Coalition looks to capitalise on growth, writes Arthur Beesley

The Government’s capital investment plan assumes the State will have the resources to invest €42 billion over the next six years.

The main component is €27 billion in exchequer spending, with annual spending rising incrementally between 2016 and 2021. Another €14.5 billion would be spent by semi-State companies and other public bodies.

Ahead of the election, the plan stands as a joint Fine Gael-Labour manifesto for long-term investment in projects around the State. In due course, it will fall to the electorate to decide whether they get to execute it.

After prolonged crises in which investment was pared back to a minimum, the plan to expand capital spending comes amid resurgent growth as activity in the domestic economy gathers pace. This underpins the confidence that advancing tax revenues will fund a gradual build-up in capital spending.

The question arises, however, as to whether the economy needs more. It may well do, but the money simply isn’t there at this point.

At first glance the figures are large, but deeper inspection tells a different story. For one thing, the rate of exchequer-funded capital expenditure will remain significantly below levels seen at the height of the boom. In the early years particularly, the projected rate of increase is modest.

This reflects heavy constraints on the public finances due to the elevated national debt, new fiscal rules which put a brake on expenditure and political decisions taken by the Government itself.

Official data shows how the pre-crash period was marked by extraordinary increases in annual capital spending, with direct exchequer funding advancing to €9 billion in 2008 from €2.5 billion 10 years previously.

When the economy crashed and the State assumed huge debts to fund the deficit and rescue the banks, capital spending dropped for five straight years to €3.4 billion in 2013. This increased a little in 2014 and again this year, but it was small-scale stuff compared with the runaway “tiger” years.

The new capital initiative continues along these lines. In submissions to Brussels in April, the Government suggested it would provide €3.69 billion on the capital side in 2016 and €3.78 billion in 2017. In the new plan, the 2016 allocation rises only to €3.8 billion and the 2017 spend reaches €4 billion. An equally small rise follows in 2018, to €4.2 billion. Only then do larger increases come into view, with €5.4 billion foreseen for 2021.

Overall package

The 2021 dimension is significant, as the original objective had been to develop a five-year plan. By moving into a sixth year, the Government increased the overall package appreciably.

Moreover, it is only in that final year that construction begins on the Metro North project to link Dublin Airport and Swords with the city centre. Although Metro North is the largest single project, the plan would not have included a starting date for building work if it did not run to 2021. Completion is not expected until 2026 or 2027, a long time away.

It’s certain the Government would like to get going straight away, but numerous other projects await funding. After years of retrenchment and disinvestment, this boils down to political prioritisation. Hospital, education, road and broadband investment is needed right now, all the more so given the return of growth and rising population. The Government has also resolved to cut tax next year and boost day-to-day expenditure, reducing scope for a bigger capital plan.

It’s worth noting the 2021 allocation would bring investment to levels reached in 2002. The Government makes the case that there is “widespread recognition” that a considerable portion of the State’s infrastructure deficits and bottlenecks had largely been addressed by the capital investment peak in 2008.

Lacking ambition

However, the plan has been criticised for lacking ambition.

"Ireland has the second lowest spend in infrastructure of any EU country, but the fastest growing population. This has resulted in severe pressure on housing, transport, education and other elements of our capital stock. Today's plan goes some way towards addressing this challenge, but it should have gone further," said Fergal O'Brien of business lobby Ibec.

Here again, we run into the question of priorities and constraints. In 2008, with capital spending at its apex, the State spent €2 billion to service the national debt. By 2014, the State was spending more than €8 billion on the debt.

Such costs have declined, but they still weigh hugely on the exchequer. There is no getting away from that.