CUTS IN capital expenditure should be explored as a way of reducing the Government’s budget deficit, economist Colm McCarthy has said.
Mr McCarthy was speaking to politicians, representatives from Government agencies and members of the Oireachtas Joint Committee on Finance and the Public Service at Government Buildings yesterday.
Pointing out that capital expenditure was not in the remit of his report on public expenditure published in July, he said that constraining capital expenditure is an “option” that should be considered by the Government.
“Capacity-driven projects are less urgent than they once were. The level of real GDP could be 23 or 24 per cent lower than was assumed to be the case when the National Development Plan was being put together.”
Citing the example of Terminal 2 in Dublin airport, he said “it makes more sense” to curb capital expenditure in the current economic climate. He said that recent falls in tender prices also allow for greater savings to be made in the capital expenditure budget.
On the subject of current expenditure cuts, Mr McCarthy argued that cuts in social welfare or pay and pensions in the health and education sectors could not be avoided. He pointed out that falling price levels have meant that the real value of social welfare payments and wages has risen in 2009. Mr McCarthy also outlined to attendees the scale of the public finance crisis.
He said that while the country had been in a similar situation in the 1980s, it would prove more difficult to recover from the current economic downturn, mainly due to the surge in government spending over the last decade. He said that it was a “myth” that widespread cuts in public spending occurred in the 1980s. In contrast, current spending growth has been “extremely rapid” since 2000 he said. Ireland’s inability to control its currency, and increasing competition on the international debt markets also meant that the fiscal situation is more serious than during the last recession.
