LAST week, when finance minister Brian Cowen unveiled the details of the National Development Plan 2007-2013, few were surprised either by the figures involved or the distribution of money across the programmes. In fact, this NDP was perhaps the leastguarded secret throughout its late-stage preparations.
By even optimistic estimates for growth, capital spending allocated under the NDP alone will amount to 5.1% of the Irish economy output in 2007 and 5.6% in 2008. Thereafter, the spending will accelerate to the peak of Euro13bn in 2012.
All this represents only 42% of the overall NDP budget - a share allocated to building physical infrastructure. The remaining 58% will finance the softer, social and educational side of the economy. This spending will be equivalent to 16 months of our entire GNP in today's terms, or some Euro149,000 per taxpayer.
This is impressive and Cowen deserves real praise for navigating this Titanic through the politically turbulent waters of public expenditure planning. His version of the NDP is probably as good as one can wish for, given the packs of interest groups that swarm around the public purse.
However, with figures of this magnitude, it is only natural for taxpayers to demand to know what the NDP really aims to achieve with their money. Here are some snapshots of the plans.
Housing Euro21bn will be spent on social and affordable housing in a direct transfer of money from middle-class and privatesector employers to an undefined group of people deemed to be in need of assisted housing. Although there are some people - the elderly and people with serious disabilities - who undoubtedly need and deserve taxpayers' help, Euro21bn is a lot of money.
The government calls this 'capital spending'. In an economy with just 4.34% unemployment, it is not. This spending is likely to fuel inflation, depress rental markets and crowd out new private construction. If successful, the programme can, in the long run, lead to more expensive and lowerquality private housing and higher local authority charges, and it can make the construction industry even more dependent on the caprices of the state, and politicians even more aligned with the industry.
Transport Roads and public transport will receive Euro30.6bn - a truly much-needed investment that can strengthen our chances of seeing the return of robust productivity growth. Among other things, the government is promising by 2010 to complete all interurban motorways, finally linking Dublin with Belfast, Cork, Galway, Limerick and Waterford in reasonably efficient ways. However, two small caveats qualify this conclusion.
First, it remains to be seen if we can deliver on these promises. Lacking major reform in the ways the state conducts its business, these projects will lag well into 2025 and will cost more than three times the estimate.
Second, to achieve noticeable productivity growth, it is crucial that taxpayers' money does not go to gold-plated transport projects in areas where there is no demand for major infrastructure. Given that the NDP commits to follow the lines of the ill-designed gateway- and hub-based National Spatial Strategy (NSS), this is questionable.
Many of these hubs are political white elephants - small towns in a state of underdevelopment that cannot be rescued by lavish infrastructure spending.
The NDP puts Euro1.8bn into airports. It explicitly states that the Dublin Airport Authority (DAA) is the heir to Aer Rianta, ignoring the earlier government decision to break up the airports monopoly.
The plan also commits the DAA to raise funding from its commercial activities - a requirement that hinges on the DAA getting approval for landing charges hikes in Dublin well in advance of a ruling on the issue from the Aviation Authority. But wait, there is more. The NDP explicitly claims that "All three [state] airports have the scope and capacity to expand to cater for future growth. . .
The main government policy objective for the state airports over the period of the plan is to ensure that they put in place sufficient infrastructure capacity to meet the growing air traffic demand". This, in effect, pitches the NDP against any plans for a privately-owned terminal at Dublin airport until 2013.
Energy The state energy programme envisioned in the NDP will spend Euro7bn subsidising existing state monopolies, while allocating only Euro276m to the sustainable energy subprogramme. How does the government plan to balance two opposing objectives in its energy policy - the need to reduce the dominant power of Bord Gáis and ESB, while giving them more cash to strengthen their stranglehold on the market?
Even as a straightforward exercise of allocating funds for capital expenditure, the NDP 2007-2013 has fallen short of being fully economically feasible and politically neutral.
One can only wonder what the authors of NDP really want to achieve by allocating Euro107bn, or 58% of its expenditure, on various forms of social welfare at the time of low unemployment and robust wage growth.
Nor can one easily explain why the NDP lavishes billions on corporate welfare under the guise of supporting training, skills and development.
These are the questions that will most likely remain unanswered, as the NDP begins to pump taxpayers' money into the pockets of various interest groups and benefactors. Lets hope Cowen can get us something real in return.
Constantin Gurdgiev is an economist and editor of 'Business & Finance'
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