Saturday 21 September 2019

€3bn broadband plan may prevent Taoiseach's election promise of tax cuts

€3bn broadband plan may prevent Taoiseach's election promise

Plan: Taoiseach Varadkar
Plan: Taoiseach Varadkar
Philip Ryan

Philip Ryan

Taoiseach Leo Varadkar's €3bn tax cut election pledge is under threat due to the cost of extending high-speed broadband throughout the country, the Sunday Independent can reveal.

Mr Varadkar has promised to significantly increase the entry point for the top rate of tax to €50,000 within the next five years, which would save workers up to €3,000 a year.

However, the Taoiseach is now being warned that he "can't just print money" to fulfil his tax cut commitments while also spending a further €3bn of the State's cash on the controversial National Broadband Plan.

The warning comes as the Sunday Independent reveals that the Government spent an extraordinary €23.6m on consultancy firms during the tendering process for the State broadband project.

Meanwhile, it has also emerged that Agriculture Minister Michael Creed has accidentally revealed that Granahan McCourt, the company implementing the National Broadband Plan, is investing €200m of its own financial resources upfront into the €3bn project.

Speaking on Clare FM last Wednesday, Mr Creed said: "The State is providing a subsidy to Granahan McCourt who I think are putting in something shy of the region of €200m."

The Department of Communications said it could not comment on Mr Creed's comments as the "level of initial equity investment and working capital is commercially sensitive".

However, the Sunday Independent has independently established that Granahan McCourt's investment is only €200m.

However, writing in the Sunday Independent today, the chairman of National Broadband Ireland, David C McCourt, maintained his company would invest €2.5bn in to the project over the next 25 years.

Yesterday, Fianna Fail's Willie O'Dea said it "beggars belief" that there is "so little commitment on the part of the investor compared to what the taxpayer in putting in".

Department of Public Expenditure and Reform secretary general Robert Watt raised serious concerns about the level of investment by the telecommunications firm headed by Mr McCourt in highly critical correspondence released on the day the broadband plan was announced.

However, the scale of private investment was redacted in the official Government documents.

Mr Watt said the telecommunications firm was "only risking" an undisclosed figure, now confirmed to be €200m, of their own funds which the company will have potentially recouped by 2028.

"In these circumstances, I would question whether the future risk associated with guaranteeing service provisions over 25 years is genuinely transferred to the private operator or, in reality, actually retained by the Exchequer," he said.

In observations on the final plan, Mr Watt also issued a stark warning about the impact the broadband plan would have on other State infrastructure projects.

He said there were serious implications for projects committed to under the Government's much-hyped Project Ireland 2040 national development plan, including the construction of 18 primary schools, 10 primary care centres and 2,000 social houses.

When questioned on his secretary general's comments, Minister for Finance Paschal Donohoe insisted he would find the additional revenue for the projects.

However, economists and Opposition politicians believe the Government's figures do not add up and insist there is not enough money in the State's coffers to pay for Mr Varadkar's election promises while also meeting the demands of the broadband plan and other projects, as well as the spiralling cost of the National Children's Hospital.

Economist Colm McCarthy said the Government has "completely lost control" of public spending.

"They have ignored all warnings from the Central Bank and the Fiscal Advisory Council about public spending. It's all well and good spending taxpayers' money when the sun is shining but once things turn bad, taxes are the first thing the Government looks at," Mr McCarthy told the Sunday Independent.

He also questioned how the Taoiseach could see through his promise to raise the entry point for the higher rate of tax to €50,000 in five years while also splurging the public's finances on an increasing number of State projects. "The funding has to come from somewhere and the Government can't just print money so something will have to give," Mr McCarthy added.

Fianna Fail's public expenditure and reform spokesperson Barry Cowen also said the Government's spending and tax cut figures "don't add up".

"If they were being straight and honest with people, they wouldn't be saying they can give them €3bn high speed broadband and €3bn tax cuts in five years," Mr Cowen told the Sunday Independent.

Mr McCarthy also raised concerns about a potential shortage of construction workers to build new homes because of all the Government's infrastructure projects.

"If you divert 2,000 construction workers to the National Broadband Plan, then they are not building all the new homes the country desperately needs," he said.

"Builders are already complaining about the shortage of construction workers and these projects are going to significantly add to the problem," he said.

A senior Department of Finance source said the Taoiseach's tax plan is not at risk due to spending on infrastructure projects but rather from future increases in current spending such as increasing public sector pay.

"Governments always get into difficult over losing control of recurring spending rather than one-off capital projects," the source said. The source said the Department's "golden rule" was to keep current spending below the level of economic growth.

Separately, it has emerged the Government spent €23.6m on consultancy and advisory firms throughout the National Broadband Plan tendering process.

This included €11.6m paid to KPMG for "financial and procurement advisory services/specialist personnel to support" and €5.4m paid to Analysys Mason for "technical advisory services". A further €5.4m was paid to Mason Hayes & Curran for legal advice and PwC were paid €2.4m for "economic and strategy advisory services".

The estimated total cost of the project is around €5bn over 25 years and the State will make a maximum contribution of €2.6bn plus Vat. National Broadband Ireland (NBI), the entity overseeing the plan, carries all the risk of providing the €2.4bn. If commercial revenues do not transpire, for whatever reason, the company is required to make up any shortfall with its own funds.

Sunday Independent

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