Fine Gael and New Era economics

Fionnan Sheehan and Moore McDowell combine to opine:- The core proposal is to invest €18bn in internet, energy and water networks to create 105,000 jobs within four years.

While there’s far more substance to it than to any of the platitudes coming from the Labour Party, NewEra still has a whole lot of question marks hanging over it.
Many of the proposed areas targeted for investment are already covered in existing government policy and investment plans by both semi-state and private companies.

The 105,000 jobs projection is far from clear-cut as the party admits that 48,000 of these will be temporary during the construction of projects and the remaining 57,000 will apparently come from the investment in those particular areas.

The largest doubts, however, hang over the source of the €18bn of expenditure.

The party’s proposals to privatise some state assets, raid the National Pension Reserve Fund, issue bonds and secure investment from the European Investment Bank are highly optimistic and require a massive leap of faith by the voters to believe that it will all come off.

Fine Gael is identifying broadband, water and energy as key areas in need of infrastructural investment and remedying this problem is essential to achieve economic growth and improve competitiveness.

Fine Gael is drawing together the various strands of direct stimulus of the economy, via investment spending, selecting key areas for this spending to improve competitiveness and the current fiscal and banking crisis.

The key to the plan is some existing National Development Plan (NDP) proposals being taken into the NewEra programme. But critically, the financing of these should not be from taxation, as indicated by the present Government, Instead, financing of elements of the NewEra programme is to be provided through a set of organisational changes in the semi-state sector to permit financing by bond and equity investment in commercial semi-states, as well as privatisation, where it is seen as no longer appropriate for the State to be involved.

The object appears to be to curtail the budget deficit and the growth of government debt as taxation earmarked for NDP investment is available to finance current spending and reduce the higher rates of direct tax.

“This would, in effect, mean that the finance would be off balance sheet, as far as the State and the debt to GDP ratio were concerned, since the Government would not be responsible for servicing the funds invested.

“The idea is that if, say, the new network operator floats bonds, or obtains equity finance to fund a development.

He says the figure of more than 100,000 jobs over four years is open to question and “may be to some extent aspirational”.

“While the proposal correctly identifies this type of spending programme as being fairly labour-intensive, and in particular as absorbing a good number of relatively low skill unemployed, it is of its nature temporary,” adds McDowell.

He also says the financing of the plan from equity and bonds finance implies that there will be “a genuine commercial return on the investment, which incorporates a risk premium.

“For this to happen, it must be the case that there is a pent-up or potential demand for the services of the infrastructure and a willingness to pay for the services of the infrastructure that will cover the servicing of the capital involved.

“Otherwise, it will become a non-performing state investment and part of the national debt again,” he says.

He advises caution on the water services, given the anticipated public objections to being charged enough for water to yield a profit for investors.

My own view is that Fine Gael has been good at generating innovative economic policies which does show that the party is ready to govern sensibly. It is laughable to fail to remember that Fianna Fail have proven arrogant cynical incompetent national managers and we are all suffering of this and will do so long into the future. Jobs prognostications and predictions issuing from major investments can only be indicative. It is easy to slag the opposition but putting proposals together to reverse the gloom and doom in the country is the national duty of Fine Gael.

Bruton and continuous change

I hope that Richard Bruton keeps studying the banks and offering solutions as things evolve because we will be stuck with NAMA even though many ( Tormey and Bruton) think it is a national disaster.

The Anglo Irish Bank policy must also move with the times and advice by the top financial experts such as Professors Kelly and Lucey should be sought for constructive criticism of Fine Gael policy. FG policy thus must evolve over time to reflect the locked in position of NAMA as time progesses.