Analysis-Flush with multinational money, Ireland struggles to close infrastructure gap
By Padraic Halpin
DUBLIN (Reuters) – The glum faces of Ireland’s finance and spending ministers after hearing the country received an unexpected 14 billion-euro windfall in Apple (NASDAQ:AAPL) back taxes earlier this month made one thing clear: Money alone is not the answer to Ireland’s problems.
While France, Britain, Germany and others all struggle to find money for government spending, Ireland’s latest cash infusion is widely seen as an awkward gift on the eve of an expected election.
The problem is it has shone an unwelcome spotlight on government failure to turn a much larger recent multinational-driven corporate tax boom into real progress with intractable problems in housing, health and transport.
The ministers will use Tuesday’s budget to lay out a general plan for how the 14 billion – equivalent to 15% of annual spending – will be invested with water, energy and housing projects likely beneficiaries.
But they are already being goaded by the opposition about their record: a metro system first mooted in the 1990s that has yet to break ground, and a long-delayed new children’s hospital set to be one of the world’s most expensive.
Their fear is that the hard, slow work economists say is necessary may be a hard sell to voters in an election that polls currently suggest the coalition government is set to win – particularly as their rivals gleefully point out what the money could buy.
LEGACY OF THE CRASH
The challenges facing Dublin have their roots in the economic crash 15 years ago, when austerity brought capital spending to a standstill.
Despite recent sharp increases in the capital budget, Ireland’s central bank estimates public investment will only recover to 2008 levels in real terms by 2026.
Analysts say the failure of institutional capacity to keep up with the demands of a fast-growing economy and population – from a complex planning system to under-resourced regulatory bodies and the European Union’s lowest number of judges per capita – has compounded the problem.
“We’re out of practice and any muscle you don’t use for a long period of time is going to be harder to get working again,” said Gerard Brady, chief economist at business lobby group Ibec.
“Growth is only a problem if you don’t plan for it and don’t resource the systems to deal with it.”
Brady said Ibec members operating across Europe say that while Ireland has the same bureaucratic processes for industrial projects, it takes much longer to get through them.
Former European Central Bank chief Mario Draghi’s recent EU competitiveness report called out Ireland for some of the longest timelines for completing solar and wind energy projects, for example.
‘DELAY, DELAY, DELAY’
At the Construction Industry Federation’s annual conference this week, money was barely mentioned.
At a time when some EU countries are contemplating spending cuts and tax hikes, Ireland is an outlier with an economy set to grow by 2% this year and a budget surplus heading for around 3% of national income for the third successive year.
Instead the engineering, housebuilding and construction executives were calling for action to tackle persistent deficits in energy, water and planning – constraints the National Competitiveness Council recently warned risked choking off economic growth.
Despite public spending on homes swelling to the second highest proportionately in the EU, Ireland has its highest ever rate of homelessness, house prices are rising at almost 10% a year, and sky-high rents have long outstripped income growth.
A tight labour market only adds to the conundrum with minimal unemployment in the construction sector, few apprentices and warnings from the country’s fiscal watchdog that Ireland’s attractiveness to foreign labourers has waned markedly.
Ireland is not alone in facing a tight labour supply: An Ifo survey this year found 36% of German firms are suffering from a shortage of qualified workers. A CBI survey last year found more than two-thirds of UK businesses suffered labour shortages in the previous 12 months.
The Irish central bank last week warned of major challenges scaling up to the more than 50,000 homes needed every year until 2050 from the 33,000 units built in 2023 and said clear policy changes were required.
Long-promised government planning reforms aimed at restructuring and better resourcing the national planning body, introducing statutory timelines for decision-making and streamlining court challenges, are due to become law shortly, though some critics say they could make things worse.
Everyone agrees change needs to happen quickly, however.
“Unless you fix things, you could end up allocating loads of money to projects and not getting them over the line because of planning. Just delay and delay and delay,” said Owen Sisk, a senior executive at Sisk, Ireland’s largest provider of construction services.
“If you could deal with that, you could unlock a lot.”