Better governance would clear the path to wiser public spending

Imminent elections and leadership changes are causing a marked uptick in political promises. Almost all political pleas for support involve promising to give us back our own money. Last week, Public Expenditure Minister Paschal Donohoe agreed revised capital allocations totalling €2.25bn in addition to the €165bn already set out under the National Development Plan (NDP) to support capital projects across the country.

There will be increased spending on the Army, on gardaí, as well as on our diplomatic, prison, veterinary and local community services.

Some of the other commitments will involve further spending on major projects including public transport projects (such as Dart+, Bus Connects and Cork Commuter Rail); social and affordable housing programmes; student accommodation through universities; and acute hospital beds.

This is great news.

Ireland is finally starting to invest on a large scale to provide the types of projects and services that are needed to support a modern economy.

Indeed, Ireland’s annual capital expenditure, as a percentage of GNI, is now anticipated to be 4.3pc in 2024. This places us among the highest in the EU and well above the recent average of 3pc of national income. Is this enough?

When launched in 2018, the NDP identified the need for substantial public investment in Ireland and set out an ambitious programme for this. However, in a report about NDP priorities and capacity, the ESRI has recently advised that even this high ambition may have underestimated what is needed. The ESRI report in January noted that population growth is already exceeding expectations — while achieving targets on greenhouse gas emissions look increasingly challenging.

While the ESRI’s analysis suggests that even more should be spent on NDP projects, it also frets that such an increase could place further inflationary pressure on an already busy construction sector. One of its suggestions for dealing with this is to assist decision-making by carrying out revised cost-benefit analyses to capture the more severe capacity constraints and the more demanding climate targets which have arisen since the original NDP was drafted.

This question of cost-benefit analysis raises the far more important issue of examining the causes of much of our national dysfunctionality at reaching targets.

There continues to be relative silence about the potential for economic benefits that would accrue from addressing issues that are not “sexy” — such as improving our systems of governance and administration. These are the issues that really make a difference to jobs, housing, health, justice and efficient public services.

How often do we hear criticism of the costs that we bear from our excessively centralised system of governance and our outdated, inefficient and dysfunctional legal system?

While the ESRI rightly calls attention to the need to identify priorities as a guide for project assessment, it does so in ways that appear to place excessive emphasis on addressing populist issues — such as housing — while neglecting to support the sources of wealth and job creation.

To reduce pressure on construction labour markets and prices, it suggests directing construction activity towards, for example, housing and away from other activities such as office space, hotels and car parks.

This overlooks both the specialised nature of the modern construction sector — where different types of materials, labour, equipment and developers each separately serve different needs. Housebuilders rarely build hotels or offices. It also appears to over-estimate the State’s ability to “direct” the private construction and development sectors.

This type of thinking lies at the heart of why we in Ireland are so slow to solve problems, compared to other European states.

We spend too much time proposing interventions in sectors where government has relatively little control, such as building projects by private developers. By contrast, we spend too little effort on addressing issues of improving regulation, governance and administration which are wholly within government control.

When discussing Ireland’s challenges, we need to occasionally pause and remind ourselves that we have “good” problems. We are growing faster than expected, so we need to spend more on our future. We have the money to make these improvements and worry that we will not have enough builders for all of the work that needs doing.

The biggest concern of experts, such as the ESRI, is how to decide which ambitious project we should tackle first. This problem would be the envy of many other countries.

In this torrent of good problems that need to be fixed by big spending on big projects, we must not forget to look beyond the bricks and mortar.

We need to give equal attention to fixing the invisible issues of better governance, administration and law so that we spend our own money more wisely.

We need a better way of ruling ourselves so that we can better realise our high ambitions.