Thursday, 17 June 2021
Ceisteanna Eile - Other Questions
Public Expenditure Policy
110. To ask the Minister for Public Expenditure and Reform if he has studied the ESRI study which suggests that Exchequer investment could be increased by 50% provided borrowing is confined strictly to capital purposes; and if he will make a statement on the matter. [31586/21]
The Minister may have already answered questions on the ESRI report. Based on an assessment of growth rates and interest rates, the study found that capital investment by the Exchequer could increase by 50% or €47 billion. I would like to hear the Minister's reaction to the report and whether it means the NDP can be a great deal more ambitious than the €120 billion currently set out.
The total level of Exchequer investment is currently under consideration as part of the ongoing review of the NDP, as the Deputy is aware. The overall level of capital expenditure in 2021 stands at €10.1 billion, or almost €11 billion when capital carry-over is included. This represents a share of 4.7% of GNI*, well above the EU average in recent years of around 3% of GDP. This allocation is almost €5.5 billion or 119% higher than the amount allocated in 2017. In other words, capital allocations have already more than doubled under the NDP. The Deputy will be very familiar with that, given his role in the previous Government. It is also an all-time high in the history of the State, with a commitment to maintaining and further increasing it over the lifetime of the Government. This is in spite of the major challenges facing the Exchequer due to the impacts of Covid-19 and Brexit.
It is also important to note that pre-pandemic, Ireland's level of public debt per capitawas one of the highest in the developed world. This has increased as a result of our response to the crisis. That response was necessary and remains appropriate in my view. Total government debt is now approaching one €250 billion, or 112% of GNI*.
I note that the ESRI report states that the Irish Exchequer would be able to raise between €4 billion and €7 billion each year in additional resources for the State. The paper also notes that this would generate sizeable challenges in terms of efficient delivery. As part of the analytical processes underpinning the NDP review, a macroeconomic analysis has been conducted as to the appropriate level of capital expenditure for the period 2021 to 2030. It considered a number of factors, including the overall fiscal position, demand for investment, supply side capacity constraints in the public and construction sectors and international comparisons.
All of those factors need to be considered and balanced against each other as part of the national development plan review when setting the planned level of public capital investment for the period 2021 to 2030.
I am a little bit disheartened by the Minister's reply but he did leave a chink there that he is reviewing this.
I will move to what used to be called the golden rule, namely, that one only borrows for capital. This is a stringent test on the probity of public spending. Does the Minister agree that we are facing significant capital needs, particularly in climate and housing? Just to illustrate this point, do we not need to see the Land Development Agency build up a land bank in Cork in order that it can become a strong magnet for growth? I suspect the city does not have the resources to do that. Are we not at a stage now where the EU is reviewing its approach to the old balanced budget model and we have an opportunity for a developing country like ourselves to set out the new golden rule approach of borrowing money for capital?
As the Deputy said, fiscal rules are being reviewed. They have been suspended at the current time in the European Union. However, that will not last indefinitely. We may well see a different framework of fiscal rules emerging from the crisis. There is scope to account for capital in a different way, given its importance to our economy.
It is important to underline the context that capital expenditure, at almost €11 billion this year, has increased significantly. Four years ago, it was approximately €5 billion. We face considerable pressures in housing but also other areas such as climate action measures, transport, education, health infrastructure and so on. We will see an elevated level of capital expenditure maintained and built upon over the course of the lifetime of the Government and the new national development plan.
There are capacity constraints as well. It should be pointed out that the ESRI has also said that, in light of all of the expenditure commitments entered into with Covid, there may be a need to increase taxes. We are committed to an ambitious national development plan. We have prioritised investment in housing in particular in all the decisions we have made to date.
I fully accept taxes must cover current spending. The issue is whether we should take the opportunity to have higher capital spending. For example, our approach to public investment is in new communities. We see investment in transport, health and education arriving five years after people have occupied their homes, however. That is not a sustainable way to approach public investment. There is an opportunity to shift our dial somewhat at this stage if we can negotiate such an approach at European level.
I agree with the broad thrust of what the Deputy has said. The dial has shifted and continues to shift in the sense that the Government is genuinely committed to an ambitious public capital investment programme. However, we cannot ignore the reality of the scale of the national debt and debt per capita, which is high in the developed world. We are in an environment of historically low interest rates because of the exceptional interventions of the European Central Bank. Those interventions will not continue indefinitely. We will be returning to more normal market conditions, perhaps as early as next year. All of the borrowing we are doing now is appropriate but we cannot predict what interest rates will be when it comes to refinancing those bonds in ten years or 15 years. We must have a firm eye on the long-term debt sustainability of our country and protect that for future generations. There is a way of marrying that with having an ambitious public capital investment programme. I acknowledge the point that borrowing for capital is of a different nature to borrowing for current expenditure purposes.