Monday 23 April 2018

Taxpayers beware - this time it's our money, not Europe's, paying for infrastructure

'The vast bulk of cash that's going to be needed to fund the new roads, hospitals and houses announced yesterday will be raised at home through taxation.' Stock Image
'The vast bulk of cash that's going to be needed to fund the new roads, hospitals and houses announced yesterday will be raised at home through taxation.' Stock Image

Donal O’Donovan

The vast bulk of cash that's going to be needed to fund the new roads, hospitals and houses announced yesterday will be raised at home through taxation.

The old fallback of infrastructure "part-funded by European Union funds", familiar from signage on hundreds of Irish roads and school and hospital walls, no longer applies.

The crash is now definitively over, and Ireland is now a net contributor to EU budgets, so this planned ramp-up in spending is going to be paid for by taxpayers - either directly or through new loans.

At €116bn over 10 years - the 2040 is a bit of a red herring - the numbers are big, but not enormous.

Based on the documents produced yesterday, State capital expenditure will double from last year's levels to €9bn by 2022 and will remain in or around that level. On top of that, semi-State companies like the ESB, port operators and CIÉ will invest a further €2.5bn a year.

But we're not taking about a €116bn loan to fund the National Development Plan (NDP), or even committing a fixed share of budgets to the plan. The spending will increase year to year if and when projects come on stream.

Delays with the likes of the planned National Maternity Hospital suggest that predicting when and whether projects actually get to the build stage is a lot harder than it ought to be.

Even so, Budget 2018 already allowed for a 17pc hike in capital spending - to €5.5bn out of the total annual budget of €60bn - and this year's spend will be comfortably met from taxation.

From the Government's perspective, that spike to €5.5bn was painless - there's no new tax needed or extra borrowing, nor has it required any effort for instance to rein in current spending by way of compensation.

All going to plan, by 2022 the State will only be back to 2008 levels of investment. That's in a country where the tax take is now significantly higher and where the population is about 12pc bigger than it was at the start of the crash.

There's also a broad consensus that the State has under-invested in infrastructure over the past 10 years - including by moth-balling projects, like the M20 motorway, that are now back in favour.

Based on what we've been told so far, the idea is to plot out 10 years of investment in tandem with a road map of priorities, but there's very little by way of real financial commitment.

Contracts have been signed-off on almost none of the schemes.

If anything, in the event of a fresh crash or a Brexit-linked downturn, the danger seems to be less that we'll be stuck with a massive 'boom-era' spending commitment so much as that many of the projects will be dropped again, because despite what they say, there's no evidence Irish politicians have abandoned the 'when I have it, I spend it; when I don't, I don't' attitude.

So, if the question of value for money is set aside, these proposals look doable and, if anything, betray a relative lack of ambition.

There's no game-changer here in terms of radically transforming the workforce by, for instance, rolling out a massive State-funded childcare system or developing new towns, ports or universities.

In terms of value for money, there's an obvious danger that construction-sector costs will spiral, particularly once multiple big road and rail projects are underway. There's no silver bullet for that.

Ultimately, ministers will have to be prepared to walk away from projects if they become unaffordable, something that unfortunately big public launches like yesterday in Sligo make harder, not easier.

The other big issue is Brexit.

Reassuringly, along with climate change, addressing the threat posed to the Irish economy by the break with Britain is woven fairly tightly through the NDP.

The plan pays more than lip service to the risks, though. That ranges from flagging specific, ideally short-term supports for Border areas and the most Brexit-affected sectors, to focusing infrastructure investment in a way that helps nudge existing ports and airports in such a way that the entire economy orients just that little bit more towards the continent.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business