Ex-ante Evaluation of the Investment Priorities for the National Development Plan (2007-2013)
Embargo: Tuesday 24 October, 2006 at 00.01am
Editors: Edgar Morgenroth and John Fitz Gerald (ESRI)
This report, commissioned by the Department of Finance, provides independent advice on the priorities for public investment in the next National Development Plan (NDP) for the period 2007-2013.
Macroeconomic Assessment:
While the report finds that there is a high rate of return to efficient investment, our analysis suggests that the economy will have difficulty delivering all of the much-needed infrastructure at a reasonable cost over the course of the next NDP. The exceptional demand for the output of the building and construction sector is squeezing out the export sector through its adverse effects on competitiveness. The next NDP can either limit the increase in investment to a level that the economy can absorb or else use fiscal policy to sufficiently reduce private sector demand for building and construction sector output, allowing an even more substantial increase in public investment. On the assumption that no fiscal action is taken we recommend the level of investment set out below. While still very ambitious, this would be significantly below the level envisaged in the multi-annual capital investment f ramework published as part of Budget 2006. Our proposed level and targeting of investment would raise the capacity level of GNP by at least two percentage points above the level it would be without such investment.
"Recommended" NDP Government Capital expenditure at 2006 prices, € millions
Transport: 2,555 (2006); 3,374 (2007-2013 annual average)
Housing: 1,245 (2006); 1,133 (2007-2013 annual average)
Public admin: 1,029 (2006); 1,125 (2007-2013 annual average)
Health: 645 (2006); 721 (2007-2013 annual average)
Education: 684 (2006); 858 (2007-2013 annual average)
Enterprise sector: 601 (2006); 521 (2007-2013 annual average)
Agriculture: 214 (2006); 174 (2007-2013 annual average)
Environment: 590 (2006); 497 (2007-2013 annual average)
Total: 7,563 (2006); 8,403 (2007-2013 annual average)
Accompanying Policies:
Investment alone would not be sufficient to tackle all the infrastructural pressures. The NDP needs to be accompanied by a range of measures that ensure a more efficient usage of infrastructure, freeing up additional resources. Given the size of investment programme proposed in this report, more attention will need to be given to value for money through proper planning, evaluation and project management.
Detailed Priorities:
Transport: Transport remains the highest priority for infrastructural investment. This reflects the strong increase in the demand for transport, which, despite significant progress in expanding the transport capacity, has resulted in increasing congestion. The evidence suggests that the return to roads investment remains high. While substantial investment is warranted in urban public transport, given the size of the individual projects it is imperative to evaluate them thoroughly, considering the potential of all public transport modes as well as incorporating network effects (consider all the proposals together rather than independently). If projects pass these evaluations a high priority should be accorded to them.
Housing: Social and affordable housing should remain an important component of the next NDP. Nevertheless, given the limited capacity of the construction se ctor, in the absence of measures that reduce the private demand for construction output, we recommend that expenditure in this area should be reduced. If however, measures were taken to reduce private sector demand, then this cutback would not be necessary and a better balance between private and social housing could be achieved.
Water and Wastewater Infrastructure: As there is a high level of compliance with the EU directive on waste water, and development levies will make a substantial contribution towards the investment needed to accommodate an increased population, we recommend a reduced level of funding going forward. The introduction of water charges for households would reduce the demand for water substantially, thereby reducing the need for more investment, which would free up resources to be used in other areas.
Energy and Telecommunications: All of the investment in energy infrastructure should be delivered on a commercial basis wi thout any requirement for finance by the taxpayer. The general principle should be that consumers of energy should pay the full economic cost (including negative environmental externalities) of energy. The State has an important role as regulator of the telecommunications sector, especially where there are monopoly elements to the provision of infrastructure. A well regulated market should deliver broadband to the majority of the population, limiting the need for public intervention to remote areas, where public investment is only warranted if a reasonable demand for broadband exists.
Human Resources and Research and Development (R&D): Investment in human resources remains a top priority. In this respect we recommend an increase in expenditure in most areas including: measures to reduce the high drop out rate at secondary level; positioning the third level and post graduate sector to contribute fully to an expanded R&D programme; investment in traini ng and life-long learning. R&D needs to play an increasing role if Ireland is to maintain or even improve its competitive position. Therefore, we recommend a significant increase in the resources devoted to such investment. We highlight the need for a greater focus on commercialisation and recommend reduced ring-fencing of funds for particular sectors while recognising that policy oriented R&D continues to be of high importance
Productive Sector: At a time of full employment the need for subsidies to the productive sector should be limited. Thus we recommend a reduction in funding for all productive sector areas, including agriculture, forestry, fishing and tourism.
Health: We recommend increased funding for health investment. Our analysis suggests that demographic changes alone imply that over the period 2007-2013 between 1,800 and 3,000 additional acute hospital beds will be required. There is also need for investment in ancillary facilities and non-acute facilities.
Childcare: For the period 2007-2013, the focus of policy needs to be broadened to take account of the need to improve and expand early childhood education. This report estimates that 50,000 additional state-supported childcare places will be needed over that period.
Members of the media are invited to attend a Briefing at the ESRI offices, 4 Burlington Road, on Monday, 23 October at 11.00am. Publication will be on Tuesday 24 October at 00.01am.
For further information contact:
Edgar Morgenroth, ESRI @353-1-6671525 (office) or 353-86-8393195, edgar.morgenroth@esri.ie.
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