Professor John McHale:

I would not necessarily put it as a proposal. The Deputy is correct that capital spending is low in the economy based on historic international norms.

In recent years public capital investment has barely kept up with the depreciation of the existing capital stock. There were recent announcements of greater public investment. Public investment will now grow from €4.2billion in 2016 to €7.3 billion in 2021. There were announcements of what I believe are fairly significant increases in capital spending but the Deputy's point is well taken that even allowing for that, public capital investment as its share of the economy remains low. Also, as many people have pointed out, as a result of postponing many investments during the crisis and the low interest rates there are now many opportunities for public investment. We certainly understand the argument people make for using deficit financing to fund those investments. However, the point we emphasise in this report is that we have to take account of the overall level of debt. The fact that the debt might be accumulated for investment purposes does not mean we are still not carrying forward this high level of debt which creates these vulnerabilities, particularly in a very volatile global economic environment. The reason for getting down the deficit close to balance is that it puts that debt on a strong downward path.

I might use the analogy of a small business. Small businesses can often have good investment opportunities but one thing I have learned from talking to small business owners is that they are obsessed with cash and liquidity management, which means they can often be reluctant to undertake debt even when they have good investment opportunities because they are very concerned about their ability to roll over that debt in the future. They have to look at their overall level of debt, therefore, and not just the investment opportunities. I suppose we are making a similar point.I would not push the analogy of a nation state with a small business too far, but given the experience we have gone through where we lost our ability to access capital markets to roll over that debt for a period of time shows that we can be exposed to similar types of risks.

We are saying that the overall plans in terms of reducing the deficit and putting the debt on a downward path broadly makes sense but the Deputy is right that a problem can be that public capital investment gets squeezed out in the process when we have to meet these tough deficit targets. Capital spending is often the easiest element to cut. We were suggesting that, in addition to the existing fiscal rules and the deficit targets, that we would also have a target for public investment, and to some extent it is already there, but would make it a robust target and put a good deal of focus on it to make sure that we do not squeeze that public capital investment in the process of trying to hit those deficit targets. It not a new proposal, it just draws attention to the fact that there is a risk that public investment gets squeezed in that process of trying to meet those deficit targets.