Infrastructure spend to be cut by €5bn

CAPITAL SPENDING:THE GOVERNMENT looks set to reduce public spending on building projects such as roads and water treatment by €5 billion, although the four-year plan estimates the cut will be nearer €3 billion.

The Construction Industry Federation (CIF), which represents the Republic’s building and civil engineering industry, said yesterday the cuts would amount to €5.4 billion and would cost tens of thousands of jobs.

The plan states that the Government will cut €3 billion from public capital spending – including investment in roads, water treatment systems and school buildings – over the next four years, with a €2 billion reduction next year, and further savings of €400 million from 2012 to 2014, which is a total of €3.2 billion.

However, the Government’s Public Capital Investment Programme, released last July, pledged €5.5 billion a year between 2011 and 2014 inclusive on infrastructure projects, which is a total of €22 billion or €5.6 billion more than the €16.4 billion it now commits to spending in the document published yesterday.

CIF policy director Martin Whelan said that the announcement represented a cut of 25 per cent in proposed capital investment. “A cut of this magnitude will put tens of thousands of construction jobs at risk and will invariably affect investment elsewhere in the economy through lost multiplier effect,” Mr Whelan warned.

Every €1 million spent on construction creates about 10,000 jobs, according to the federation. The Republic’s building industry has shrunk in size from €37 billion at the boom’s peak four years ago to about €7 billion. State spending on big public projects is seen as key to the sector’s survival.

Mr Whelan argued that spending on infrastructure was needed and would deliver value. “Productive spending, such as investment in public infrastructure, more than pays for itself in the short, medium and long term, through the jobs, exchequer revenues, spending and future growth it generates,” he said.

The federation and trade unions that represent building workers warned earlier this year that the rate of spending on public projects was in danger of slowing rapidly as Government departments and other State agencies were not planning new projects.

This means there are unlikely to be developments coming on stream when work on current projects has finished.

Much of the cash that has been spent this year has gone on developments under way for several years that are either being finished or are approaching completion. Most observers argue the Government has not reached its target of spending €6.4 billion on infrastructure this year.

The Government says it will concentrate on capital spending that is “employment-focused”. It also says building infrastructure will create direct jobs and help to maintain employment and expertise in the construction industry.

Its report singles out water treatment, which the Coalition says will be a key priority. Water systems in most urban areas are poor and the Republic is obliged to implement the EU’s Water Framework Directive, which demands that it meets certain standards in management and quality by 2015.

As part of this, it will install water meters, which will form the basis for charging domestic users. The National Pension Reserve Fund, the agency charged with investing cash to provide for future State and public service pensions, will invest €550 million in this project. The fund will also invest up to 5 per cent of its discretionary portfolio in other infrastructure projects. It will place up to €500 million in individual undertakings. Initially, it will buy existing assets.

The agency will also invest in projects alongside private operators with the aim of getting a commercial return for its money.

The report points out that State energy companies the ESB, Bord Gáis and national grid operator Eirgrid are investing €8 billion in a range of power generation and distribution projects.

The ESB is responsible for more than €6 billion of this while Bord Gáis has committed €1.3 billion. All three companies announced these investment plans over the last two years, and a proportion of the money has already been raised and committed.