Government review reiterates capital spending commitments

The Government has reiterated its commitment to an additional €4.1 billion in capital spending between 2018 and 2021.

The extra money announced in the Government’s mid-term review of its capital plan, published on Thursday, had already been flagged in Budget 2017 and the Spring Economic Statement, and does not represent any new allocation.

The latest review is seen as a precursor to a new 10-year national investment plan, which is expected before the end of the year.

Since the Government’s capital plan was first announced back in 2015, approximately €6 billion has been added to the original €20.9 billion capital budget, against a backdrop of infrastructural bottlenecks in housing, water, health and education.

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Some €2 billion of this additional spend has already been earmarked for housing projects while the residual €4 billion will go to address other infrastructural deficits.

‘Changed dramatically’

Launched by Minister for Finance Paschal Donohoe, the review noted that the context for public capital investment had "changed dramatically" in the relatively short period since since the Capital Plan – Building on Recovery was published in 2015.

“The significant progress made in restoring the public finances and the transformation in economic performance has enabled Government to supplement the €20.9 billion already committed to public investment between 2018 and 2021 by a further €6 billion,” it said.

“Taking account of the significant resources of €2.2 billion which has been provided to support the delivery of the Action Plan for Housing over the period, €4.1 billion in additional capital expenditure is to be allocated on the basis of this review in Estimates 2018.”

Bolstering plan

Fergal O’Brien, director of policy and public affairs at employers’ group Ibec, said while the review did not announce any additional money it recommitted the Government to bolstering its capital plan, which was positive.

He said Ibec hoped to see extra money announced in next month's budget and/or in the 10-year plan as Ireland still lagged behind competitor countries when it came to capital spending.

Mr O’Brien said the additional €4.1 billion would bring Ireland’s capital spend to about 2.5 per cent of gross domestic product (GDP), but he said it needed to be around 4 per cent if some of the current infrastructural deficits were to be addressed.

The Government’s review said that in overall terms, the planned total increase in public capital investment between 2018 and 2021 was now almost 40 per cent greater than what was initially envisaged under the original plan, announced back in 2015.

Another core objective of the review was to assess and report on the quality and capacity of Ireland’s public infrastructure in light of key drivers of future demand such as demographics.

The review also looks to identify priority public capital investment requirements, “reflecting in particular where infrastructural congestion and bottlenecks may be jeopardising the sustainability of Ireland’s growth performance”.

Furthermore, the review seeks to assess how enhancing public capital infrastructure can strengthen the economy’s resilience to risks related to Brexit, climate change, and the potential for overheating as the economy approaches full capacity.

‘Identifying priorities’

“The findings will assist in identifying priorities for the allocation of the substantial additional capital funding now available,” it said.

“It is important that public investment increases at a planned and measured rate, avoiding sharp or unexpected increases, so as not to outstrip the pace of the supply response feasible from the construction sector.

“It is also essential that public capital investment is efficient, focused on infrastructural priorities which are properly appraised; yields a high economic and social rate of return; and makes best use of construction sector resources given the level of private investment demand.

“There needs to be a sharp strategic focus on strengthening the capacity, capability and degree of competition of the domestic construction sector in Ireland, as well as on encouraging and promoting market entry from overseas.

“Confirming and highlighting the planned scale of Ireland’s public capital investment plans can play a pivotal role in this regard.”