The National Development Programme (NDP), the State’s investment plan, is a vital document, involving planned spending of €165 billion between 2021 and 2030. Yet despite the massive sums involved and the fact that they increase State investment significantly, pressure is on to spend more. This reflects, in large part, a greater-than-expected increase in the size of the population and strong economic growth. It also results from the years of under-investment after the financial crash – and the need to catch up in many areas.
In response to this, the Department of Public Expenditure commissioned the Economic and Social Research Institute (ESRI) to examine the options. As the report says, the obvious response– were there no constraints – would be to increase the level of investment in the NDP. But there are constraints, in an economy where unemployment is low, prices are rising and there is a shortage of available construction workers.
The report provides a useful analysis of the options, sets them out well within the context of the need to cut carbon emissions and looks at the trade-offs facing policymakers. As ESRI director Alan Barrett says, deciding where and how to allocate resources is essentially a political decision. But analysts can provide the vital framework within which policy can be decided, making explicit the implications of what is decided.
A central theme of the report is that just planning to increase investment in key areas, without accompanying this with other measures, is likely to fuel wage and price inflation, leading to bad value for the State. A decision to increase State spending on housing further, for example, might need to be accompanied by measures to increase taxes or cut spending elsewhere, or to divert activity from other areas of the construction market. The slowdown in the office market could provide some opportunities here.
In addressing this, the State faces something of a conundrum. Increasing investment risks fuelling inflation, but in the longer term more housing and infrastructure can increase capacity in the economy and reduce price pressures. There are economic reasons to try to find a way, in other words, as well as social ones. And in terms of vital climate investments in areas like wind energy, faster progress is essential.
The report says that, because of this, new ways of assessing investments are justified, taking more fully into account the climate emergency and the severe constraints facing the economy and society. And also counting in the potential longer-term contribution of such investments in cutting inflationary pressures. This does not suggest a gung-ho approach to boosting investment. But it may provide a road-map to matching the resources available in a better way to the State’s obvious economic, social and climate needs.