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Capital Expenditure Programme

Dáil Éireann Debate, Thursday - 22 March 2018

Thursday, 22 March 2018

Ceisteanna (4)

Pearse Doherty

Ceist:

4. Deputy Pearse Doherty asked the Minister for Public Expenditure and Reform the flexibility in terms of capital spend he has sought from the European Union in view of Ireland’s need to catch up on capital investment; and if he will make a statement on the matter. [13218/18]

Amharc ar fhreagra

Freagraí ó Béal (6 píosaí cainte)

I ask the Minister the flexibility in terms of capital spend he has sought from the European Union in the light of the State's need to catch up on the capital investment programme and if he will make a statement on the matter.

The EU fiscal rules have been designed to promote budgetary discipline and underpin sustainable economic growth. While the economy is growing and debt is on a downward trajectory, the debt level is still high and we have to be careful owing to the potential of roll-over risk should interest rates increase. This is a small and very open economy in a world which now has more risk than is usual. Therefore, meeting the fiscal rules underpins our objective of being careful with the national finances.

The issue of facilitating greater flexibility within the application of the fiscal rules has received a significant focus at European level and framed discussions on the establishment of structural and investment clauses which were codified by the European Commission in November 2015. Specifically, the provisions allow for temporary deviations from the required structural budgetary adjustment, subject to strict conditions. Furthermore, as the Deputy is aware, there is existing flexibility within the expenditure benchmark whereby capital increases are smoothed over four years, with the result that only one quarter of the increase in public investment must be funded from the first year within the fiscal space. This provision which means increases in capital spending for housing and other purposes can be front-loaded within EU rules and has been availed of in our plan.

The Deputy should also be aware that any decision to increase capital expenditure over and above already planned levels would need to balance the danger of potential overheating in the economy with the need to address infrastructural priorities and risks such as Brexit. As the Deputy will know and as demonstrated by our recent experience in the early years of the last decade, pro-cyclical budgetary policy can jeopardise future living standards.

I recognise that the updated capital programme is an improvement and to be welcomed. The smoothing of capital increases over four years is something of which we have availed and also welcome. However, we need greater flexibility, given that the capital budgets in the most progressive economies are 4% of GDP. We are not going to reach a figure of 4% of GNI* until 2025. Therefore, we have catching up to do. The Committee on Budgetary Oversight made some proposals in a report it issued. One was that there be an increase in the four-year smoothing period, while another concerned a relaxation of the fiscal rules for capital projects co-funded by the European Investment Bank. Has the Minister raised any of these issues with the European Union? He said at the committee that he would discuss the matter with it to see whether we could avail of other mechanisms which he outlined in his initial response.

I have not discussed the specific report to which the Deputy referred with the European Commission, but I have raised with it the need to make sure the fiscal rules facilitate appropriate levels of public capital investment in those things which will allow the economy to grow in a sustainable way. Within the fiscal rules as structured, the plan we launched, Ireland 2040, looks to provide for a very significant increase in capital expenditure year by year. The Deputy will find that by 2021 the figure for capital expenditure will be 3.8% of national income. Year by year, there will be increases in capital expenditure of at least €700 million per year. We have to ensure that as we increase expenditure at that rate we will have the capacity within the economy to translate it into investment at prices we can afford.

That is welcome. I refer to the report of the Committee on Budgetary Oversight on capital investment. I am sure the Minister is well aware of it as it makes a number of recommendations that he may consider raising at the next opportunity available to him, given where we are and need to get to. It is welcome that there has been an increase in capital spending which we will continue to see increase up to 2025. We are so far behind other progressive economies that any help we can get is welcome.

Since the Minister has not raised those issues, is it something he would consider doing in addition to what he has already raised with the Commission and is hoping to secure?

All I can do at this point is give the Deputy a commitment to consider it. I will have to read the report and consider it before I decide what I will raise with the Commission. Currently, my focus is on ensuring that the significant increases in capital expenditure we are implementing at present happen and that the projects we are committed to are delivered at affordable prices. However, I will read the report the Deputy mentioned. I have not had the opportunity to consider it yet. When I have done so I will see if there are areas within it which I might raise with the Commission. I am due to appear before the Committee on Budgetary Oversight in a number of weeks and during that meeting I will give the Deputy an update on my view on the report.

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