Cutting capital spending

 

THERE IS no hiding the depth of the Government’s economic difficulties or its lack of room for fiscal manoeuvre, notwithstanding the positive sentiments expressed by Taoiseach Enda Kenny, Tánaiste Eamon Gilmore and Minister for Public Expenditure Brendan Howlin. Government priorities may indeed involve jobs, schools and healthcare, as they insisted, but cutting capital expenditure by €755 million next year will diminish the overall prospects for growth.

Mr Howlin referred to a fiscal “straitjacket” inherited from their predecessors, as he explained why certain projects could not be afforded. Difficult choices had already been made to reach a 60/40 balance between reductions in current and capital spending, he said, before maintaining that capital spending for the next five years will remain “broadly in line” with the EU average. That development will offer little comfort to the construction industry and the cuts have drawn predictable criticisms from Opposition parties.

Cuts in capital spending had been well flagged but the list of long-standing projects being deferred provided a grim backdrop. Transport projects were the big loser. Out went Metro North, an underground Dart connection and the A5 motorway. Work on linking the Luas lines would only begin in 2015. Apart from that, basic road and motorway maintenance is expected to absorb any available cash. Prison building at Thornton Hall has been deferred and any relocation of the Dublin Institute of Technology will depend on private investment.

There are encouraging signs of creativity and determination in the Government’s approach. Not alone will it press the IMF-EU Troika to release much of the money raised from the disposal of State assets for job creation, it intends to fund the National Children’s Hospital from the sale of the National Lottery franchise. Money is also being funnelled to agriculture and the marine, one of the few domestic growth sectors. Re-establishing national sovereignty on fiscal matters has been declared a driving imperative. But the days of living beyond our means and unsustainable planning have passed.

Few would argue against the need to cut spending, given that most of the affected projects were sanctioned at a time when Irish GDP was expected to be one-third larger. The Government appears to have concentrated on core election promises, involving reform of healthcare, education and the creation of jobs. In that regard, better primary healthcare facilities will reduce pressure on acute hospitals while services for children, mental health and cancer patients will be improved.

To cater for an extra 70,000 pupils in the education system, 40 schools will be built and others refurbished. As for jobs, the release of €250 million from the National Pension Reserve Fund and plans to quadruple it with private funds for strategic investment remains a work in progress. Like plans to reform State agencies and services that will be unveiled next week, these cuts form part of a broader economic framework that will become clear on budget day.