There are many reasons why people should not return this Fine Gael-led government at the next election. The Government’s proposed investment programme launched today is one of them. Simply put, the coalition parties are putting our long-term prosperity at severe risk and seriously undermining the economy’s productive capacity to grow.
Don’t let the all zeros and fanfare fool you. The projected €27 billion expenditure on public investment between 2016 and 2021 – as outlined in the Government’s ‘Building on Recovery’ – represents stagnation. A few headline stats can help us understand this.
- In 2015, public investment made up 1.8 percent of GDP. The €27 billion package over six years represents 1.9 percent of GDP.
- Between this year and 2021, the average annual increase in public investment will be less than €250 million. Compare this to the Government’s intention to spend €750 million next year in tax cuts.
Let’s get a visual look at this stagnation.
The Government proposes investment levels not seen since the stagnation years of the early 1980s. Indeed, the Government six-year programme will be the lowest of any six-year tranche at any time since 1970.
The long-term annual average level of public investment is 3.5 percent of GDP with peaks in the 1970s and in the run-up to the crash. To reach our long-term average by 2021 would mean an investment package of €41 billion, or a 50 percent increase on the Government’s package.
Some might argue that the Government needs to keep a prudent hand on fiscal tiller. Agreed. But the Government is not doing this. It is pursuing a fiscally irresponsible programme. What is the key to growth as output (GDP growth) slows down following the current post-recession bounce? Creating new assets that will generate income in the future, raise productivity, reduce costs and remove obstacles: rolling out advanced-speed broadband throughout the country, social housing, water & waste, public transport, green technologies, etc. Giving the economy and business the tools and cost-savings now is the best way to ensure they grow in the future.
It’s not that the Government doesn’t have the projects. As detailed here, the Government has submitted 70 projects costing in total €23.5 billion to the European Strategic Investment Fund for co-funding. But this doesn’t include all the projects that need addressing (nor is it mean to); most of these are not included in the ‘national investment plan’ at the time of submission. In addition to these projects are water & waste investment, social housing, etc.
Nor is it a matter that we ‘don’t have the money’. The trade unions affiliated to Right2Water published its ‘New Fiscal Framework’ last June – highlighting the resources available to the Government up to the end of the decade. While it doesn’t specify the amount that should be allocated to investment, a guideline suggested that investment would rise to its long-term average by 2021. This would be 60 percent higher than the Government’s estimate.
Only this morning, Dr. John Fitzgerald wrote in the Irish Times:
‘Investment in public infrastructure, housing, and some services sectors looks too low to be sustainable in the longer term. A result of this under investment is the rapid rise in household and commercial rents and in house prices . . . Also there are signs of increasing congestion affecting some key networks, for example in cities and in the provision of water. The cutbacks in public investment have contributed to the problem and a priority for any relaxation in public finance constraints should be new investment in infrastructure.’
In other words, instead of tax cuts, we need to increase our public investment levels.
But this is not what the Government is doing. Whether it’s because of electioneering, a lack of appreciation about our infrastructural deficits, a failure to grasp the fundamentals of how investment drives growth and productivity – whatever the reason, the result is the same.
The Government is putting our long-term prosperity at severe risk.
That’s why this Government doesn’t deserve re-election.