Cowen signals borrowing for capital spending

Minister for Finance Brian Cowen has indicated a willingness to increase borrowing to finance capital investment that will boost productivity.

In the clearest statement of his budgetary and economic thinking, Mr Cowen said corporate and individual investment in "appropriate capital projects" would be accelerated and facilitated.

This came as he signalled his readiness to borrow to fund infrastructural development that would maximise "the productive potential of the economy".

He said borrowing that goes towards the development of infrastructure which provides an economic return could "in the appropriate circumstances" be justified.

"To cut back on our capital programme in 2008 would be damaging to productivity and the underlying growth trends in the economy, and I do not intend to do so," said Mr Cowen.

He said in the past capital spending bore the brunt of fiscal restraint when the economy was growing at less than its potential clip. "Cutting back on investment might have been the politically-easy option but it was the wrong choice for Ireland."

Mr Cowen's indication that he might increase the national debt under these circumstances represents a departure from traditional policy, which has put the reduction of borrowing at its centre.

The Minister was delivering a lecture organised by consultants Indecon in Dublin.

Mr Cowen set out what he believes are the "new challenges and priorities for future economic policy in Ireland over the coming decade".

"The three priorities which I believe we must put more focus on over the next 10 years are productivity, equity and the environment in which we live."

He called for a major national drive to improve productivity pursued with the "same commitment that we as a nation invested to tackle unemployment and to secure peace in Northern Ireland".

He highlighted as priorities capital investment in the internationally-traded sector, the acceptance of the need for ongoing structural change, and the making of Ireland an attractive place for people with the necessarily skills to live. Other policy objectives were reform of the public sector and investment in education.

Mr Cowen also outlined plans for "major ongoing public service reform" that would see the adoption of new accountability rules and fewer boundaries between agencies, departments and local authorities.

He also identified the maintenance of stable public finances and a tax system conducive to enterprise as prerequisites.

In this context, the Minister outlined his objective to bring growth in current spending in line with the overall growth rate in the economy. The 8 per cent target outlined for next year "will be a staging post in a continuing process of adjustment".

He said a higher rate of increase, such as the 12 per cent recorded last year, would be "very damaging for the economy, and will not be accepted".

Mr Cowen said such limits would not apply to investment. He pencilled in a 12.5 per cent increase in capital spending for next year.

He was at pains to highlight the potential buoyancy of sectors other than construction and property. "It is important to point out that the property-related taxes are not the only taxes which have been growing strongly," he said, stressing expansion in both income and corporation tax receipts in the first half of the decade.

He acknowledged, however, that "available resources will, of course, be more constrained due to the revenue decline related to the adjustment in the property sector".