Page 13 - Linkline Summer 2016

European Commission Champions Public
Investment in Ireland
Tom Ferris
On Election Day, the European Commission [1] pub- lished a working document strong case for raising the level of public investment, especially in transport in- frastructure. It concluded that - “infrastructure needs return to the forefront of policy issues”. This will be one of many challenges facing the new Government. This ar- ticle looks at the case for actually accelerating the rate of public investment during the next ve years.
The case is very simple. Government investment was reduced sharply during the scal crisis and now is the time for catch-up. The low level of investment over the past eight years has adversely affected the quality and adequacy of infrastructure. General government capi- tal expenditure had to be cut in order to reduce the budget de cit. As a result, public investment, which had peaked at 5.2 % of Gross Domestic Product (GDP) in 2008, fell to a low of 1.8 % of GDP in 2013 before slight- ly recovering in 2014.
What plans for increased Investment?
Last September, the outgoing Government published a capital investment plan for the years up to 2021. The next Government will no doubt revisit that plan and make changes to re ect its priorities. Nevertheless, it is useful to see what investment was being planned. A total investment of €42 billion was planned over a six year period. The plan aimed to hold government fund- ed investment steady at EUR 3.8 billion in 2015 and 2016 before gradually increasing it to EUR 5.4 billion by 2021. The plan also envisaged additional investments by semi-state companies. This implies that the capital investment to GDP ratio would remain at historic lows of about 1.7 % in 2016 before marginally increasing to 2.0 % by 2021, well below the still depressed EU aver- age of 2.9 % in 2013-2014. The European Commission in its recent report pointed-out that – “Capital expendi- ture would average only 6.4 % of the total in 2016-2021, thereby extending the crisis-driven reallocation of gov- ernment expenditure towards current spending. This could negatively affect not only Ireland’s growth poten- tial, but also the delivery of key public services”.
Transport was allocated the biggest share of the funds suggested under the plan published in September 2015. Nearly a third of the €42 billion plan was earmarked for transport investment, when projects by the lead Trans- port Department, State Bodies and Public Private Part- nerships (PPP) are taken into account. Table 1 shows the composition of Departmental allocations, with the De- partment of Transport, Tourism and Sport getting an allocation of over €8 billion. The €27 billion total shown in the table relates to direct investment by the Excheq- uer. In addition, the Plan includes a third phase of PPP investments of €500 million and State-owned sector in- vestments of around €14.5 billion. That brings the grand total to €42 billion of planned infrastructure investment between 2016 and 2021. However, these gures are not set in stone. As already pointed out, the next Govern- ment will no doubt revisit the previous plan and make changes to re ect its priorities.
The Investment Plan published last September made it clear that projects will only be given the ‘green-light’, after they have successfully met the assessment stand- ards laid-down by the Department of Public Expend- iture and Reform. That requires all Government De- partments to have a robust appraisal system in place to ensure that their investment proposals are consistent with the strategic goals of government. It also means having skilled personnel, good project management ar- rangements; a construction sector with suf cient capac- ity and speedy responses emanating from the planning system.
Why more Public Investment?
The current level of public investment leaves little scope for wholly new infrastructure in housing, water and public transport. In this regard, the European Com- mission points out that there is – “...little room for ad- ditions or improvements to infrastructure once mainte- nance costs are factored in. As a result, pressure points have emerged in a number of areas, also as a result of the resumption of growth. In particular, housing ...water services and public transport are facing interconnected challenges”. Now is the time to catch-up on investment shortfalls, with economic growth well under way. The European Commission is not a lone voice in making this case. A range of stakeholders also made that point – see Box 1.
Stakeholders are calling for increased infrastructure development
“Some stakeholders have already stressed that they see a greater need for public sector infrastructure develop- ment, on top of what is provided by the private sector. The National Competitiveness Council highlights the im- portance of world-class infrastructure for the competitive- ness of a small open economy and stresses the ‘need to increase public capital expenditure and that public invest- ment in infrastructure is prioritised’. Similarly, the business association IBEC and the Nevin Economic Research Insti- tute have called for investment development by the gov- ernment to be signi cantly higher than that presented in the Infrastructure and Capital Investment plan.”
Source: EUROPEAN COMMISSION STAFF WORKING DOCUMENT,
Country Report Ireland 2016, 26 February 2016
Are Investment Projects being validated?
THE CHARTERED INSTITUTE OF LOGISTICS & TRANSPORT 11
EUROPEAN INVESTMENT