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Budget 2021: Infrastructure Spending Emphasis Shifts to Sustainable Projects

27 October 2020

Budget 2021 increases infrastructure investment by €1.6BN from the 2020 amount to over €10BN. This is a welcome development that follows IMF advice to drive economic recovery through public sector projects. The number of social housing units to be built has increased and there will be more investment in “sustainable transport” projects than roads.

Benefits of infrastructure investment

€3.5BN has been allocated to the Department of Transport. €1.8BN is for “sustainable transport” which includes:

  • walking and cycling infrastructure
  • carbon-reduction programmes
  • greenways
  • public transport

€1BN is allocated for BusConnects, Metrolink and extending the Dart. There is increasing focus on the electrification of transport. This will be critical to reduce high emissions in the sector so Ireland can work towards meeting its climate change objectives.

€1.3BN will be invested in the maintenance of national, regional and local roads. This will enhance regional accessibility. New road schemes will also commence.

Each €1 invested in infrastructure can generate up to €1.80. This multiplier effect is from increased productivity, jobs, wages and profits that circulate in the economy. Shovel-ready projects and those with short commissioning periods should be prioritised. This will allow the economy to benefit from the multiplier effect in 2021 and 2022, when COVID-19’s impact will be most keenly felt.

Delivery is key for maximum economic benefits

Delivery of projects is key to gaining the most economic benefits as soon as possible. Less complex undertakings like walking and cycling projects that can be planned and constructed quickly should be implemented without delay.

As an EU Member State, Ireland is subject to EU procurement rules. These are very detailed and keep a level playing field between entities in various Member States who operate under different languages and cultures. This can be contrasted with other common law countries outside the EU such as Australia. They have a more streamlined and less prescriptive set of procurement principles - which can be an advantage when delivering major projects.

While our procurement rules and timelines are prescribed by the EU, what is within the Irish Government’s control is to continue reforming and resourcing the planning system. This will ensure that strategic infrastructure development makes its way through the system as quickly as possible, while still ensuring access to the courts and that projects are properly scrutinised.

Amendments to the planning system should be considered, particularly relating to judicial review, environmental authorisations, serial objectors who are not directly affected and permissions required where projects are included within local area plans.

Housing – how to increase supply?

€5.2BN has been allocated to the Department of Housing with the aim of 9,500 new social housing units being constructed in 2021.

The increased number of institutional investors in the Irish housing market, including in the private rented sector, is also helping to increase supply. The benefit for corporations acting as landlords in Ireland is that they can avail of the 12.5% corporation tax rate.  

Improved protections for tenants in recent years certainly represents social progress. However individual landlords, who may be liable for income tax at up to 50% of rental income, are finding the sector less attractive. Other countries have “negative gearing” which allows bigger write offs against tax obligations for landlords. This is credited with producing a greater supply of private sector housing and also moderating rent levels.

Since the property bubble burst more than 10 years ago, it was not top of any politician’s agenda to be seen to be giving concessions or tax breaks to landlords and developers. While the shortage of housing in recent years can be attributed to many factors, the Government should reconsider whether the policy pendulum has swung too far against landlords. Are they pushing people out of the sector and adversely impacting on the supply of new homes for sale and rent, with the result that rents are increasing?

Conclusion

The increased capital investment in Budget 2021 should benefit the country as a whole. Due to the pandemic, the ECB is ensuring interest rates are kept low and the European Commission is being accommodating to Member States running deficits. This means Ireland can borrow at low interest rates. In a few years this may change and monetary and fiscal conditions could tighten, with a possible increase in the interest Ireland pays on its national debt.

Ireland needs to prepare for this by investing borrowed money on core infrastructure to boost economic capacity, as opposed to using those funds for increased Departmental day- to- day spending - which can be very difficult to roll back in future years.

For more information, contact a member of our Construction, Infrastructure & Utilities team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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