A Time for Ambition: Ensuring prosperity through investment
19th February 2016
State investment in public infrastructure must be substantially increased to make up for lost ground and ensure future social and economic development, according to a TASC Thinkpiece issued today.
The analysis by Paul Sweeney, Chair of TASC’s Economists’ Network, makes the case for substantially increased State spending to compensate for underinvestment in public infrastructure in recent years.
The report, A Time for Ambition: Ensuring prosperity through investment, suggests Exchequer funding of €42bn in the years to 2021 – this is €15bn more than the €27bn in the government’s six year capital and infrastructure plan released earlier this year.
The study was released at an event in Dublin on 1st December. Caroline Spillane, Director General of Engineers Ireland, responded to the report and commented on the existing quality and future needs of the Republic of Ireland's infrastructure. (Read Engineers Ireland's statement)
Speaking at the launch event, Paul Sweeney said: “Ireland has been under-investing in public infrastructure in recent years – Exchequer investment fell to its lowest level in 50 years in 2013. Investment in infrastructure is vitally important because it underpins economic and social development and ensures future progress. This report shows that public investment can be difficult to get right both fiscally and because of various EU rules.
“Nevertheless it is essential and we need to develop new strategies to undertake public investment adequately and successfully. Some of these may seem akin to financialisation, but with a strong emphasis on public return and equality we can deliver good public investment projects, which in turn will lead to increased private investment.”
Mr Sweeney's paper makes the case for a substantial increase in Exchequer investment because:
- Ireland desperately needs the assets – social and affordable housing, public transport, schools, clinics, as well as education and training.
- Interest rates are historically low.
- Investment costs less during a recession and, while it may be over, there is still an output gap and high unemployment, especially among construction workers.
- The lack of investment is reducing future economic growth and development.
- Investment leads to innovation which makes the economy more efficient.
- Governments never cut investment – they only postpone it.
According to Mr Sweeney, the government’s plan, Building on Recovery, Infrastructure and Capital Investment, 2016-2021, will see an increase in Exchequer investment in cash terms. However, as a percentage of GDP, government investment in this vital area will actually fall in the first three years on the very low level of 2013.
It is proposed that most of the additional Exchequer investment of €15bn over that provided for in the government’s plan should be funded by some of the proceeds of the planned privatisation of the bank shares currently in public ownership.
“These bank proceeds of €21bn to €29bn are coming on stream from 2016 onwards.
It is currently proposed that all of this capital be used to repay national debt. However, in a time of great infrastructural need, with low interest rates on a declining (as percentage of GDP) debt level, this is a mistake. I would urge the government to change its mind and instead invest this money in our future. None of it should be used for current spending,” added Mr Sweeney.
Mr Sweeney said a recent IMF study on public investment found that for every €1m invested there is a rapid return of €2m. When there is a high loss of potential output, as Ireland has suffered, the returns on infrastructural investment are high.
The key institutional reforms suggested in his report include:
- The establishment of an Infrastructural Commission, which would bring much needed long-term planning back into government policy.
- The adoption by the EU and each Member State of a ‘Golden Rule’ of minimum infrastructural investment by governments.
Mr Sweeney said he suspected that the government plan may lack ambition because of fear of EU institutions with their “overly restrictive economic rules”. However, he pointed out that the EU had a great record in the past on investment through the Structural Funds; had relaxed its rules on investment slightly; and become less ideological on other economic issues.
But most importantly, Europe had, in the words of former Troika member, Ajai Chopra, “treated Ireland badly,” Mr Sweeney said. He concluded: “The EU’s moral authority is undermined. It cannot inflict more punishment on Ireland by insisting that taxpayers’ money from the bank shares be used to pay off creditors (who will be paid anyhow) rather than investing them in Ireland.”
Mr Paul Sweeney is chair of TASC’s Economists’ Network. His paper is part of TASC’s occasional ‘Thinkpiece’ series.