The soaring capital expenditure of the McCreevy years is now firmly on hold despite Colm McCarthy's report focusing largely on current spending

As charlie McCreevy prepared his third budget a decade ago, the then finance minister substantially increased government spending on capital projects. After decades of neglect, a booming economy allowed the government to increase spending on everything from dangerously dilapidated roads, public housing and transport, to school buildings and funding for the IDA and Enterprise Ireland.

By the time McCreevy published his revised estimates for budget 2000 in April, more money had been found. Capital spending soared 34% to €5.4bn. McCreevy pared capital spending the following year as economic growth momentarily spluttered, illustrating that despite all the fine words, finance ministers when under pressure discover that cutting capital spending is much easier than tackling pay and staff numbers in the public sector.

That decade-long streak of capital spending increases was, unsurprisingly, broken in the last budget. By the time of the revised government spending estimates this April, the capital budget was savaged by over 19% to €7.3bn from €9bn in 2008. Current day-to-day spending, also unsurprisingly, climbed 6% to €56.6bn.

For years, capital spending had accounted for significant slices of GDP – probably, after Albania, Ireland spent the highest spending of any European country on rebuilding roads, public transport, schools and hospitals. It was widely recognised that inadequate capital spending of previous generations drove up costs and prevented private companies from providing jobs.

This year, spending on capital spending will fall to €7.3bn or 11.5% of all the €64bn the government will spend this year.

Colm McCarthy's July report on pay and public staff numbers, which identified a €5.3bn menu of potential cuts, properly returned the focus back onto current spending – by far the biggest slice of the government cake. But the pressures on the government finances are so great that it will again fail to resist raiding the capital spending sweet tin in the December budget.

Political difficulties in delivering €4bn savings from the overall current and capital spending in 2010 means that capital spending – and the badly needed jobs that depend on it – will again take a disproportionate share of the cuts.

As a strategy of keeping unemployment as low as possible to limit the demands on welfare payments, slashing the €7.3bn capital budget makes little economic sense.

The Sunday Tribune has learned that, as part of the preparations for the December budget that the Department of Finance has drawn up, a new analysis of the number of direct jobs generated for each €1m the government spends on its capital budget.

The so-called labour-intensity of capital projects study shows that the government gets the most jobs from spending on public health service projects – 12 jobs are created for each €1m spent on building and fitting out hospitals and clinics. The next highest number of jobs created in building and maintaining non-national roads, generating 11.5 jobs for each €1m spent.

That compares with the 10 jobs created for each €1m the government spends through the National Roads Authority on national routes, presumably because building motorways involves less labour and more capital-intensive plant and equipment.

Building prisons also generates 10 jobs per €1m spent, compared with the 9.3 jobs created by spending the same amount on schools. Meanwhile, each €1m the government spends in the separate areas of public housing, public transport and water projects generates eight jobs.

The Department of Finance analysis make clear that the jobs created are direct, once-off employment benefits and do not take account of the jobs created indirectly from sub-contractors or generated by the spending of wages in the economy. The analysis says that "the chief return on capital investment can be expected to enhance the productive capacity of the economy" and "address critical social demands". In other words, any budget decisions will be based on political considerations, not just on the economic benefits of spending in a particular sector.

Nonetheless, it shows that the government is set to make more big cuts on the capital budget in December and is pondering the least damaging ways to implement next year's capital spending cuts.

If an average of 10 jobs are directly created for each €1m spend, at least 10,000 direct jobs are lost for every €1bn cut from capital spending. Therefore reducing the capital spending this year to €7.3bn from the €9bn spent in 2008, has already cost at least 17,000 jobs. More jobs have been lost indirectly.

Coincidentally, Colm McCarthy's report in July recommended cutting about the same number of public sector jobs – 17,358 – as part of an overall reduction in current budget spending.

So, already the same number of private sector jobs will have been lost this year after the government made the easier choices to cut capital spending. Below the Sunday Tribune analyses the areas where the capital spending is likely to fall in December budget – and the jobs that are likely to be lost as capital budgets are cut.