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The Irish Public Investment: Past and Present
Dr Edgar MorgenrothEconomic & Social Research
Institute,
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Introduction
In common with all countries, there has been public investment in Ireland since the foundation of the State.This has varied in scale and in scope, reflecting economic cycles and policy focus.From the 1980s onwards EU funding made up a significant proportion of the investment.The EU required countries to publish detailed plans for the use of Structural Funds => In Ireland these plans have incorporated other public expenditure plans and are known as National Development Plans (NDP).This reflects the fact that an NDP achieves a more joined‐up public investment plan than disparate sectoral plans could.Over the years these have developed to cover a wider set of objectives and expenditure areas.
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Community Support Framework (CSF)
The importance of the Structural Funds increased in the late 1980’s and they constitute a substantial cash injection.Originally part of the NDPs now contained in the National Strategic Reference Framework (NSRF).
Structural Funds:European Regional Development Fund (ERDF)European Social Fund (ESF) European Agricultural (Guidance) and Guarantee Fund (EAGGF)European Agricultural Fund for Rural Development (EAFRD)Financial Instrument for Fisheries Guidance (FIFG)
Cohesion FundEU Trans‐European Networks (EU‐TENS) 6
PPPs
Private sector investment has been a part of NDPs. This has largely encompassed matching funds in order to draw down grants – initially around 20% of the NDPs.Nevertheless, PPPs are not new – West‐Link (1990).In NDP 2000‐2006 PPPs emerged as more important feature accounting for all private funding (5%).For the NDP 2007‐2013 PPPs were to account for 15% of capital investment – Transport, Justice, Environment, Education, Arts/Sports/Tourism, Health.
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NDP 2007‐2013
A very substantial current expenditure elementSome expenditures may not be investments (purchasing Carbon Credits)Some investments will have a high deadweight i.e. they would take place without state investment or through proper regulation/ enforcement (most notably in the productive sector).Most components had been announced previously (e.g. Transport 21)
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NDP 2007‐2013
€184bn total €80bn for infrastructure30% for Transport11% for Enterprise Science and Innovation14% for Human Capital (education & Training)18% for Social Infrastructure27% for Social Inclusion€3bn EU funding (just 1.6%!)
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Some Concerns
Too ambitious especially in the context of the excessive size of the construction sector, which bid away resources from the traded sector and reduced competitiveness:
“…recommend an NDP for the 2007‐2013 period that, while still very ambitious, would be significantly below that envisaged in the multi‐annual capital framework published as part of Budget 2006. This also implies that the government should run a surplus due to a postponement of some investment, which will be available post‐2010 to finance the higher investment programme even if public finance had been hit by an economic slowdown.” (Morgenroth and Fitz Gerald, 2006)
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GDP and GNP Growth
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-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
GDPGNP
Cuts by Department (NDP vs. Budget 2010)
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-80%-60%-40%-20%
0%20%40%60%
Finance
& O
PWJus
tice
Environm
ent
Educa
tion
CRAGA
Foreign
Affa
irs
CENRAgri
cultu
reTra
nsportETEAST
Defenc
e
Socia l &
Fam
ily
Health & C
hildre
n
Cut Size vs. NDP Planned Spending
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Finance & OPWS&F
CENR
CRAGA
Foreign AffairsAST
ETE
Health & Children
Defence Justice
Education
Enivironment
Transport
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
0 500 1000 1500 2000 2500 3000 3500 4000
NDP PLanned CapEx (€ million)
Cut
(%)
Summary
Developing and applying national investment frameworks has important benefits.Particularly while Ireland received substantial EU aid, good systems for the planning and evaluation of investments were put in place. This discipline was not followed for the NDP 2007‐2013 which was too ambitious. The changed economic environment has meant that the planned expenditure has had to be pared back significantly.Capital budgets have been cut successively and now amount to just 50% of what had been planned in 2007 even accounting for a 25% fall in tender prices;The reprofiling has not followed the lawnmower principle.
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The Future
There is a lot of talk about stimulus, infrastructure deficit and the need to invest.The focus of the debate is largely on the total amounts spent rather than efficiency.There are several aspects to efficiency:
1. Where are the constraints? 2. Are we using the existing infrastructure efficiently?3. Maintenance vs. new build; 4. Asset management;5. Cost of new investment .
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