The publication of two major government plans on investment, the NDP and the National Planning Framework was welcome. It is commendable that both plans are integral to each other. This is a first in Ireland and indeed internationally—the only worry is that both plans could be undone. Charlie McCreevy destroyed the last National Spatial Strategy 2002 when he overwrote it by actually privatising groups of public servants and sending them to favoured constituencies just a year later in 2003.
This blog will take a look at the investment plan. Investment plans should really take on a boring, “steady as she goes” approach with small increases each year with the possibility of reduction during a crisis. That is not Ireland’s history of investment.
Roller-coasters need to be flattened
In Ireland, investment plans have been rollercoasters of substantial spending for some years as we have aimed to compensate for years of gross underinvestment. The reason is that Irish governments are not very good at fiscal governance. Of five major crises since Independence, three have been caused by Irish governments’ fiscal incompetence. For example, there was little public investment in the 1980s because the 1977 election was a giveaway with high current spending and tax cuts. This crisis almost bankrupted the country and caused a decade of austerity. Secondly, the last decade of austerity and underinvestment was because of the crazy policies of de-regulation, tax cuts and tax breaks, which led to the crash of 2008. The problems were then exacerbated by the six bank bailouts, the payment of all private creditors by the taxpayer, and the rescue of the building speculators’ public through NAMA. Ten years later, we are now back where we should have been in 2008. The plan just proposed will give us a reasonable level of investment in our economic and social futures.
In Budget 2018, the latest Capital plan projected an investment of €29 billion in the four years 2018-2021 increased by €4.3bn. This new programme increases this amount substantially and it is welcome. €116bn over ten years is a good level of investment and most of it is publicly funded.
The last plan called “Building on Recovery” was weak
The last investment programme, surprisingly called Building on Recovery, was in published autumn 2015. It was so lacking in ambition that in 2016, the level of investment was at its lowest ever, a tiny 1.7% of GDP Investment had been at 3.9% of GDP !2002-07, but was to average a mere 1.8% a year in the new sadly lacking plan. TASC in A Time for Ambition suggested it be increased to 2.8% a year in our alternative plan. This new plan is a move in this direction??
TASC pointed out that it is generally agreed that in the modern state, public investment needs to be around 4% of GDP each year. Most states, including Germany and the US, are well below this level and this will cost them in the long run with slower than optimal growth. This plan is public investment of 4% of GNI (which is better to use than GDP for Ireland) and so it is reasonable. However it will not rise to that level till 2024 (being 2.9% this year and rising to 3.8% by 2021) but will be maintained at 4% to 2027.
There are three levels or types of “investment”. First, is the total investment in the economy, from all sources, public and private largely reflecting the business cycle. It is usually around 22 percent of GDP.
The second is the level is Exchequer investment funded out of the public purse. It was 1.8 percent of GDP in 2013 and 2 percent in 2014. Then there is overall public investment. It has three components: i) Exchequer funding; ii) the state-owned sector (especially the commercial state companies); and iii) there are privately funded public investments, like PPPs, which are state sponsored. The three are also called the Public Capital Programme. The overall Public Capital Programme was 3.1 percent of GDP in 2015.
This plan will invest €116bn of which 79% is from the Exchequer. This is most welcome and indicates a major change of policy.
Ireland has the third highest level of central government public investment in the OECD with Switzerland Germany and Canada having the least, with much delegation to local authorities (OECD 2014). This means centralised control can stifle local initiatives and may accentuate rather than flatten the investment rollercoaster. The plan may decentralise some of this.
Infrastructural commission, a golden rule and protecting expertise
Ireland’s history of roller-coaster investment destroys the collective expertise built up in construction projects. The body of experts building who built to Luas over the past few years is currently being dissipated. Any decent state, through an Infrastructural Commission to oversee big projects and ensure investment and project continuity would not let this happen. It seems that this plan has been partially informed by TASC and others as there is a “a new funding model for Exchequer-funded public investment is being put in place to ensure that resources are allocated to projects and programmes that are sharply focused on meeting NPF priorities.” However, there is no external delivery board or Infrastructural Commission as we and others advocated to oversee and ensure delivery of the Plan. This year it is planned that the Department of Public Expenditure and Reform will establish an Infrastructure Projects Steering Group (IPSG) with senior representatives of all of the infrastructure and investment departments.
The priorities set out are welcome but an external board to oversee it would be better. The National Planning Framework, with which the NDP is integrated, will also assist in delivery.
Major targets are ambitious, which is good
It is planned to create an additional 660,000 jobs in the period up until 2040. This is ambitious and worthwhile and hopefully it will be met. High levels of employment are the best way to boost wages, reduce precarious jobs, exploitation and inequality. The government says “this is ambitious but eminently achievable” and it is so hoped.
This National Development Plan sets out the significant level of investment, almost €116 billion, which will underpin the National Planning Framework and drive its implementation over the next ten years. €91 billion in Exchequer funding for public capital investment has been allocated and will be supplemented with substantial investment by commercial State Owned Enterprises.” It is interesting and again welcome that state commercial companies will play a major role in delivery of jobs and output.
It is also most welcome that “this increased level of resources is expected to move Ireland close to the top of the international league table for public investment.
It will in tandem with the Spatial Strategy seek to eliminate or reduce urban sprawl. Well designed high apartment blocks with storage space like they have in Europe are needed in Dublin.
Reforms still needed
1. TASC and bodies like Engineers Ireland recommended that the rollercoaster be flattened with establishment of a Infrastructural Commission to bring back long term planning in investment and set out clear priorities based on need and not immediate political influence. There is move in this direction with a funding strategy and the civil servants overseeing it.
2. TASC also recommended with other that there be a “Golden Rule” on investment.
3. TASC and many others also recommended that the EU really needs to invest much more in physical infrastructure and in human capital ie training. It boasts of investing €264bn but this is too little.
4. We and many others have recommended relaxation of the Stability and Growth Pact rules to exclude investment.
Discredited PPPs still supported in plan
The government carried out a review and it claimed “the PPP review concludes that PPPs can play a very important role in the delivery of public capital investment projects contained in the National Development Plan.” We must question why PPPs still feature in this plan when they have been widely criticised as being bad value for money. The UK National Audit Office found that the PFI has not reduced construction costs nor led to greater day-to-day efficiency and only some evidence of the transfer of risk to the private sector. The Carrillion collapse should have ended any love affair with PPPs in Ireland as we were adversly hit by it too. Carrillion showed, as I said in my last blog “that when things go wrong, they go badly wrong and any value for money is destroyed.” Dublin’s O’Devaney Gardens PPP displaced 300 families in 2008 to give a a 12 acre site to a developer for a PPP. This site is still derilict in a housing crisis. There are others too.
It is time the government stopped ignoring its own Auditor General. He analysed a near €300m bundle of schools under a PPP and found it could cost as much as 25% more than a conventional procurement.
So why the continuing use of PPPs? There are dreadful EU rules but these are no longer an obstacle on investment, even to the cautious. There was the idea of value for money but we know for sure that PPPs only occasionally give any. Is it ideologial? Is it corruption? For with such big sums of money, a small slice is big money. There is no evidence of corruption so it has to be ideology, though it could be failure to admit they made a mistake.
As TASC said in A Time for Ambition “the results of the IMF simulation for advanced economies (which included Ireland) suggest that a 1 percent of GDP permanent increase in public investment increases output by about 2 percent in the same year" (2014, p87). Thus this government investment plan will boost output just as Brexit hits us negatively. Thus it is timely and welcome. It is ambitious, but such ambition is long overdue from our leaders.
Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He is a member of the Economic Committee of the ETUC and chair of TASC’s Economists’ Network. He was a President of the Statistical and Social Enquiry Society of Ireland, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.