ESRI warns Government on development plan spending

THE Government should not spend excessively on the next National Development Plan, the country’s major economic think-tank warned yesterday.

The Economic and Social Research Institute [ESRI] said the existing NDP, which expires at the end of this year, had achieved poor value for money.

Dr Edgar Morgenroth of the ESRI said Finance Minister Brian Cowen should exercise caution when deciding on funding for its successor, which will run from 2007 to 2013.

Reacting to Thursday’s Estimates, Dr Morgenroth said the figures suggested a 12.7% increase in capital spending next year.

He acknowledged that was only slightly above the 11% increase which the ESRI had recommended as sensible in a review published in advance of the Estimates.

But the difference was still a cause for concern, he said.

“We thought it would be more prudent not to ramp up the investment too rapidly because the experience was that [it] led to very poor value for money.”

Speaking on RTÉ Radio, he agreed that the country’s finances were in good shape and that there was public appetite for spending on services and infrastructure.

But he warned: “While we have the revenues… we need to make sure that we get value for money.”

The danger with throwing money at the next NDP and setting overly-ambitious targets was that the construction industry would be over-stretched.

“The Government has the money, Brian Cowen can obviously decide to spend that and it’s very difficult to persuade people not to spend it,” he said. “And it’s very clear that we have very many areas where investment is absolutely required — public transport, etc.

“The problem is we don’t have the capacity in the economy to build all those new structures, and in that context, we were recommending a somewhat more modest NDP.

“We have to wait and see how the NDP actually pans out, but we were also saying at the time that perhaps if the right measures were taken in the Budget, some pressure could be taken off the construction sector through reduced private demand — perhaps by getting rid of some of the tax breaks for investors. That would allow a larger NDP and a larger investment without damaging the economy.”

In the review the ESRI said the Government should prioritise vital projects rather than over-stretch and risk failure.

It said the Government could still afford to increase spending but advised that the increases be modest.