The Republic should set up an infrastructure fund in case another economic slowdown reduces its tax revenue or the Government fails to spend money earmarked for each year, according to a leading economist.

Dan McLaughlin, chief economist at Bank of Ireland, yesterday called on the Government to establish a fund that would receive money allocated for public capital spending at budget time as well as top-ups when the State sold an asset or when tax revenue was buoyant.

About €43.5 billion has been allocated to address the country's infrastructure deficit between 2006 and 2010, including €38 billion from the exchequer. However, changes mean the nature of fiscal policy in Ireland may put these funds in doubt in the future, Mr McLaughlin said.

In addition, the Government usually doesn't spend the sums earmarked for each year.

The Government spent €3.3 billion less than it initially planned under the public capital expenditure programme in the five years through 2005, according to Mr McLaughlin. The exchequer undershot its plan by €1.4 billion.

The Government typically spends freely from bulging tax coffers during periods of faster growth, Mr McLaughlin pointed out, citing Finance Minister Brian Cowen's Budget for 2006.

An infrastructure fund would enable money to be "drawn down as projects come on stream, therefore eliminating the risk of underspending and adding a counter-cyclical element to capital spending," the economist said, addressing the Association of Consulting Engineers of Ireland. This would mean "spending on capital projects would still be funded in periods of weaker economic activity." The Government should also take advantage of low interest rates to borrow to finance capital spending, as it would create greater return on public investment, Mr McLaughlin said.