It is surprising the Government has not yet offered a comprehensive response to the mid-term review, writes Cliff Taylor, EconomicsEditor
If you could go out and lay down a new national roads network overnight, then it would be well worthwhile borrowing the money to do so. But unfortunately national networks take a bit longer to build than a toy road set.
The analogy is used by Prof John FitzGerald of the Economic and Social Research Institute, one of the main authors of the review of the National Development Plan (NDP), to illustrate the high level of potential returns from properly directed investment - and the real-world challenges of delivering them.
There is no doubt, in the mid-term review of the plan, that the €50 billion investment programme is central to our economic future. The analysts estimate that in the long term it will raise the level of Gross National Product - the annual output of the economy - by 3 per cent. This boost to GNP translates into a hefty 14 per cent return on the money spent. You would have to search hard for any other investment offering a comparable return.
This is why it is essential that in the overall debate on the wide-ranging recommendations of the plan that the central point is not lost. It is that we need to keep at it - to maintain spending levels on key infrastructure and development programmes. The recommended reallocations from one programme to another will grab the headlines, but the key piece of policy advice to the Government is to keep spending - but just try to do it a bit better and adjust in other policy areas to maximise the value of the investment.
It is a timely message. In a couple of weeks the Minister for Finance, Charlie McCreevy, will publish his spending plans for next year. Last year capital investment spending was cut, although it does remain very high by international standards. Chopping it again next year would be a mistake.
The risk is that investment in key capital spending areas is trimmed back again, because of pressures on day-to-day spending from pay benchmarking and other demands. The Minister has committed in the past to keeping capital spending at a high level, but the proof of this particular pudding will come on estimates day in two weeks' time. Also, as the summary of the mid-term review points out, it is vital that major investments are laid out on a multi-year basis and that allocations are not left to the vagaries of the annual budget.
There are also important messages about where and how the money is spent - and criticisms in some areas which appear to have encouraged the Government into an unnecessarily cagey and in some cases defensive reaction. Some ministers were out sniping at bits of the report which affected their own fiefdoms. And while the Department of Finance would have been heavily involved in the formulation of the mid-term review, the only response from Mr McCreevy was that the Government and individual ministers "would reflect on the conclusions of the evaluation in determining future investment priorities".
Surely we need a thought-through Government response, accepting or rejecting the various parts of the report and setting out how the NDP - the central element in its economic strategy - will now proceed? Perhaps such a plan is in the making. But with the Taoiseach on the one hand saying it is a good report and ministers such as Dermot Ahern and Martin Cullen on the other taking selective pot-shots, it does not give the impression of a cohesive Cabinet.
Last week on The Dunphy Show, the Taoiseach referred to the then forthcoming ESRI report and spoke at length on the key issue of value for money. Nearly a week later, it is surprising that the Government does not appear to have its ducks in a row in response to its findings which, ironically, are broadly favourable in many respects. There are points to debate here in terms of where money is best spent and how it is managed, but, to paraphrase Kissinger, if we want to talk to the Government on the matter, who do we talk to?
Naturally, some toes have been stepped on, but fairly gently in most cases. The report's authors - the ESRI, DKM Consultants, ESB International and GEFRA - looked at where money can best be spent,recognising that the key question is where the highest return for the investment of scarce resources is available.
It recommends a switch away from grants and other supports to business and a little more spending on roads. Pushing up spending too rapidly on infrastructure would be dangerous, it warns, and inflation had eaten up too much money in the early years of the plan. But the economy should be able to take a little extra spending on roads now without boosting inflation too much. The report also recommends extra resources for urban public transport and less for mainline rail.
Looking at other areas, it calls for similar spending levels on environmental programmes and social housing and a refocusing of regional supports in line with the National Spatial Strategy. Spending on employment and human resources should be redirected to tackle short-term unemployment and boost life-time learning, it says.
The devil in terms of the political reaction, however, may be in the closer detail and in recommendations such as a cut in spending on acute hospital beds until all existing ones are used, the shift to a national approach in disposing of solid waste, and the call for private operators to deliver the necessary investment in broadband connectivity. There will also be sensitivities about project management in some areas. The classic case is Luas, where an initial commitment of €290 million has now become at least €750 million. The key message from the report is that particular care needs to be taken when projects are changed and respecified in mid-stream, as happened with Luas, where no full cost-benefit analysis of the revised scheme was undertaken. Upgraded road programmes have also not been subject to proper evaluation in many cases, it argues, meaning some roads are being built to a standard not justified by potential traffic volumes.
The final message to politicians is that policy needs to be more "joined up" in many areas. Providing social housing will cost more if steps are not taken to lower the demand for second homes, which now account for 20,000 of the 50,000 units built in a year. The gains from urban bus investment are limited by using only one door and not having integrated ticketing.
Economists like charging for things, of course, and it is no surprise that the report makes a strong case for water charges and charges in other environmental areas. Tolling policy needs to be more carefully thought out, it says, and charges are most appropriate for busy roads and not for traffic using uncongested bypasses.
The theory here is that it is difficult to judge the appropriate level of investment until the real demand is assessed through a pricing mechanism. No doubt Mr McCreevy will not be slow to bring some of these potential revenue-raising suggestions to the attention of his colleagues. But given the fuss about "stealth taxes", any moves in these areas would be politically sensitive.