Saturday 21 April 2018

We need to take the politics out of capital spending programmes to get them right

Taoiseach Leo Varadkar wants to save money in the system by doing things better, while also not to put money into the rainy-day fund
Taoiseach Leo Varadkar wants to save money in the system by doing things better, while also not to put money into the rainy-day fund
Richard Curran

Richard Curran

A new Taoiseach needs a new plan. That would seem to be the mantra at Government Buildings, where Leo Varadkar has been toying with a variety of policy changes. The first big signal came with the idea of finding the money to fund tax cuts for all those early risers. It isn't actually there. Then came the signal about scrapping the rainy-day fund. It hasn't started yet.

The difficulty is that he cannot come up with a new Programme For Government. Just think about how long it took to come up with the last one. Micheál Martin and Fianna Fáil would have a lot to say about new programmes and they are supporting Varadkar's position as Taoiseach, without a general election, on the basis that he delivers on the previous programme.

But where Varadkar believes he has wriggle room is on things like infrastructural spending. That is why we have heard a lot about investing up to €2bn per year for a decade in new capital spending. It is also why phrases like 'Metro North' are reappearing.

However, even when it comes to infrastructural projects, his hands are somewhat tied.

EU budgetary rules prevent us from going on a big debt-funded infrastructural spend. If we want to increase spending in this area, it has to come from higher taxes, which the Taoiseach is talking about reducing, or economic growth, which cannot be taken for granted.

One option is to make a case to the European Commission to bend the rules somewhat on the basis that Ireland is a special case. This would involve arguing that we are facing a Brexit crisis (not of our own making); we have been through austerity hell after the crash and are underinvested in vital infrastructure; our population is growing quite rapidly and we are proving to be good, solid, loyal Europeans who always pay their debts.

Unfortunately - or fortunately, depending on how you look at it - that just isn't going to wash in Brussels. Even the crisis of Brexit won't be enough to allow Ireland bend the rules, according to comments made by former finance minister Michael Noonan.

So Varadkar has examined another approach.

Can we save money in the system by doing things better, while also deciding not to put money into the rainy-day fund? This fund was announced by Michael Noonan as a way of setting aside money after 2019 to cover possible shocks to the exchequer and/or economy.

It would involve setting aside about €1bn per year after 2019 and capping it at €5bn.

Noonan said last month there was no need to raid the non-existent rainy-day fund to find more money for capital spending and that there could be as much as €5bn available in the coming years anyway.

Of course, all of this makes assumptions about the future performance of tax receipts, possible external shocks and the real cost of Brexit.

It has even been suggested that the €8bn Irish Strategic Investment Fund be used for rainy-day purposes.

The EU has steered the Government firmly in the direction of the European Investment Bank as a way of financing vital infrastructure for the future.

This would involve co-funding capital investment through public-private partnerships.

It has genuine possibilities and could be used effectively, except that we have such a poor track record on off-balance sheet funding for major projects.

Take Irish Water, for example. The whole premise behind its funding model was that the Irish State could invest heavily in badly needed water infrastructure without adding the billions onto to the national debt.

The debacle showed how bad we are at infrastructure. Ironically, the model could have been applied for off-balance sheet funding for other projects, such as housing, if it had been handled better.

Can anyone looking at the housing crisis with objective eyes honestly say that a lack of money is the problem? It is about a whole raft of other blockages and problems in the system.

Even Irish Water wasn't about money. It was about politics.

Take the National Children's Hospital project now proceeding at St James's Street. I was recently in the car park of the Mater Hospital, where consultancy fees and other costs racked up bills of close to €30m of taxpayers' money on a project that never went ahead.

There is a fundamental problem with the selection and delivery of major infrastructural projects in Ireland. It is like a very old-fashioned cookie-jar-and-sweets approach, where politicians seem to believe that projects are like sweets to be handed out as they see fit.

With this in mind, it is interesting to see the IMF back in Dublin. This time, it is helping to assess the country's infrastructural needs. It looks like a solid departure from the traditional way of doing things and Finance Minister Paschal Donohoe is to be commended for inviting it to look at the issue.

Experts on public investment and planning from the UK, Australia and Denmark have had a series of meetings with government departments and agencies in recent weeks.

Donohoe has said he sees their report as an "important input and supporting document" at a time when the country is about to embark on a new capital-investment programme.

Part of the IMF's remit is to benchmark how we design and deliver infrastructural projects with other countries. The report will evaluate the design and effectiveness of institutions that shape decision-making at three key stages of the public-investment cycle - planning, allocating and implementing investment.

This all sounds like good stuff and exactly something that would strengthen the Government's case in Brussels for flexibility on spending rules.

If the mandarins in Brussels believe Ireland will only make a hopeless mess of building more infrastructure anyway, they are a lot less likely to look favourably on cutting the Government some slack.

However, there is another issue here. The IMF doesn't need to go through every drawer in every government department or state agency to find where we are going wrong.

Its officials simply need to sit down and talk to the politicians. Civil servants haven't mucked up lots of major projects in the last 10 years. Politicians have.

This was true of Irish Water, the National Children's Hospital, government policy on housing and so on.

The exercise involving the IMF is a valuable one and its recommendations should be closely examined. We have to find a better way of funding, designing and delivering capital infrastructural projects.

However, I will be amazed if in years to come independent structures are put in place to assess and decide on the appropriateness of one capital project over another.

Are our politicians really ready and willing to cede some of their power on these issues?

I doubt it.

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