The State is now losing out on new business and investment because of the “housing constraint”, Ibec has said.
The employers’ group also warned that delaying public investment in the short term “to mitigate the risk of overheating” would hinder future economic expansion and damage competitiveness.
In a pre-budget submission, it said “capacity constraints” in housing, infrastructure, skills and labour generally now represented the number one issue facing firms here.
Housing and, in particular, the dysfunction of the rental sector presents “a practical, everyday headache for employers trying resource positions”, Ibec’s director of lobbying and influence Fergal O’Brien said.
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The group’s submission claims a lack of investment over time has led to “systemic congestion in both access to physical assets like housing and infrastructure and to the ability of households to access services which should be afforded in a wealthy society”.
To ensure “continuous” investment in infrastructure, it calls for the establishment of a national infrastructure fund.
“This fund, supported by a substantial portion of the budget surpluses, aims to address Ireland’s significant social, economic, and environmental infrastructure needs over the next decade,” Ibec said.
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On this week’s episode of Inside Business with Ciarán Hancock, Chief Economist at Davy, Conall MacCoille, explains why labour shortages and capacity pressures are putting the brakes on growth in some sectors here. And Irish Times Economics Correspondent Eoin Burke-Kennedy runs through the headline details from both the exchequer receipts and the Summer Economic Statement.
Minister for Finance Michael McGrath has signalled his intention to set up a new public investment fund, separate from the planned sovereign wealth fund, to ensure that capital spending on vital infrastructure is not cut in the event of an economic downturn.
In its submission, Ibec calls for €3.5 billion of this year’s projected budgetary surplus to be placed in the infrastructural fund along with the €6 billion already in the National Reserve Fund, building to a target of €30 billion by 2030.
On the upcoming budget, the lobby group said it advocates a total additional package of €8.7 billion, which included €1.8 billion in “infrastructural delivery”, which is less than the Government’s proposed package. In the summer economic statement, the Coalition signalled a core budgetary package of €6.4 billion but an extra €4 billion in noncore spending was also included.
Ibec’s chief economist Ger Brady said Ibec’s budget numbers and those of the Government roughly corresponded to an end-of-year budget surplus of 4 per cent, which he said would be the second highest surplus of any advanced economy behind Norway.
He said the group’s proposed public investment fund could end the “famine or feast” pattern to capital spending in Ireland, which has persisted since the 1970s, with governments spending at the top of the business cycle only to find themselves having to cut back in a downturn.
Mr McGrath also plans to establish a separate sovereign wealth fund similar to Norway’s, which is the largest in the world. It has been flagged as a potential way to address age-related costs, such as pensions, down the line.
But Mr O’Brien said the State’s looming pensions problem had to be addressed via current spending and more specifically a hike in social insurance rates.
He claimed the establishment of a wealth fund may lead to a “complacency” and a misplaced belief that raising taxes could be avoided.
As part of its submission, Ibec also calls for Budget 2024 to unlock the €1.5 billion surplus in the National Training Fund to help deliver the key skills for the 21st century. It also recommends a €710 million investment to boost research, innovation, and digital capacity, along with €307 million in university funding and €225 million to support the growth of Irish exporting businesses.
