Economists across the spectrum question the wisdom of the Minister for Finance's decision to continue setting aside money for the pension fund while cutting back on infrastructure spending.
The very unusual consensus among private and public sector economists, as well as those who work for pension fund managers, is that the philosophy behind the decisions is at best curious and at worst a mistake - which is storing up serious problems for the future.
In the spending estimates this week capital spending was slashed, with Mr McCreevy now expecting to spend €800 million (£630 million) less in 2002 than he planned only nine months ago.
Exchequer capital spending will go up by only 5 per cent in 2002 compared with rises of over 20 per cent in recent years, although the Minister did say he hoped to increase this somewhat when he reveals the Budget.
At the same time, he is obliged by legislation to put aside 1 per cent of Gross National product into the National Pension Reserve Fund to meet public sector and social welfare pension liabilities after 2025.
This is likely to come to just short of €1 billion.
"I regard the pension fund as providing for future liabilities of which we are now aware, as our population ages," the Minister said this week as he announced the Estimates of Exchequer spending in 2002. The Minister is also thought likely to have to borrow as much as €1 billion next year to meet spending commitments, probably at a rate of around 4.2 per cent.
At the same time, the €7.5 billion already in the National Pension Reserve Fund has not yet been invested and is returning around 3 per cent on cash deposit.
However, investment managers are likely be appointed by the end of the year and, while no decisions have yet been taken, it is likely that the money will be invested in stock markets next year.
Depending on the global economic environment, the rate of return on the funds could then increase.
As Dr Dan McLaughlin, of Bank of Ireland, pointed out, borrowing to both save and spend is rather unique.
"There is no problem borrowing for sensible capital projects that will create real assets which will be of benefit to the economy. But to invest in the pension fund when we have a capital infrastructural deficit which we are now tackling does not make sense."
In a note this week, AIB's Mr Oliver Mangan wrote: "One could ask the question why public capital spending on badly needed infrastructure projects should be slashed by €800 million, when €1 billion is being set aside for a pension fund that will not be drawn upon until 2025 - or indeed, why borrow to fund public servants pensions at all?"
Prof Brendan Walsh, of UCD, broadly agrees. "It does not make sense to borrow unless you are using the money for something that has a higher return, and most of the capital projects do have a high rate of return. The pension fund is marginal.
"A recession is not an argument for slowing down spending unless the recession were so deep that traffic around, say the M50, evaporated."
His Trinity counterpart, Prof Philip Lane, also questioned the logic of borrowing and saving. "This is probably not what the Minister intended when he set up the pension fund at a time when it was assumed the surplus would continue for longer."
He added that he was worried about the Government cutting back on infrastructure spending. "That is what governments have always done and we always pay later when all the investment has been deferred."
Mr Jim Power, investment director at Friends First, said it simply did not make sense to invest in a pension with liabilities 25 years down the road, rather than in necessary capital infrastructure.
"The funding should have been allowed to fluctuate between 0.5 per cent and 1.5 per cent of GNP, depending on trend growth in the economy."
ESRI research professor Mr John FitzGerald asked whether postponing investment in infrastructure made sense while investing in equities.
"I would prioritise investment," he said, "although it is not clear that the Government has to be constrained in this way."
He pointed out that the social insurance fund is also in substantial surplus and, as a result, the Government could actually be saving on the double.
Mr Austin Hughes, chief economist at IIB, said the cutback in capital spending pointed to a significant inconsistency in terms of philosophy, although the principle of putting money away was a good thing.
