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CIF Economic and Policy Research Executive, Jeanette Mair discusses the publication of ‘Ireland 2040 – Our Plan’, the draft National Planning Framework (NPF) which will set the context for a new ten-year National Investment Plan (NIP) 2018-2027.
The General Economic Picture
The economy continues to grow strongly with real growth projected to be 4.3 per cent in 2017 and 3.5 per cent in 2018. Unemployment is now at its lowest since 2008, at 6.1 per cent and is forecast to fall to 5.7 per cent on average in 2018. The ‘Rainy Day Fund’ will be established in 2018 and Government will transfer at least €1.5 billion to it from the Ireland Strategic Investment Fund to start it off. As set out in the Government’s Summer Economic Statement, the annual contributions to the ‘Rainy Day Fund’ of €500 million will commence in 2019.
Total voted capital spending for 2018 will amount to over €5.3 billion, an increase of €790 million on the 2017 allocation. Budget 2018 announced an additional allocation of capital expenditure of €4.3 billion over the next four years, up to the end of the existing Capital Plan in 2021. This will result in capital expenditure doubling between 2015 and 2021 – from €3.7 billion to €7.8 billion Gross Voted Capital. This increased investment is promising to deliver better public services, promote regional economic growth, and help address challenges such as Brexit and climate change.
To augment the resources for distribution in Budget 2018, additional revenues of the order of €830 million were raised, giving a total Budget 2018 package of €1.2 billion. Expenditure will receive an additional €898 million; of which €214 million is going to capital expenditure. Overall increases to expenditure include:
Housing
- €750 million of the Ireland Strategic Investment Fund available for commercial investment in housing finance through HBFI.
- €500 million for the direct building programme which will see an additional 3,000 new build social houses by 2021.
- €75m for a second phase of the Local Infrastructure Housing Activation Fund (LIHAF).
Health
- An additional €471m has been made available to cover the period 2018-2021 for capital expenditure in health. This represents, on average, an additional €120m each year (will allow for investment in critical infrastructure including the delivery of the National Children’s Hospital project and a range of other investments in primary and community care schemes).
Education
- An additional €322m has been allocated for schools out to 2021, which will deliver 350 planned large-scale projects. Furthermore an additional €257m has been made available to address the infrastructure needs of the higher and further education sectors (follows review of Capital Plan).
- An additional €200m is being made available for PPP investment in the sector that will support regional development.”
Transport
- An increase of €6m in capital expenditure has been made available in transport funding to support increased public transport services and improvements to the road network that will see total current funding in this area rise to €414m. The capital allocation for the Department will total €7.5bn over the four year period to 2021 and will allow continued progress on a number of projects, such as: (1) Phase 2 of the National Indoor Arena; (2) the Sallins Bypass; (3) the Oberstown interchange project.
Heritage
- Additional funding to the Department of Culture, Heritage and the Gaeltacht of €4 million in capital will allow for key measures to be progressed in 2018.
The Review of the Capital Plan 2016-2021
The review of ‘Building on Recovery’, the Capital Plan 2016-2021, which concluded and was published in September, contained a number of supportive statements based upon empirical economic research that highlighted the positive externalities or spillovers from public capital investment – particularly in core infrastructure in increasing private sector productivity and crowding-in private investment; and in increasing long-term GDP. A commitment to examination of PPP and EIB options to increase public investment was also contained within the Review and was welcomed by the industry.
In terms of PPPs, the industry has called on Government to consider the bankability of each project so that a PPP is successful. Bankability refers to the overall structure of the project being such that lenders are prepared to finance it. A PPP project yields value for money if it results in a net positive gain to society and costs less than the best realistic public sector project alternative. Government could consider a PPP model which identifies an investor(s) (typically providing equity investment and debt finance) for a project and then subsequently novates this finance element to a contractor by traditional procurement or by design and build.
The industry is requesting timely forward-looking assessment (i.e. a published pipeline) of planned investment in infrastructure and the introduction of active annualised programme management of projects, which will help to provide certainty for investors and the supply chain, as well as helping forecast future skills needs required to deliver on planned infrastructure. The NPF will provide the blueprint for realising future investment in Ireland.
In terms of project appraisal, selection and delivery, the CIF has called for a National Infrastructure Commission to play such a role, as per in the UK. This would depoliticise the process of project selection and projects would proceed based on best international practice cost-benefit analysis.
In addition, publication of up-to-date and easily accessed information on: asset registers; project appraisal; PPPs; monitoring investment projects; ex-post reviews of projects, etc. is critical for the industry as we enter into the timeframe of a new NPF and NIP. To this end, publication of the Capital Tracker last September by DPER was very welcomed.
The construction industry is ultimately very dependent on the public capital programme and as such it can gain huge confidence by having timely information on the pipeline of projects, particularly at design and planning stage. It is hoped that a portion of the proposed additional funding from the review of capital expenditure and reallocation of resources in 2018 will be made available for the design and planning of future projects in 2018. This will help to provide industry with an essential roadmap for future opportunities.
The National Planning Framework
The Construction Industry Federation (CIF) welcomed publication of ‘Ireland 2040 – Our Plan’, the draft National Planning Framework (NPF) in October 2017 and made its submission on the draft NPF on 10th November 2017. Last March, the CIF submitted a response to the pre-draft national consultation on the ‘Issues and Choices Paper’ and was pleased to note that many of the recommendations contained in that response had been incorporated into the draft NPF. The draft NPF reflects the extensive research and analysis undertaken during its preparation.
Key reflections on the draft NPF
The NPF must be nationally and strategically significant and carry sufficient weight to ensure its successful implementation. To this end the NPF must ensure that there is sufficient guidance, especially at local level, matched by measurable investment to enable practical implementation. The NPF will have legislative backing and be placed on a statutory footing with implementation to be overseen by the Office of the Planning Regulator. It is also noted that the NPF will be applied on a regional basis through statutory Regional Spatial and Economic Strategies (RSESs), the drafting of which will commence in 2018.
Perhaps most crucially the NPF will set the context for a new ten-year National Investment Plan (NIP) 2018-2027. The draft NPF contains some indicative national strategic outcomes for consideration in developing the NIP by end 2017, and the industry looks forward to further engagement in the related consultation process on the NIP in the coming weeks.
Distribution of population and jobs between the three regions (i.e. re-distribution away from the Eastern & Midlands Region), together with active land management, emerge as significant themes in the draft NPF. Population growth occurring predominantly in the Eastern area, and concentrated in the GDA, is a long-standing feature of settlement and investment patterns in Ireland and many will say that it is no longer sustainable. The draft NPF’s active land management theme is developed through the proposed compact distribution of population, jobs and new housing development across identified settlements within all the regions and the identification of enabling infrastructure. The focus on the timely servicing of land is welcomed, however the industry has recommended that equal weight be placed on ‘connectivity’.
The Department of Public Expenditure and Reform recently published a capacity and demand analysis of existing infrastructure across key areas of economic infrastructure. What becomes clear is that there is a need to better integrate and coordinate national plans into a clear evidence-based framework so that there is a unified approach to the delivery of housing, jobs, water, waste, energy, transport, education and health services, to name just a few key areas. This is even more critical at the beginning of a new 10 year NIP.
Investors need certainty and a strong planning system is essential to achieving long-term growth. While the CIF is confident that the NPF will have the statutory powers to coordinate spatial planning vertically down through the planning system, it is more concerned about the horizontal integration of the NPF across the numerous departments, agencies and bodies with direct oversight and budgetary controls over distinct infrastructural areas.
Capital investment has reached a long-term average low of around 2 per cent GDP since 2008; down from 5 per cent throughout the early 2000s. Ireland is now the bottom-ranking EU country in terms of capital investment and successive EU Commission reports have highlighted infrastructural deficiencies as a threat to Ireland’s long-term growth. See Figures 1 and 2.
After nearly a decade of underinvestment, Ireland’s infrastructure is increasingly inadequate for its economy and society. A higher proportion of the reduced investment parcel is spent in repairing and renovating Ireland’s existing infrastructure, rather than on the transformative investment that would underpin Irish economic growth and global competitiveness for the next 20 years.
Source: Eurostat
Source: Eurostat
The industry hopes that the new ten-year National Investment Plan (NIP) 2018-2027 will be robust enough to support implementation of the NPF, so that it can be an effective framework to leverage economic growth and sustainable development for all people, across all regions, to 2040.
Members can access further information on the above and a full copy of the CIF’s submission on the draft NPF, which contains twenty eight recommendations, online or by contacting me directly by email: [email protected] or by telephone: 01-4066035.