Dáil Éireann Debate, Tuesday - 28 November 2023
25. Deputy Rose Conway-Walsh asked the Minister for Public Expenditure, National Development Plan Delivery and Reform when the ESRI will complete its report on the national development plan for consideration of the NDP ceilings; and if he will make a statement on the matter. [52365/23]
View answerWe all know we have been through two years of inflation, with huge inflation in construction costs, yet the national development plan has not been adjusted. We are allocating the same amount of money as if inflation never happened, which amounts essentially to a substantial cut in ambition in real terms. When will the ESRI complete its report on the national development plan?
I thank the Deputy for this question. By way of context, it is important to acknowledge the changes that have been brought about during 2023 to date. Since the renaming of my Department as the Department of Public Expenditure, NDP Delivery and Reform, there has been an enhanced focus and mandate for the delivery of the NDP. In light of this new role, a review of the support structures and levers available across Government to maximise delivery of projects was undertaken earlier this year.
As a result of that review, in March 2023 I secured Government approval for six priority actions. These include: first, significant changes to reduce the administrative burden in delivering major capital projects through measures to streamline the public spending code, which is to become the infrastructure guidelines shortly; second, the Minister, Deputy Donohoe, now taking a direct role in overseeing delivery of the NDP through chairing the Project Ireland 2040 delivery board; third, capacity reviews of Departments and agencies with significant delivery programmes to be carried out, where appropriate, to ensure that adequate resources for project delivery are in place; fourth, additional reforms to the capital works management framework, which sets out the contracts used for public capital projects; fifth, direct reporting to the Government on NDP delivery quarterly through 2023 and 2024; and, sixth, an independent evaluation of NDP priorities and capacity.
My Department has recently received the final version of the independent evaluation of investment priorities and capacity of the NDP conducted by the ESRI. This is an important report in terms of its evaluation of the capacity to deliver current Government priorities, to utilise sectoral capital allocations and to estimate the impact of the NDP on key economic indicators.
The report provides insights on constraints and capacity of key sectors including housing, energy, transport, health and education. In addition, it details cross-cutting themes which impact the priorities of the NDP that cut across sectors. These include climate commitments, planning and balanced regional development. Constraints in the construction sector are also examined by the ESRI, as well as inflationary pressures.
The Government has kicked the can down the road on capital projects. The national development plan, NDP, was reviewed in 2021 and the reviewed NDP set out departmental capital ceilings to 2025. What we saw in budget 2024 was the Government staying within the NDP. The reviewed NDP set targets for percentage of GNI* for capital investment. The targets it set for 2023 and 2024 were 4.9% and 5%, respectively. Now those figures are estimated by the Department to be 4.1% and 4.3%. That means the Government is far behind on capital investment in real terms. Why was budget 2024 not used as an opportunity to address the shortfall in capital investment?
Cabinet Ministers were warned of a €14 billion deficit in September. The Irish Fiscal Advisory Council, IFAC, has warned there will be a €19 billion black hole in our capital budget by 2030, which is very serious.
The quantum of our capital investment in this country is unprecedented. Our capital investment is approaching 5% of GNI*. I do not know of any other EU country that is providing that level of investment. At the same time, we are running a surplus, and are right to do so, and some money is being put aside to protect the economy in the event that our corporate taxes turn out to be a windfall. I dispute the assertion that we are not investing enough in capital projects. The ESRI report is about examining how far we can go with capital investment and given that we have full employment and a capacity constraint on skilled workers, how we can invest more into the economy and how we can get more out of our investments in the economy while at the same time taking account of the difficulty in hiring more people to do that work.
It is not just me saying this. As I said, the IFAC has also warned about the €19 billion black hole in the capital budget. IFAC has also said that €2.7 billion extra will be needed each year from 2024 to 2030. That is what is needed for the projects outlined in the 2021 NDP to be delivered. We have severe infrastructure deficits. I know from my own constituency in Mayo that there are desperate needs for health projects, water infrastructure, road, rail and grid infrastructure. The list goes on. Will the public have to wait until 2025 at the earliest for Fine Gael to act and get capital investment back on track? There are large holes in the budget. It is serious. If the Government has an NDP and has committed to the Irish people that it will deliver on it, there is an expectation that it will. I cannot see, with the shortfall of billions we will face in 2030, how the work will be done.
The risk is that we increase capital expenditure beyond where we are now and get nothing in return. If we are in a position of full employment, where there is nobody available to do the work, and we increase the investment into a sector, we may receive back the same quantity of output - in other words, the same number of houses and hospital are built - but prices, wages or costs are pushed up and, therefore, add to inflation. That is why the ESRI report is being done. It is why the review is being carried out. The ESRI has identified capacity constraints, given the place we are in the economic cycle. Referring back to previous ESRI work from 2006, it seems likely that additional demand would lead to construction wage inflation. Issues such as construction wage inflation need to be borne in mind. The expansion of the capital plan may risk higher levels of inflation and labour shortages in the construction sector. However, one thing that is coming out of the ESRI report is to note that in the medium term, successful delivery of NDP projects, including housing, should lead to a reduction in inflationary pressures.
