Monday 24 October 2016

Government needs to be upfront about capital spending

Published 11/05/2015 | 02:30

Paschal Donohoe
Paschal Donohoe

Building roads, schools, courts, healthcare centres and other large infrastructure projects is an expensive business.

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The cost of public private partnership (PPP) projects to date stands at some €6.5bn. In addition, Irish Water has taken over commitments from local authorities of more than €1bn for water and wastewater treatment schemes.

And that bill is going to rise. The Government plans to finance a range of new courts, roads, road schemes and other projects using PPPs, with a further €1.4bn in long-term debt likely to be accrued.

Ireland is not alone in using PPPs to fund such projects. They're common across the EU and Germany has recently announced plans to build new roads using such a model.

The problem is these costs must be repaid.

Until 2010, this spending was taken from day-to-day expenditure, much like repaying a mortgage is taken from household budgets. But that year, the rules were changed and instead of coming from current funding, the cost of future projects was to be drawn from capital funding.

The Courts Service receives a specific allocation from the Government to repay the €623m cost of the Criminal Courts Complex in Dublin. The National Roads Authority (NRA) does not.

That has resulted in capital spending being reduced by a total of €99m between 2013, 2014 and 2015. That's a lot less funding for upgrades such as repairing potholes, laying new surfaces or removing dangerous bends.

The problem is that when politicians announce capital spending every year, they never say that a portion is being used to repay the costs of roads already built.

PPPs require a formal allocation of money to provide certainty to the private sector that their investment will be repaid as per the terms of the contract.

It is prudent that the Department of Public Expenditure and Reform insists that PPPs be repaid from capital envelopes, but it's a shame that politicians don't outline the exact amount to be drawn from budgets so the public know exactly how much will be spent in a given year on 'new' projects.

In fairness to Transport Minister Paschal Donohoe, he has said a number of times that there isn't enough money available to keep the existing network in a 'steady state' condition. There's a €300m funding gap to maintain the current system as is.

There's votes to be won in financing new projects, but none for telling the electorate that the mortgage continues to be paid for an existing road.

Perhaps when Budget 2016 is announced, the Coalition might outline exactly how much of capital spending is already committed to existing projects financed under PPPs, and future governments, whatever their political hue, should continue this practice.

At least then voters will know what new schemes are being delivered, instead of being under the mistaken belief that capital budgets will deliver improvements on the ground and much-needed construction jobs.

Irish Independent

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