THE GOVERNMENT TODAY announced plans to spend €116 billion on a host of items from roads to schools to hospitals.
While the spending is huge, many are questioning just where the money will come from and whether the funding is ringfenced.
The plan commits €115.9 billion in total of capital spending between 2018 and 2027 and the plan says it will mostly come from Exchequer funding – that is money raised through general taxation.
€91 billion will come directly from the Exchequer, while €24.9 billion will come from the dividends of state-owned commercial companies.
The plan says that this year, 2.9% of total national income (€5.8 billion from the Exchequer, €2.6 billion from state companies) will be spent on capital projects. This will increase to 4.1% in the last year of the plan, 2027, (€11.6 billion from the Exchequer and €2.4 billion from state companies). Ireland spends well below the EU average on capital investments and will not top the average until 2023.
The spending is based on Department of Public Expenditure and Reform projections for income over the next decade. The document does not say if the funding is future-proofed or if all or some of the capital funding for new projects is ringfenced in the event of an international economic shock or recession.
The plan says:
This is assessed in terms of national experience and international evidence to set public capital investment at an appropriate and sustainable level, relative to economic growth and identified infrastructure needs.
“It will also smooth out spending on investment projects over future economic and fiscal cycles and will help prevent a return to the pro-cyclical approach to public investment previously experienced in Ireland.
Over 30% or €29.6 billion of this Exchequer funding has, following Estimates 2018, already been allocated to Departments to deliver their infrastructure programmes.
The Exchequer funding will be drawn from government departments, with the Department of Housing contributing the most. It will stump up €1.6 billion of this year’s €5.8 billion. Of the two funds announced today that focus on regeneration specifically, €550 million will be available for urban use and €315 million for rural use up to 2022. The balance of those will be used between 2023 and 2027.
That money will be available for local authorities to draw down to “unstick” projects such as the Cork Docklands (City and Tivoli Docks and associated mobility and bridge access), Limerick 2030, Waterford North Quays Strategic Development Zone (SDZ), and Galway City Centre regeneration.
Under the scheme, local authorities would apply for funding to deliver key infrastructure for the plans. For example, the Waterford North Quays plan requires a new bridge across the Suir. Using the Urban Regeneration Fund, Waterford County Council can apply for funding to build the bridge, allowing developers to focus on building commercial and residential units.
The rural fund will operate in a similar manner.
The capital expenditure programme will allow Ireland have a slate of projects to work on in a long-term strategy. This is something the IMF suggested in its 2017 report on Ireland. This cyclical, boom-bust investment strategy is addressed in the plan.
The public capital stock at any point in time reflects cumulative public capital investment flows over time, adjusted for the impact of depreciation. The procyclical nature of public capital investment in Ireland, which the National Development Plan responds to, has contributed to a situation where insufficient capital spending has been undertaken to maintain and renew the public capital stock and offset the impact of depreciation.
However, Fianna Fáil’s Finance spokesperson Michael McGrath is warning the public not to get their hopes up.
“In the past few weeks, we have seen substantial turmoil in the international financial markets. The European Central Bank’s quantitative easing programme has completely distorted bond prices and is being wound down. The Federal Reserve has reversed its programme in the United States and all major Central Banks are indicating increases in interest rates.
“This all means that the low interest environment is quickly coming to an end and the cost of funding the Plan announced today is likely to be much higher than would currently be the case. This will come at a time when we will have to refinance over €40 billion of our national debt in the next three years and a time in which we will have to navigate the still unknown consequences of Brexit.
“All these risks are very real and we need to be cognisant of them if today’s Plan is to be come to fruition. While the government will not spell it out, the reality is today’s Plan is predicated on assumptions that are largely beyond the control of a small open economy like Ireland.”
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