Capital spending suffers for sake of political expediency

Noisy diggers on the sunny streets of Dublin these days bear witness to blinkered vision when it comes to long-term planning. No less than 12 years after the Green and Red Luas lines were opened, work is still under way to link the two systems. There is a lesson in this labour. But will it be learned?

Don’t count on it. The Government has inherited an underweight capital plan from its predecessor. In all the noisy jaw-jaw before the election and in all the noisy jaw-jaw since, little or no consideration was given to the requirement for increased capital spending after years of severe underinvestment.

That’s a huge pity. The Luas muddle shows that deficient thinking on infrastructure leaves deficient infrastructure in its wake. This imposes large additional costs on the hapless taxpayer when such deficiencies come to be rectified.

Yes, we had plenty of circular election talk about the dreaded fiscal space. Yes, we had plenty talk about juicy USC cuts and other tax fancies. And yes, there was no end of talk about water charges and Dáil reform. Yet there was not a whole lot that I can remember about the need to upgrade infrastructure or boost the productive capacity of Europe’s fastest-growing economy.

That seems like a serious political failing. We had a 70-day hiatus in Leinster House. At the end of it all, we have a 160-page programme for government. Within that we have earnest words about a “capital plan review”, which sounds like an important exercise. But the review won’t happen until next year. Not for first time, therefore, we must borrow from US president Barack Obama, seized as he is of the fierce urgency of now. This is the fierce urgency of, well, later.

It’s not as if we don’t know the current plan is underweight. Twice on the same day this week it came in for justifiable criticism from two separate quarters. As the European Commission took issue with low levels of public investment since the crash, business lobby Ibec called for a big advance in such spending.

“We are currently investing far too little,” said Fergal O’Brien, Ibec’s director of policy. “Ireland’s capital investment expenditure is currently the second lowest in the EU while we have Europe’s fastest growing population. Average annual exchequer-funded capital investment over the 2015-2020 period is planned at under 2 per cent and will be the lowest of any period since 1970.”

Key weaknesses

At one level, of course, there is a valid reason for this. The severity of the crash and consequent borrowings to fund the deficit and rescue banks meant capital spending took at hit. As the commission noted when making policy recommendations on Wednesday to EU finance ministers, key weaknesses are evident in housing capacity, the water and public transport systems and in climate change mitigation capacity.

“Following a peak of 5.2 per cent of GDP in 2008, public investment fell to a low of 1.8 per cent of GDP in 2013 before slightly recovering in 2014, when it was still well below the EU average,” the commission said.

“In addition, the crisis appears to have led to a structural shift in the composition of general government expenditure away from investment towards current spending. In 2010-2013, capital expenditure averaged only 4.8 per cent of the total, less than half the long-term average during 1995-2008. Seven years of sharply reduced government investment have had a negative impact on the quality and adequacy of infrastructure and the government support for intangible investments.”

All of this is perfectly clear. But so too is the self-evident political decision for self-evident political imperatives to direct the fruits of recovery towards tax cuts for “overtaxed middle Ireland”.

Yet that has its limits. The promise to eliminate the USC didn’t exactly take off for Fine Gael, now reliant in a minority administration on Fianna Fáil goodwill.

The Government programme is suffused with a social tinge and a rural tinge. It is long on high aspiration, short on costing, and the long-term stuff is given the long-grass treatment. As weakness in the water network demonstrates, however, political expediency is no solution to long-term problems.

True enough, policy recommendations from Brussels have lost their edge since Ireland’s bailout came to an end three years ago. As Ministers get down to work, however, the observations of external bodies make for instructive reading. Now, not later.