We must heed the warnings of past failures

Unqualified support for infrastructure spending does not serve the wider national interest, says Sean Barrett

‘RIGHT now, Ireland severely lags behind our competitors when it comes to infrastructure and the cost of doing business. In fact, we are the lowest investors of capital in the EU, even though we have the fastest growing population.

“Our research shows that businesses make decisions regarding their location on a number of factors, and quality of life ranks high. If we want to continue to attract Foreign Direct Investment clients to our shores, Government must break away from the austerity mindset and ramp up spending on public infrastructure — it makes no sense to pursue a debt reduction strategy of 45pc of GDP which is well below our EU requirements of 60pc.

“This continued austerity could only be achieved by sacrificing much-needed public investment.” (IBEC statement, April 10, 2017) DENUNCIATIONS of the Government’s “austerity mindset” by IBEC are deeply ironic. The inefficiencies of the banking, finance, property and construction sectors, including some members of IBEC, brought Ireland to the IMF bailout department. Weak financial sector regulation coupled with the design faults in the euro currency eased the route to the bailout. Both the private and public sector components of Ireland’s economic collapse require reform. At the Banking Inquiry hearings, both sectors expressed regret for the collapse they had jointly caused. There remain massive doubts that they would not do the same all over again.

Condemnation of the Government’s austerity mindset is not supported by how governments here actually conduct themselves. Irish members of Parliament like spending public money. They campaign across the board for more public spending, claiming credit for free education, free travel for old people, and the extension to the local hospital as if these projects were financed by a whip-round in the party rooms in Leinster House.

The austerity mindset politician entering the Oireachtas resolved to grind down the poor and add to the squeezed middle is a myth, albeit one now espoused by IBEC.

Similarly, the permanent government in Ireland is based on expanding budgets. Behavioural studies of bureaucracies internationally indicate that career prospects are better in an expanding bureau. Ireland needs reforms to curb the natural appetites of the elected and permanent government for spending other people’s money.

Projects should be independently appraised. The cost-benefits analyses should be public and independently assessed.

Advocacy is not appraisal but it is used interchangeably in Ireland. Low capital spending now may make sense when we consider the capital spending surge that led to the banking collapse; that we don’t need a new motorway to Cork every year; and the evidence that the high cost of construction in Ireland reduces the competitiveness of our market economy.

“Sacrificing much-needed public investment” is the IBEC concern. Others might raise concerns when a hospital cost rises from €400m to €1bn in a matter of months and the cost of a new airport runway spirals before we start. The developers of the Cherrywood project estimated at the Wexford economic policy conference last September that construction costs in Ireland were 36pc higher than in Germany, Canada and the Netherlands.

The Comptroller and Auditor General has wall-to-wall reports of public spending gone awry. We have a massive moral problem in that those responsible for these inefficiencies, both in the public and private sectors, are skilled at sending the bills to the taxpayer.

The debt to GDP target of 45pc is prudent rather than based on an austerity mindset. It has to take into account that Ireland does financial crises bigger than the EU average, that we have a larger GDP margin over GNP than the EU average and that interest rates are expected to increase.

The Culliton Report in 1992 warned that “the competitive edge of Irish industry has been distracted from serving the market and achieving high productivity into maximising the grant or tax benefit. Tax avoidance and grant maximisation are the directly unproductive activities (or rent-seeking in the economists’ jargon) par excellence”.

The Culliton Report warned that “free money from Brussels” had caused “a widely held perception in both the public and private sectors” that investments should “be less rigorously evaluated and accounted for than normal”.

Virtually free money destroyed both the exchequer and the financial system here. Nobody wanted the “austerity mindset” now criticised by IBEC — but we had to do so because of widespread failure in public and private institutions.

The results have helped to alleviate a lot of the negative consequences of previous private and public failure. We should not go back.

‘Irish members of Parliament like spending public money’