Good morning Ladies and Gentlemen.
This morning’s subject of investment is apt. Investment is something that is pre-occupying me at the moment, given that the Budget is mere days away now. I would love to be able to tell you what is in it, but I will have to leave you in suspense as the building blocks of that particular project are still being put in place.
Let me first say that I am delighted to be here today and have the opportunity to outline how my Department and this Government fully intend to improve Ireland’s infrastructure over the lifetime of this Government.
Our efforts are framed by the turbulent background of events which have unfolded in Europe in recent times – the threat of terrorism, increased immigration, the economic challenges facing Eurozone , and of course the result of the Brexit referendum in the U.K.
These are issues which will require effort from all involved if we are to successfully address them. But address them, we will.
There are many policy level challenges in Europe which often do not attract the headlines but which are extremely important given the significant implications they will have on how our societies and economies develop over time.
One such challenge is the perceived low levels of investment throughout Europe. Jean Claude Juncker, President of the European Commission, has made this one of the key priorities to be addressed by the current Commission.
With all this in mind, my address to you today will begin by outlining the foundations which have been laid for infrastructure investment under the existing capital plan and how that is developing, before addressing some of the European aspects of this topic, such as the role of the fiscal rules, the funding available from the EU for investment in Ireland, and what we must consider in terms of investment in light of Brexit.
SETTING THE FOUNDATIONS FOR INVESTMENT
Ireland’s economy is being repaired.
GDP in the second quarter of this year was more than 4 per cent higher year on year.
Consumption, exports and employment are up. Unemployment is down.
Despite the British referendum, the Irish economy continues to expand.
While GDP revisions for 2015 have created some important measurement issues that need careful examination, all of the economic indicators support the view that the economy is strong.
This provides a very positive context for the upcoming budget in comparison to previous years.
To put it in context, the total gross expenditure for 2017 will be almost €58 billion, and about €4.4bn of which will be gross voted capital expenditure.
Back in June, the Summer Economic Statement outlined a budgetary package of about €1bn to be split between taxation and expenditure at a rate of 2:1.
This package will deliver compliance with the Expenditure Benchmark and is a prudent amount given the level of General Government Debt.
This is a very different situation to the one in which the last Government found itself. It was tasked with fixing the State’s finances at a time of crisis.
The economic recovery that has since taken place is testament to its achievements in that regard. The current Government aims to secure that return to economic growth and therefore allow for a continued increase in Ireland’s investment in its social, environmental and economic infrastructure.
THE CAPITAL PLAN
Against this brightening economic backdrop, the Government’s Capital Plan published last year, set out a six year framework for infrastructural investment in Ireland over the period to 2021.
It included an Exchequer capital spend of €27 billion and if we add investment from the wider semi-State sector, and PPPs, total State backed investment under the Plan amounted to €42 billion over the period.
Total capital expenditure this year, to the end of last month, amounted to €1.8bn. This compares with 2015 expenditure of €1.6bn for the same period, representing an increase of €205m year on year.
While there are many infrastructure projects planned over the course of the next five years, I am pleased to say that construction has already commenced on a number of them.
For example, one of the largest projects in the Capital Plan, the Luas Cross City, is ahead of schedule and due to be completed in 2017.
Another major project, the new Children’s Hospital, has received planning permission and the first phase of its construction has commenced.
The National Indoor Arena is almost completed.
Meanwhile Schools Bundle 4 (Tipperary, Clare, Louth, Cork) – a PPP project – was completed in May 2016.
And, of course, major projects due to commence over the coming years include the new Metro North as well as the roll-out of the National Broadband Plan.
But we are even more ambitious than that.
The Capital Plan is also developing Ireland’s knowledge infrastructure through its continued funding of Higher Education Research Activities, such as investments in the Centre for Research in Medical Devices, the Irish Software Research Centre, and the Centre for Future Networks & Communications.
THE PROGRAMME FOR PARTNERSHIP GOVERNMENT
Building on all of this, the Programme for a Partnership Government makes clear that the existing capital plan is the starting point for increased investment in priority areas into the future.
The Programme committed to additional capital investment of €4 billion over the period of the Plan, which, I am pleased to say, has subsequently been increased to €5.14 billion in the Summer Economic Statement.
This additional funding will be allocated across such areas as housing, transport, broadband, health, education and flood defences, with the final decisions on the allocations to be informed by the mid-term review of the Capital Plan, work on which will begin as soon as the Budget is completed.
However, in view of the clear and urgent need for additional investment in housing, the Government has already agreed that €2.2 billion of the additional capital should be allocated to support the Government’s initiatives aimed at tackling the housing crisis. This is in support of the Government’s Housing Action Plan which was recently published by the Minister for Housing, Planning, Community and Local Government, my colleague Simon Coveney.
When the additional €5bn capital funding is taken into account, this will bring total Stated backed capital investment to 3.8% of GNP by 2019.
PRIORITISING SENSIBLE INVESTMENT
It must be recognised that identifying the capital needs of an economy is undoubtedly a complex process. To paraphrase Professor Lawrence Summers’ recent article on this topic in the Financial Times, the issue is not whether we should invest more – this is largely accepted- this issue is where we should target that investment.
There is sometimes a ‘received wisdom’ in discussion on capital spending by Government that public investment should be increased substantially to levels, for example, as a percentage of GDP, achieved prior to the onset of the crisis.
I do not necessarily share that view.
These assessments seem to be made without any identification of proper evidence, evaluations or research rationalising that the proposed investment approach will yield the necessary outcome or the type of infrastructure we need.
It is essential that the focus isn’t solely on the level of investment expenditure, but also that the investments undertaken are efficient and generate the planned and required outputs and outcomes.
Professor Summers – who as you know was a key adviser to both President Clinton and President Obama – also points out that the focus shouldn’t solely be on new projects, as is often the case, but should take into account the requirement and benefit of expenditure on maintenance of current infrastructure.
This maintenance piece is an aspect of capital spending that we must ensure is not overlooked.
It is appropriate, therefore, that final decisions on how the additional €5 billion is to be allocated across Departments should await the outcome of the mid-term review.
One important element feeding into this review will be the new National Spatial Strategy, to be known as the National Planning Framework, which is currently being prepared by Minister Coveney.
This Framework will be the long-term, 20 year strategy for the spatial development of Ireland. As a consequence it will influence all future investment choices.
That ethos of planning must be developed further as we continue to increase our investment in Ireland’s infrastructure. Investment must address current bottlenecks and prevent future ones.
But we must also move beyond a strategy of “predict and provide” approach to basing investment on a strategic plan for the country which is designed to unlock the full potential of every region of Ireland.
It is important to realise that our intention is not to simply revert to the investment policy which was in place back at the peak of the Celtic Tiger period but rather to have a more sensible and strategic investment policy which is sustainable and provides value for money in terms of the infrastructure provided.
THE VALUE OF THE FISCAL RULES
I know that many of you have highlighted the importance of capital spending while also pointing out the restrictions which the EU Fiscal Rules place on us.
However we should not forget the value of the fiscal rules in helping to ensure macroeconomic stability and sustainable public finances, guiding us away from the failed pro-cyclical policies of the past.
The fiscal rules also recognise the potential growth benefits of infrastructural investment, with capital spending being treated more leniently within the rules.
The Government has utilised these inbuilt flexibility mechanisms in order to provide funding for new building projects such as schools, roads, hospitals and social housing.
This prioritisation of investment in infrastructure has been achieved while maintaining sensible spending levels and within the constraints of the EU fiscal rules.
Our goal is to avoid the mistakes of the past by ensuring that adequate and sustainable levels of investment can be maintained, irrespective of the business cycle.
The Government continues to engage with Brussels to ensure that we make full use of the flexibility within the rules to invest in projects which have the potential to boost Ireland’s economic productivity.
FUNDING FROM EUROPE
Europe is also one of the sources of funding for infrastructure investment in Ireland.
As I mentioned earlier, increasing investment is a priority of Commission President Juncker, who championed the introduction of the European Fund for Strategic Investments – or the EFSI- which was launched jointly by the European Investment Bank (EIB) and the European Commission in 2015. This was put in place to help overcome the current investment gap in the EU by mobilising private financing for strategic investments.
In Ireland, the EFSI is providing €70 million of loan funding for our Primary Care Centre PPP and €200 million of loan funding for Irish Water investment.
Then there is the European Investment Bank.
Despite the challenges that Ireland has faced during the financial crisis, I welcome the active involvement during this period of the EIB in supporting investment across all of the key sectors. A total lending of €3.3 billion between 2011 and 2015 is being used to support investments in schools, healthcare, water and innovation.
This has only been possible as a result of the close links formed between the Bank and the Irish authorities.
As the Irish Government implements and updates its Capital Plan, I now intend to work with Minister Noonan and Vice President McDowell, who joins us here today, to further strengthen the institutional relationships between the Irish authorities and the EIB. This is with a view to taking full advantage of the EIB’s increased lending capacity and bringing the EIB’s investments in Ireland to a new and higher level.
I believe that the EIB can play a crucial role in mobilising the additional public and private investments in key infrastructure needed to support the continued recovery of the Irish economy.
These are important investments and good news stories for Ireland.
PREPARING FOR BREXIT
What is undoubtedly not good news is the decision of Britain to leave the EU.
I would first like to say that the Government fully accepts and respects the outcome of the UK referendum on the issue of EU membership. At the same time, there will be many challenges ahead for Ireland, the UK and the EU, and the Government will be prepared to meet these challenges.
There is a great deal of uncertainty around many aspects of the impact of the UK decision, and particularly the economic and fiscal impact.
Thankfully, the prudent economic and fiscal policies implemented over recent years have placed Ireland in a stronger position to weather this shock.
Nonetheless, the Government has adopted a Contingency Framework, coordinated by the Department of the Taoiseach, to map out the key issues that will be most important to Ireland.
Priority issues identified in the Framework include, among many issues, its impact on trade, on investment and on key infrastructural and economic areas such as research and energy.
As the Government continued to assess the potential implications of Brexit, particularly in relation to cross border issues, the North South Ministerial Council met in Dublin Castle on 4th July 2016.
At this meeting, the Council noted the continued commitment of the Irish Government and the Northern Ireland Executive in the Fresh Start Agreement.
As you will know, that Agreement sees us invest in infrastructure which will support cooperation and unlock the full potential of the economies of both jurisdictions, such as the A5.
It remains unclear when Article 50 will be triggered, but when it is, we will be ready and we will chart a way through.
I hope I have made clear this morning that the Government is very much aware of the challenges facing both Ireland and the EU as a whole, whether it be headline issues such as Brexit or the more detailed policy issues such as investment.
The strong economic performance of the country over the last number of years, coupled with the ongoing delivery of the Capital Plan, sets the basis for continued investment of a sensible and strategic nature over the coming period.
We will ensure that investment will be made based on sound analysis, within a coordinated planning framework, and which will increase the productive capacity of Ireland’s economy into the future.