Monday 26 September 2016

And now it's back to the usual political auction of who can spend the most

Published 04/10/2015 | 02:30

Taoiseach Enda Kenny and Tánaiste Joan Burton launching the Government's Capital Investment Plan at Heuston Station, Dublin, this week Photo: Mark Condren
Taoiseach Enda Kenny and Tánaiste Joan Burton launching the Government's Capital Investment Plan at Heuston Station, Dublin, this week Photo: Mark Condren

Size matters; especially when it comes to public infrastructure. Across the water, they have just announced a £38bn (€51bn) programme to electrify rail lines through the midlands of England and across the Pennines. That's about the same as the entire six-year capital programme announced by the Government this week.

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There are what the experts call "economies of scale" in things like roads, railways and ports. A small country has to be extra-careful about where it chooses to invest public capital and extra-efficient about getting value for the money.

Sad to say, this has not been the case in the past. Reactions to the new €40bn programme largely reflect doubts based on previous experience.

The first issue is the amount. Most attention focused on the €26bn, which will come directly from taxation via the Exchequer. But the Government has pencilled in another €14bn in spending by State companies, so the total is more like €40bn.

This is the famous "off-balance-sheet" accounting. The State companies will be borrowing to make investments in things like energy, transport and, ahem, water.

Some of this will be done on the financial markets but it will also come from what is left of the national pension fund and from Nama.

This will not appear as government debt. Nor should it, but it is public money. State companies do repay their debts but citizens are entitled to a decent return from investing these financial assets which belong to them. The companies' record in that regard is not so encouraging.

Opinions vary as to whether €40bn is a big-enough investment for Ireland's public capital needs. The Government statement notes the forecasts that, on current trends, the Irish population will increase by almost a half by 2046. It will also be getting older, which means more costs for the health service.

The employers' body Ibec wants a total programme of over €50bn. That raises the central political question as to where the money is to come from. Ibec wants more user charges to help pay for investment and plans a kind of general election campaign to sell the idea. One wishes them luck.

On the other hand, capital spending, which peaked at €9bn, was cut much more heavily than current spending. That being the case, it raises the question as to whether capital spending should now recover faster than current. It seems unlikely that it will in the immediate future.

Under the plan, the capital budget will increase by 2pc a year over the next three years. That is about one-tenth of the anticipated rise in current spending and it is fair to regard tax cuts as another choice in favour of consumption, rather than investment.

It has to be said that there is nothing in these figures to threaten the public finances or breach EU rules. Equally, the same rules mean the surge in tax revenues last month does not give the Government more leeway in the Budget, as the old deficit rule would have done.

The trouble with EU rules is that EU countries differ widely. Ireland clearly has a case for investing more than the EU average, because of its growing population, higher potential growth and severe cutbacks during the depression.

Perhaps in time that case can be made, but the reckless behaviour of countries like Ireland during the bubble means that it cannot be made now.

One striking thing about the capital plan is how much it is long-fingered, with bigger increases only from 2018. It is also noticeable that transport accounts for almost a third of the programme, even before serious spending starts on the Dublin Metro. This may be a legacy of the horrors of Irish transport in the past but it is open to question whether the present road system requires €6bn over six years.

That is despite the postponement of the Cork-Limerick motorway; and there, perhaps, is part of the problem. Much of the motorway system is barely used but, for political reasons, governments dare not build anything less grand.

In health and education, it is a question of cleaning up the mess. Making either of them as good as they ought to be will take more than money and longer than six years.

Health Minister Varadkar has pointed out that some of the hospitals are older than several European states. The scandal that was the mental health facility at Portrane in Co Dublin is still being sorted.

In education, there is a promise to get rid of the remaining prefabs in the schools. They should never have been necessary in the first place but the Department of Education's building-procurement abilities have always been open to question - as well as subject to interference by ministers.

In general, the statement says there will be better appraisal of plans and greater scrutiny of procurement by departments. Like some of the plan itself, we have heard that one before. The Comptroller and Auditor General's report this week had the usual list of inadequate or non-existent tenders for public spending.

Right across the public finances, not just the capital programme, the emphasis is always on "How much?" One thing that is clear from the bubble and burst is that the amount is not the main thing. A more important question is "How?"

Irish Independent

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