Getting the most from the Government’s Capital Investment Plan

^{Tom Ferris is a consultant economist. He was formerly the Department of Transport’s Senior Economist.}

The Government’s new Capital Plan will start to be rolled out in 2016. This Plan provides for €42bn infrastructure investment in Ireland over the six-year period to the end of 2021. Tom Ferris highlights the Plan’s main features and discusses actions that are needed in the project-planning cycle to ensure there is effective and efficient roll-out of public investment over the six-year period.

 

The Capital Plan

The Government’s Capital Investment Plan of €42bn has been facilitated by the recent improvements in the public finances. The composition of the Plan is set-out in Table 1.

 

The details of the plan are set-out “Building on Recovery: Infrastructure and Capital Investment 2016-2021”. In total, this State-backed investment package represents over 3.5% of GNP each year between 2016 and 2021, and is expected to support more than 45,000 construction-related jobs.

While there has been a general welcome for the planned acceleration in capital investment, there are some who argue that the level of investment should be even higher. Two quite different bodies make such an argument – Ibec and TASC. In the case of Ibec, who represent the interests of business, the point is made that

“… we need to be spending an extra €2.5bn every year because smart investment in transport, telecommunications, health, education, water, environmental services and energy will power a more productive economy. An increase in the supply of affordable and quality housing is needed to accommodate our ever growing population”.

In a report for the Think-tank for Action on Social Change (TASC), Paul Sweeney argues:

“The government must increase investment substantially because we need the assets – social and affordable housing, public transport, schools, clinics, etc and importantly, education and training”.

Whatever about the amount, there is general agreement that now is the time to catch-up on public investment following the cut-backs that were required by the Troika during the fiscal crisis. As the Government’s Capital Plan puts it:

“…it is now appropriate to make a steady increase in capital expenditure levels… This will address remaining bottlenecks, maintain the stock of capital that is already in place and begin to put in place new infrastructure for Ireland now and for the next decade”.

 

Main Areas of Investment

The Capital Plan was informed by a review process led by the Department of Public Expenditure and Reform that included analysis undertaken by each Government Department, stakeholder consultation and a review of previous investments. Table 1 shows the Departments that will benefit from the Exchequer investment. The biggest allocation is for the Department of Transport, Tourism and Sport at €8bn. Two Departments have allocations of close to €4bn: Employment, Community and Local Government, and Education and Skills. Two Departments have allocations of €3bn: Jobs, Enterprise and Innovation, and Health. The Department of Agriculture has an allocation of €1.3bn. The other Departments have allocations of between €20m and €900m – see note accompanying Table 2.

In addition to the €27bn Exchequer investment, the State-sector will undertake investment of €14.5bn. This will primarily be delivered by the commercial State sector, which plans to invest almost €12bn in core national infrastructure for energy, telecommunications and water. The non-commercial State bodies will undertake investment of € 2.5bn in areas such as enterprise development and housing. Finally, investment of around €500m will be made under the wing of Public Private Partnerships (PPPs). These PPPs involve contractual arrangements between the public and private sector to deliver infrastructure or services that were traditionally provided directly by the public sector. Under the arrangements, infrastructure is delivered by a private sector firm and, following construction, the asset is made available for public use.

Drivers of Public Investment

Departments and agencies with sectoral responsibilities conducted their own detailed assessments of demand requirements that informed their prioritisation of capital expenditure. Table 3 presents some of the key, high-level sectoral drivers that impact on long term public investment requirements.

 

Delivery of Projects

The Capital Plan recognizes the major challenges in turning funding allocations into concrete public infrastructure projects. Not only must the Plan meet fiscal and budgetary constraints, but also projects being rolled-out under the Plan have to meet physical planning and environmental requirements. These requirements will form part of the business case that needs to be made for each investment project. In this regard, the Capital Plan points out that it is essential that

“… individual public investment projects are carefully planned and appraised to ensure that the business cases are robust and that the right mix of projects are prioritised. The appraisal for projects must demonstrate that there is a clear net economic and/or social benefit if they are to proceed and that the recommended option is the optimum way of meeting the objective”.

The Department of Public Expenditure and Reform will have overall responsibility for the Capital Plan. Individual Departments will have responsibility for their own Departmental projects. In turn, State Bodies will be responsible for the projects that they undertake. The Public Spending Code, produced by the Department of Public Expenditure and Reform provides a consistent set of rules and guidance for the delivery of public projects. Under the Code, each Government Department and State Agency is responsible for ensuring that value for money appraisal and evaluation is carried out in relation to the planning, management and delivery of Government expenditure programmes and projects.

The Code prescribes what is required before expenditure is committed and, even where a Government decision has been made or there has been some public announcement regarding budgetary allocations, Departments/Agencies are still required to fully meet the Public Spending Code’s appraisal requirements. Moreover, Departments and State Agencies have been reminded that they should be prepared at any stage, despite costs having been incurred (in appraising, planning and developing a project), to abandon a programme or project if continuation would not represent value for money.

Enhancing Capacity

Efforts are being made to improve the capacity of government in delivering public investment. The recent Expenditure Report produced by the Department of Public Expenditure pointed out that, following the introduction of the Public Spending Code, the focus will next be on steps to help normalise and maintain good practice across the system, through three key strands:

1. Delivering on the Government’s new three-year Value for Money Programme, which will involve over 40 expenditure evaluations;
2. Further recruitment of graduate economists and continued professional development of the expert capacity already built up by the Irish Government Economic and Evaluation Service; and
3. Promoting implementation of the Public Spending Code through training across Government Departments and Agencies.

Are there other measures that might be introduced to improve the system? Three suggestions might be made. First, while a Mid-Term Review is promised for the Capital Plan, there might be merit in taking stock of progress at two-year intervals over the life of the Plan. Second, more transparency in the sharing of monitoring information on projects might be explored. In that regard, the OECD in its 2011 Report, on public investment in response to the fiscal crisis, highlighted

“…the improvement in the transparency and performance monitoring in the use of investment funding. Monitoring the use of funds has gone well beyond traditional audit control, as a central objective in most countries was to provide citizens and private firms with as much transparency and information as possible.”

Third, the Capital plan points out a new requirement for the submission of economic appraisals for new capital and current projects to the Department of Public Expenditure and Reform for quality assurance review – this applies to all projects with a value of €20m or greater. There is merit in ‘spreading the message’ about such economic appraisals to a wider audience. This could be done by having a dedicated website for such appraisals. Of course, the real test comes when there is a ‘look-back’ on completed projects to see how realised costs and benefits measure-up against the original economic appraisals. It is essential for the State and its agencies to deliver cost-effective projects that will benefit its citizens and facilitate socio-economic growth and development, and that information needs to be shared with the public.