Thursday 28 September 2017

Tom Ferris is a Consultant Economist specialising in Better Regulation. He lectures on a number of PAI courses and contributes blogs regularly to PAI. He was formerly the Department of Transport’s Senior Economist.

The Government’s review of their Capital Plan has recently been published by the Department of Public Expenditure and Reform. The Report sets the scene for the allocation of additional capital funds in the upcoming Budget 2018. In addition, Minister for Public Expenditure and Reform, Paschal Donohoe TD, has pointed out that:

“… the review of the Capital Plan will provide a significant input into the development of a new long-term 10 year investment plan, to be published in conjunction with the Minister for Housing, Planning and Local Government’s new National Planning Framework (NPF)… ”[i].

 

The Review

The basis for this review is the previous Government’s Capital Plan, Building on Reality, which was published just two years ago.[ii] Much has changed in the interim. While substantial progress has been made in restoring Ireland’s public finances, the challenges facing the economy have increased. Not only has Brexit entered into the equation, but government also has to face greater climate change challenges, while avoiding potential overheating as the economy approaches full capacity.

 

There was no shortage of advice for Department of Public Expenditure and Reform when it came to reviewing the Capital Plan and deciding how additional funds could be allocated. The consultative process was comprehensive. First in line were the submissions from the other Government Departments; they listed proposals totalling in excess of €11bn, or over 2.5 times the €4.1bn available for allocation in the period up to 2021. The next batch of advice came from submissions received from a public consultation process undertaken by the Department of Public Expenditure and Reform. Nearly 100 such submissions were received from political parties, county/city councils and assembly-type bodies, chambers of commerce, organisations and research bodies across various industry, and from individuals (this author also tabled his views as part of this consultation process). And the Department of Public Expenditure and Reform also had access to detailed research undertaken by the Irish Government Economic and Evaluation Service. All of the foregoing submissions and research were published on the Department of Public Expenditure and Reform website on 13 September 2017.[iii]

 

In addition, the Oireachtas Committee on Budgetary Oversight submitted a report to “… assist in the debate on the need for enhanced levels of the capital investment to maintain competitiveness and enhance economic growth and also to deliver balanced regional development”.[iv]

 

 

Themes of Submissions

The potential challenge posed by Brexit was a theme that emerged from many of the Departmental submissions. In response, the Review noted that,

“a critical issue is the need to continue the ongoing process of identifying with greater precision the specific risks created across the economy arising from Brexit and specific actions which can be taken to attenuate these risks”[v].

 

In the case of submissions arising from the public consultation process, a number of common themes also emerged:

  • a call for a more ambitious level of capital investment;
  • the scope for using alternative funding and financing options;
  • the proposed establishment of an expert advisory body on long-term infrastructural planning; and
  • support for greater integration of future capital investment policy with the National Planning Framework.

 

In terms of priority areas for additional investment, the key areas identified in the public consultation process were:

  • agriculture;
  • communications/connectivity;
  • education;
  • energy;
  • flood defences;
  • health;
  • housing;
  • transport; and
  • water and wastewater.

 

These themes were also reflected in the report received from the Oireachtas Committee on Budgetary Oversight.

 

 

Allocation of additional funds

Since the publication of the 2015 Capital Plan the funds have been topped-up on a number of occasions. An additional €5.14bn in Exchequer capital investment was allocated in the Summer Economic Statement in June 2016. A further €1.5bn has been allocated by Government from the “Rainy Day Fund”, as set out in the 2017 Summer Economic Statement. A further €2.2bn was provided to support the delivery of the Action Plan for Housing over the period and other commitments made in Estimates 2017.

 

Next, a further €4.1bn in additional capital expenditure will be allocated in Estimates 2018. Analysis undertaken for the Capital Plan Review identified a number of key sectors as priorities for investment, including transport, education and housing. However, final decisions on the allocation will only be made by Government when Estimates 2018 are published. As a prelude to the allocation, it is useful to see which Departments are the big capital spenders. Table 1 shows the top six Departments for 2016 (provisional outcome) and 2017 (revised estimates). Between them they account for nearly 85% of the total capital allocation for the 15 Departments.

 

Table 1: Departmental Capital Spending – 2016 and 2017 (Estimate in € Millions)

2016 2017
Transport, Tourism & Sport 1.16 1.13
Education & Skills 0.69 0.69
Housing, Planning and Local Government 0.47 0.70
Jobs, Enterprise & Innovation 0.55 0.56
Health 0.42 0.45
Agriculture, Food & the Marine 0.16 0.24
Top Six Departments 3.45 3.77

 

Source:
Department of Public Expenditure and Reform, Review of Capital Plan, September 2017

 

The next tranche of capital funds will boost the overall level of public investment considerably during the next few years. Specifically, the Review points out that:

“… the planned total increase in public capital investment between 2018 and 2021 is almost 40% greater than what was initially envisaged under the Capital Plan in 2015. In terms of Exchequer capital spending, compared to the planned starting point for the Capital Plan in 2016, it is now expected that in terms of Exchequer Capital, over €2 will be spent in 2021 for every €1 allocated in the first year of the Plan”.[vi]

 

Funds must be spent efficiently

Of itself, increasing the overall level of capital expenditure is not sufficient. It is also extremely important to ensure that the funds are well spent. Specifically, the investment projects that are targeted must be carefully planned and appraised to ensure that the business cases are robust. In 2015, the International Monetary Fund (IMF) produced useful research that highlighted the key role of strong institutions and effective public governance in helping to secure efficient public capital investment.[vii]

 

 

In July 2017, the IMF went further and carried out a public investment management assessment (PIMA) for Ireland. The Capital Plan Review notes that implementation of the final recommendations of that IMF Report,

“… would be expected to play a vital role in identifying how institutions and public governance systems in Ireland, responsible for and related to planning, allocating and delivering public capital infrastructure might be strengthened”.[viii]

The recommendations of the IMF’s PIMA Report, taken in conjunction with the Public Spending Code, should provide the necessary tools for line Departments and State Bodies to get their project selection right and then to deliver projects efficiently and on time.[ix] In the final analysis, taxpayers want to see evidence that they are getting value-for-money.

 

 

Notes


[i] “Minister Donohoe publishes Mid-Term Review of the Capital Plan 2016-2021”, Department Press Release, 13 September 2017. Available here.

[ii] “Building on Recovery: Infrastructure and Capital Investment 2016-2021” Statement by the then-Minister for Public Expenditure and Reform Mr Brendan Howlin, TD, 29 September 2015. Available here.

[iii] “Minister Donohoe publishes Mid-Term Review of the Capital Plan 2016-2021”, Department Press Release, 13 September 2017. Available here.

[iv] “Houses of the Oireachtas Committee on Budgetary Oversight Report on Building on Recovery: Infrastructure & Capital Investment 2016 – 2021”. July 2017, pg 2. Available here.

[v] “Minister Donohoe publishes Mid-Term Review of the Capital Plan 2016-2021”, Department Press Release, 13 September 2017. Available here.

[vi] ibid

[vii] Making Public Investment More Efficient. IMF, June 2015. Available here.

[viii] “Minister Donohoe publishes Mid-Term Review of the Capital Plan 2016-2021”, Department Press Release, 13 September 2017. Available here.

[ix] Public Spending Code. Department of Public Expenditure and Reform. Available here.