How NDP success will depend on focussed spending

Successful rollout of the National Development Plan will be critically dependent on the decisions made today including the level of expenditure, focus areas and prioritisation.

In brief:

• Record capital investment programme justified by a combination of infrastructure deficits and a need to prepare for future challenges
• Getting more from existing assets and prioritising transformational projects which maximise economic, social and environmental outcomes
• Once in a generation opportunity to enable a greener recovery and enable citizens to make more sustainable choices while also enhancing their lives

Review to renew:  2021 National Development Plan

The €116 billion National Development Plan (NDP) was originally due to run from 2018 to 2027. The plan has now been extended to 2030 and the Government has undertaken a comprehensive review which aimed to reassess investment plans, update project costings and highlight any new issues which needed to be taken into account to ensure that it meets the objectives of the Programme for Government, and to take into consideration the continuing impacts of and recovery from Covid-19.

The first phase of that review process is now complete and has resulted in the Review of the National Development Plan report published in April by the Department of Public Expenditure and Reform.

The second phase of the process will see the Department of Public Expenditure and Reform lead a strategic dialogue with other Government Departments with the aim of agreeing new five year rolling capital allocations as well as overall 10 year capital ceilings for the duration of the NDP.

The Phase 1 report followed a public consultation process which generated 572 submissions. EY availed of the opportunity to contribute to the review and made a submission covering a wide range of areas including the proposed level of expenditure, areas of focus, prioritising projects, management and governance, communication dimensions, leveraging data and structural changes.

In this, the first of two articles based on that submission, we look at proposed level of expenditure and priority areas to be addressed.

Proposed level of expenditure

In the first instance, it must be asked if the overall level of public spending on capital investment is correct. When considering capital investment on this scale, it is important to look at both short and long run factors.

Short term investment requirements can arise in reaction to events, such as recent emergency investments in health infrastructure.

In the long run, capital investment should be anchored by a number of factors including expected output growth, the rate of population growth, the investment rate required to maintain and improve existing capital stock, and the long-term national target to move to net-zero emissions by 2050 through energy system transformation and large-scale retrofitting of the stock of buildings and other future initiatives.

The rationale for the high level of investment envisaged is clear in terms of the infrastructure deficits that exist, particularly in housing, and the requirement to keep pace with population growth.

More broadly, the uncertainty and disruption created by Covid-19 and Brexit means a high rate of public investment could help to offset depressed rates of investment in the private sector and boost the long-term growth potential of the economy.

Furthermore, the significant investment in new infrastructure and upgrading existing assets that will be required to meet Ireland’s climate and energy targets can also provide quick wins and help kick start the economy as Ireland emerges from the pandemic in 2021.

Taking these short and long run factors into account, the very high levels of capital expenditure envisaged are not excessive.  Having established that, the next question is what the capital budget should be spent on.

Focus areas

There can be an overemphasis on developing new projects instead of updating and upgrading existing capital infrastructure. It is therefore important that a balance be struck between capital and operational spending within the NDP. Failure to maintain an asset will rapidly lead to a deterioration in its condition or a serious shortening of its lifespan with the cost of replacing it often far greater than any savings on maintenance spend.  New capital investment should be focused on areas where no existing resource exists which would be suitable for upgrading.

This is a once in a generation opportunity to enable a greener recovery.  The sustainability agenda should be at the core of all investment, projects at the heart of this agenda include offshore wind, fast-charging network on roads, retrofitting building stock and accelerating the National Broadband Plan.

Particular attention should also be paid to the regions and those projects which will enhance their attractiveness for investment, this will boost local economies and help offset some of the negative consequences of urban sprawl and high cost of living in Dublin.  The NPF anticipates growth of one million people by 2040, this growth needs to be facilitated by more balanced regional growth.

In terms of sectoral focus, we believe that healthcare, housing, public transport, climate and sustainability, utilities and education all require attention for the following reasons.

• In healthcare, Covid-19 has highlighted the important impact of historic under investment and the ambition needed to address challenges such as access and our complex public-private system. Ireland already has a good network of hospitals and the focus of investment needs to be on additional capacity, elective health infrastructure, primary care centres, community infrastructure and improved technological solutions.
• Housing presents a significant challenge in terms of affordability and availability. Some 36,000 new units a year will be required to meet demand for the next 21 years. This is well above current supply, expected to come in at around 19,500 units in 2020. The ability to develop these housing units is directly linked to the provision of enabling infrastructure, including the relevant utilities, especially water. While building new housing developments in the right locations is clearly required, more effort should also be put into refurbishing existing empty properties and returning them to the market.
• Investment is clearly needed in major public transport projects such as MetroLink, Bus Connects and Dart+ which are vital to the provision of long-term sustainable communities and society. Investment should also be focused on improving the current Irish rail network, allowing for greener, more frequent and faster journeys for both passengers and freight.
• Ireland’s utilities infrastructure needs to be enhanced to allow all other objectives to be met.  The availability of suitable water infrastructure is a basic need to meet increased housing targets, the electricity grid needs to be upgraded to manage future trends of supply and demand, and the gas network needs to be decarbonised.
• Universities continue to compete with international counterparts and further investment is urgently required in third level educational infrastructure to ensure that Ireland continues to have a knowledge-based economy and attract talent.

Prioritisation

Having set out those broad focus areas, a prioritisation approach to projects is needed which can deliver the greatest impact on both improving citizens’ lives today and into the future. 

Firstly, through developing portfolio and programme management structures within sectors, the Government can consolidate projects within each focus area under a clear line of accountability. This portfolio approach can ensure that projects are selected which maximise benefits across the sector as a whole, balances the portfolio to cover short and long term objectives and manages project delivery within a specified funding envelope.

Secondly, projects which are transformational in nature based on their potential economic, social and environmental outcomes need to be prioritised and backed by central Government. This will ensure that the most important projects do not get left behind or overlooked because they are expensive, challenging or in a sector of less focus.

Finally, programmes should be identified which address the immediate needs of those sectors of the economy most impacted by Covid-19 and Brexit.