Mr. Gerard Brady:

The reason the fiscal rules do not work for us is that we came into them at the very bottom.

Fiscal rules, basically, are about the treatment of how much one can grow the capital expenditure rather than about the size of the capital expenditure in the first place. We came into it at the very bottom of the downswing in terms of capital expenditure. The second reason is around the way the rules treat investment, which is pretty much the same way they treat current spending. There are some differences such as they allow for the amortisation of capital spending over four years. For any household buying a mortgage that would not make sense. Businesses that invest in capital would depreciate it over the lifetime of the asset. The fiscal rules treat it as a four year depreciation period which means that the cost of capital is upfront rather than over the period.

The reality from a State financing perspective is that the cost to the State of capital, if it is debt financed, is the interest on the debt taken on, and some of the capital costs over time. We do not do that and we do not treat it, in its net present value, as a separate entity compared to current spending. As a result, in effect one has projects that would make sense over a 30 year period. With regard to projects such as social housing or retrofitting of buildings it is cheaper for the State to pay for rent allowance under the fiscal rules in the short term. As we all know, governments have short life spans and in many cases politicians have short career spans so it is very hard to get people to buy into it, but not in all cases. It is very hard to get people to buy into spending their fiscal space on something that may not have an effect in the very short run.

The other issue is-----