“The second area is what we can do at the euro area level to create jobs, basically by increasing investment and enhancing infrastructures. There are many proposals, such as increasing the European Investment Bank (EIB) action and redirecting the EU funds towards the low income areas. When we talk about infrastructure and fiscal consolidation, it is certainly much better to consolidate through the reduction of expenditure, especially current expenditure and not capital or investment expenditure, rather than through increases in taxes” ECB president Mario Draghi speaking in May 2012
“Point One – Protecting and creating jobs. Because jobs and opportunity are the best chance of keeping our best asset – our young people – at home. We plan to create 20,000 new jobs a year over the next four years. How? By cutting employers’ PRSI, by creating a welfare system that encourages work and by investing an extra €7 billion from State pension funds and from the strategic sale of state assets into developing the key infrastructures that will make our economy competitive for the future. In doing so, we can, by 2016, make Ireland the best small country in the world in which to do business” Fine Gael’s Five Point plan promoted during General Election 2011
Yesterday’s Exchequer results for September 2012 were not good. Whilst tax was up on plan in the month of September 2012 by €20m during the month which gave a tiny boost to the State’s finances, government spending was up on plan by €21m. However this overall neutral outcome hides the fact that at the end of August 2012, our spending on capital projects was €120m down on plan but at the end of September 2012 was down a whopping €268m on plan.
We are all aware of the recent scramble to rein in spending on health for the remainder of this year but it seems at this stage that it will still be a challenge to hit our budget targets. Luckily GDP in 2011 was slightly higher than expected and even though GDP might only marginally grow in 2012, we should still meet the all-important Troika-agreed target of a deficit:GDP of 8.6%.
But what is extraordinary from yesterday’s Exchequer figures is the fact that this government has seemingly chosen in 2012 to dramatically cut the capital budget. Figures provided yesterday by Minister for Public Expenditure and Reform in a response to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty, confirmed that for the nine months of 2012 to the end of September, we have only spent €1.7bn (47%) of the €3.6bn total capital budget for 2012. Not only that, but this Government claims that it cannot at this advanced stage of the year provide a forecast of the full year capital spend – this is incredible and one obvious reason for the “mar dhea” ignorance is the capital budget is being cut. The Minister even refused to provide a split of the budget and actual year-to-date by department, so that we could further examine why spending was down.
Or to put it another way, this Government is cutting the capital budget which gets spent in the domestic economy because it is failing to cut costs elsewhere.
Just take health – 80% of our medicines are expensive non-generic, in the UK it is just 20%. Hospital consultants’ pay for existing consultants has been left untouched. Of all the countries in the world, Ireland spends the second highest amount on public health as a proportion of our GDP (Number 1 is the USA), yet our health outcomes are surprisingly bad in the global league tables, or in plain person’s speak – our spending on health is inefficient.
Economists will tell you that one of the most effective ways of generating domestic economic growth is through construction which tends to rely on local labour and raw materials and management. A large part of the capital budget comprises construction. The Department of Finance has estimated that €1bn spent on capital projects generates 10,000 jobs. NAMA says that its €2bn spend on developing its assets will create 25,000 construction jobs and 10,000 consequent jobs, a total of 35,000 jobs for €2bn.
So if we had planned the capital budget this year to be spent evenly we would have spent €2.7bn by now, €1bn more than the actual spend of €1.7bn to the end of September. Why didn’t this government frontload that expenditure in its budget. But having set the budget so as to spend €1.95bn by the end of September, why is actual expenditure down €236m.. An extra 2,500 – 4,500 jobs might have been created if the government had been spending to plan, an extra 10,000 – 17,500 might have been created if the government had budgeted to spend its capital budget evenly throughout the year and met its budget. Does this Government realise there are 309,000 people unemployed in the State, equating to a 14.8% unemployment rate and that 450,000 are on the Live Register. And 240 of us are emigrating every single day of a 365-day year.
Perhaps someone should ask our €250,000* a year Minister for Finance why the cost of running the country is over budget and why this Government is choosing to damage the domestic economy by pulling back on capital expenditure.
* comprising €169,275 ministerial salary plus pension payments for former terms in office which last week’s Department of Finance accounts – incidentally now removed from the Department’s website – revealed were €55,000 in 2011 for Michael Noonan and “ML Noonan”. Plus €12,000 unvouched public representation allowance. Plus dual abode allowance including €6,500 unvouched for property maintenance plus a mileage allowance of up to €1.14 per mile plus 15% unvouched service charge allowance on hotel bills plus daily subsistence allowance of €72.66 when staying in an hotel plus €750 every 18 months to buy a mobile phone plus free parking, gym, language lessons, tax advice. Plus generous pension and termination payments.
Deputy Pearse Doherty: To ask the Minister for Public Expenditure and Reform if he will provide an analysis of actual infrastructure and capital investment spending by Ministerial Vote Group for the year to date in 2012; and a forecast for the annual outturn for 2012 together with the annual budget for 2012.
Minister for Public Expenditure and Reform, Brendan Howlin: The Exchequer returns were published this afternoon and are available on the website of the Department of Finance and via my own Department’s website. The total net Exchequer capital spend to end September amounted to €1.7 billion. This represents 47% of the total net capital estimate (€3.6 billion) for the year, which means that €1.9 billion remains to be spent. For the same period last year, capital expenditure of €2.2 billion accounted for 50% of the 2011 net provisional outturn figure of €4.4 billion.
Individual Departments are responsible for the projects and programmes in their areas and further details about spending on projects and programmes can be obtained directly from the relevant Departments. Given the uncertainties about precise issues of timing, and given the over-arching requirement to manage both capital and current expenditure within the overall allocations, it is too early at this stage to say what the final capital outturn for 2012 will be for each area.
As the Deputy will be aware, capital spending has general characteristics which influence the allocation drawdown pattern. Expenditure on capital projects typically occurs in large tranches at fixed milestones, unlike current expenditure which is generally continuous throughout the year. Obviously, this affects the phasing and profiling of capital expenditure.
In addition, public financial rules require that payments are only made on foot of matured liabilities, so payments made in the later parts of the year are made on foot of work that has already been satisfactorily completed. The trend is therefore that the bulk of capital expenditure takes place in the final quarter of the year.