the life of the fund will produce a bigger pot at the end of the day than chipping in 1 per cent every year. Who is to say they are wrong?

There is no doubt that if the Government does want to take a holiday from the NPRF to ease pressure on the exchequer, the ESRI has shown them the way. It would not take to much juggling on Budget day to link the decision to hold back €500 million from the fund to some much-needed capital spending on hospitals, schools, roads and other infrastructure.

The real problem, one suspects, will be getting the Minister for Finance, Mr McCreevy, to buy into the idea. The NPRF is one of his pet projects and there is no doubting his conviction that it is a good thing.

And, as he would probably argue, once you compromise over something like the commitment to pay 1 per cent of GNP into the fund, then the whole thing will unravel and you will end up in 2025 with no fund worth talking about.

He has a point. If the Government did decide to go down the route suggested by the ESRI, there really is no practical way that it can ensure that whoever succeeds it in 2015 will pump 5 per cent of GNP into the NPRF.

Unless the economic gods are well and truly smiling on Ireland at that stage, the government of the day will face a raft of competing demands for scarce resources.

But Mr McCreevy is only one member of the Government and some of the others may be thinking that he sold them a pup.

When piloting the legislation to establish the fund through the Dáil in October 2003 he told his colleagues the following: "Contributions to the fund are not being made at the expense of other goals and commitments. Because of our economic success we are in the happy position of being able to pre-fund within a sustainable budgetary strategy, which will also allow for substantial infrastructural and other capital investment."

Lest there be any doubt, he went on to tell them: "In short the economic success which we have worked so hard to achieve allows us to make provision for future pension liabilities without compromising on our more immediate economic and societal goals."

Two-and-a-half years and one massive global recession later this is simply no longer the case. Funding the NPRF while cutting back massively on capital spending as the Government is currently doing does involve compromising more immediate economic and social goals.

But Mr McCreevy was astute enough to deal with the eventuality of an economic downturn. As a result, the current legislation does not allow for any payment holidays.

The reason, he told the Dáil, was that "it is the Government's opinion that any short-term difficulties that the payment may cause the exchequer are more than offset by the long-term gain".

Mr McCreevy still believes this to be the case, judging by his comments this weekend that he plans to borrow to make up for the tax shortfall. But one suspects his colleagues in health, education and transport may be reading the ESRI medium term review with more than a little interest.

jmcmanus@irish-times.ie