Speech from Minister

 

Last week my colleague, the Minister for Finance, published the Medium-Term Fiscal Statement.  It sets out the contribution to our consolidation effort from taxation and current and capital spending.  Today, I set out the Government’s capital spending programme consistent with that framework.

 

Clearly we are now living in different economic times.  This report, by necessity, is about priorities.  We cannot afford to do all that we want to do.  It is fashionable in some quarters to suggest the emphasis should be uniquely on the current expenditure side.  Such an approach ignores two things.  Firstly, the quantum of pain to ordinary people that that would involve. Secondly, the significant improvements in our infrastructure, as attested to by the OECD, reduces pressure on the Exchequer in the area of capital expenditure.

 

Our priorities as a Government are clear and are manifest in this plan.  In summary:   jobs, schools and health.  It is only right, though, to acknowledge at the outset that we are effectively at the end of a major phase of Exchequer funded capital investment.  Over the past decade, some €70 billion was invested in infrastructure and the productive sector.  Judged by the currency forecasts, the quality and quantity of the country’s stock of infrastructure has been considerably augmented in recent years.

 

While the level of investment allocated under this plan is in line with European norms and will provide adequate resources for the next five years this is not the true summit of our ambitions.

 

I am particularly pleased to be able to announce that the Government has decided to fund the construction of the New Children’s Hospital with part of the proceeds from a new licensing arrangement for the National Lottery which will involve an up front payment in exchange for a longer term licence.  I will bring the details of this proposal to Government early in the New Year.  It is intended, subject to planning approval, to commence construction of the hospital in 2013 with initial enabling works to start next year.  Put simply, in the absence of this innovative approach, we would have struggled to meet the necessary funding requirement for this important national facility.

 

This report is primarily about allocations of traditional Exchequer capital funding over the coming years.  In addition, the Government is determined to maximise the use of all available resources to promote growth and job creation.  The Government is pursuing a strategic investment strategy, which brings together a number of strands of non-traditional funding, through NewERA and the Strategic Investment Fund.  I am pleased that the Strategic Investment Fund will today be announcing a new fund of up to €1billion for investment in new and existing infrastructure assets.

 

It is my view that Public Private Partnerships (PPPs) can continue to play a valuable role in delivering public infrastructure alongside more traditional procurement.  PPP procurement represents the most suitable method for securing additional private financing for capital investment as there is a degree of familiarity with the PPP process, and we have already put in place the legislative, guidance and institutional framework.  Assuming that a project itself makes sense, what the State wants from PPPs is efficiency, speedy delivery and most importantly value for money.

 

The PPP model has provided roads, schools and water services on a value for money basis and that are delivered on time.  Overall progress has been good.  Projects such as the Convention Centre and the award-winning Criminal Courts Complex have been delivered through PPP, as well as many elements of the major inter urban roads programme, schools and Waste/Wastewater projects in the Local Government area.

 

The Department of Public Expenditure and Reform (PER) is open to proposals from private funding sources including Pension Funds, that might be available to fund infrastructure.  While access to PPP funding is difficult to secure in the current economic environment we will be prepared to re-enter this market to complement Exchequer funding when circumstances allow.  Such proposals would of course have to be on the right terms for the tax payer.

 

This review represents the findings of a Government-wide review of infrastructure and capital investment policy led by the Department of Public Expenditure and Reform.  And while I have been upfront that the level of resources available to us does not match the investment of recent years, it remains the case that this Plan sets out a significant tranche of investment over the next five years, investment designed to facilitate economic growth and build our social infrastructure.

 

The potential negative consequences of reduced capital spending are tempered by recent improvements in the economy’s infrastructure, perhaps best illustrated by completion of the new Motorway network.  This has aided businesses through much faster travel times and on a different note easier accessibility to the regions will continue to boost tourism in areas that most need it.  With the critical Road infrastructure gap now largely addressed, a shift in emphasis towards other areas of infrastructure is now possible.

 

I am happy to announce that despite very difficult Budgetary parameters the Capital Investment Programme for 2012-16 will amount to approximately €17bn.  In 2012 the allocation will be €3.9bn, reducing to €3.3bn in 2013 and stabilising at €3.2bn in the following three years.  As indicated, the profile of capital spend will now see an increasing share of revenues allocated to schools, healthcare and enterprise.

 

Unprecedented demographic trends will lead to an additional 70,000 pupils in school at primary and secondary level.  I have, therefore, allocated €2.1bn specifically for the delivery of an additional 40 schools and the expansion and renovation of an existing 180 schools.  This level of investment has squeezed out other possible investment in third level areas but we are in the business of prioritization and a sufficient number of school places for children has to come first.

 

In addition to our plans to develop the National Children’s Hospital we have also strived to sustain health capital investment.  This review maintains existing planned levels of health capital investment into the medium term – €390m a year or €1,950m for the period 2012-2016.  This investment will allow for the replacement of the Central Mental Hospital and the National Project for Radiation Oncology.  Our focus on primary health care is a key component of our strategy to deliver care locally and take pressure off the acute hospital sector.

 

Creating jobs remains a top priority for Government.  A range of reforms of activation and training are in progress and this Review commits major resources to the Department of Jobs, Enterprise and Innovation.  While the need to address fiscal targets will require some retrenchment in funding to university research and development, supports to industry will be maintained in excess of pre-recession levels when total capital expenditure was at its highest.

 

Environmental Infrastructure remains an issue for Ireland.  Consequently, alongside structural reforms to the water sector, water services investment will be a key focus of the Public Capital Programme.  In the years to 2016, in excess of €1.6 billion of Exchequer resources will be committed.  This will help ensure adequate capacity for economic development and meet pressing environmental targets.

 

The OPW allocation of €500m will assist the flood relief programme;  we were reminded recently of the ongoing need to continue investment in this area.  In recent years the State has spent heavily to incentivise households and businesses to enhance energy efficiency.  We continue a level of support in the short-term but given fiscal pressures a transition to non-Exchequer based solutions involving energy suppliers is envisaged during the period of the Plan.

 

While the motorway network may be complete, the Government is still allocating significant funds to the Transport area.  Amongst the main priorities over the medium term will be ensuring adequate maintenance of the National Road Network in order to protect the value of previous investments and target the improvement of specific road segments where there is a clear economic justification.  On the public transport side, it is necessary to put on hold some of the large scale projects that had been signalled previously.  They are not affordable at present; it is our job to ensure that our public finances can be restored to allow these projects emerge in the not too distant future.  However, the Departmental envelope will allow the commencement of the linking of the two LUAS lines which incorporates a line extending to Broombridge in Northwest Dublin.  The Railway Safety Programme, replacement buses and upgrade of existing QBCs (with emphasis on the Ballymun/Airport/Swords corridor) will also be delivered.

 

Over €800 million will also be invested in programmes through the Department of Agriculture, Food and the Marine, bringing major economic and environmental benefits.  It is important to note that the agri-sector’s contribution to the economy has been hugely resilient.  They are leading the way on exports and the level of funding allocated will be a major help.

 

While there have been calls to continue with a high level of capital investment in order to give stimulus to the economy, the need to reduce public expenditure and close the deficit is a more compelling policy goal at present.  The Government’s Medium-Term Fiscal Statement sets the parameters for budgetary policy in the coming years.  As a result of the process of this review, and in the context of setting the overall path of fiscal consolidation, the Public Capital Programme does have to be scaled back.  However, I believe that we are providing for a level of funding that will not constrain the capacity of the economy to grow – and this is the normal benchmark for deciding on the appropriate level of infrastructure investment.  It is worth pointing out that in the years to 2016 average public capital spending will remain broadly in line with the European average, despite the tight fiscal constraints.

 

Finally, I would say that there is still a wide range of programmes and projects that will be funded.  €17 billion is still a remarkable amount of money.  The areas with an increased share of the overall capital allocation compared with the last capital review in 2010 are Education, Health and Enterprise.  This reflects my priorities and those of the Government.