The Labour Party proposes to borrow almost €12 billion over the life of the next government to fund roads, schools and hospitals. The party on Monday set out the bones of its economic manifesto for the coming election in which it opts for a return to borrowing rather than increased taxes to fund investment.
The party also published a detailed assessment of the impact on the Exchequer of its limited borrowing plan. Labour believes the economy will grow sufficiently strongly over the next five years to keep the national debt at its current level of 36 per cent of Gross Domestic Product. The government's borrowings will grow in nominal terms from their current €34 billion to €46 billion, but will remain among the lowest in the EU in terms of GDP.
Labour is assuming growth rates of 5 to 6 per cent a year to make its arithmetic work. It said such assumptions were reasonable and were based on the economic forecasts of the Department of Finance and the Economic and Social Research Institute.
The borrowings would be used to fund investment and would not be used to meet day-to-day government spending, according to Mr Derek McDowell, the Labour Party's spokesman on finance. He said the party planned to spend €2 billion "to rescue the NRA roads programme, to fund a major building and refurbishment programme for schools, to fund the capital costs associated with our childcare policy and to provide for a major programme of investment in health".
This would be in addition to the €2.1 billion cost of implementing the party's six election pledges and an additional €520 million worth of measures which will be included in the election manifesto.
Borrowing will be used to make up the shortfall between taxation and the cost of the investment programme.
Labour also announced that it would reduce the Exchequer's contribution to the National Pension Reserve Fund established by the current administration. Labour would reduce the annual payment into the fund - which is to fund in advance State sector pensions - from 1 per cent of GNP to 0.25 per cent for five years. This would free some €700 million a year. If elected, Labour will also look at borrowing from the fund "at a reasonable rate of interest".
Mr Ruairí Quinn, the party leader, said they had stopped short of suspending payment to the fund because they were in favour of the concept and the fiscal discipline it imposed. There was a logic to be still paying into the fund while also borrowing. Mr Quinn likened it to an individual having both a mortgage and a savings plan.
If it does form part of the next government, Labour would also want to see the cut in employers' PRSI announced in the last Budget reversed. The measure would raise €400 million that would fund the €750 million childcare package put forward by Labour in its election pledges. The remainder of the cost will be met by a levy on employers. The package includes paid family leave, early years payment of €50 a week for under-threes and free pre-school attendance for every child.
The other election pledges included in the €2.1 billion package include free GP care; doubling of capitation grants for primary and secondary schools and indexation of social welfare payments to wages rather than prices.
Mr Quinn defended the decision to return to borrowing on the basis that the Republic needed a significant amount of once-off investment to create an infrastructure that "meets the requirements of a modern developed European economy".
He likened it to taking out a mortgage, adding that now was "the best time ever for the Irish economy to take out a mortgage".
Labour is committed to keeping the General Government Balance below 1.9 per cent of GDP. The GGB is the measure used by the EU to measure whether member-states are in deficit or surplus. Under the Maastricht guidelines, the GGB should not exceed 3 per cent of GDP.
- Due to a production error, this article was omitted from our coverage of the publication of the Labour Party economics document in yesterday's paper and another article was duplicated.
