Bank of Ireland chief economist Dan McLaughlin has called on the Government to reform an approach to capital spending he says has failed to spend €3.3 billion of its budget since 2001.
Speaking to the Association of Consulting Engineers of Ireland today, Dr McLaughlin said although the infrastructure deficit is being addressed, with €43.5 billion earmarked for capital spending, the way the Government spends money may put these funds in doubt in the future.
The Government's policy of spending during the good times and cutting back during downturns - known as pro-cyclical fiscal policy - means that the capital budget, which provides returns over the long, term is vulnerable to short-term political expediency.
The second problem with the current system is that the Government simply cannot spend the sums allocated each year, Dr McLaughlin said.
"This probably reflects supply constraints, including the planning system. In fact, the scale of this underspend is surprisingly large - the underspend in the total PCP programme in 2001 was €300 million, rising to €700 million in 2002, €300 million again in 2003, another €700 million in 2004 and a massive €1.3 billion in 2005.
"This brings the total underspend relative to planned outlays to a huge €3.3 billion in the five year period 2001-2005," Dr McLaughlin said.
To alleviate these problems, he called for an infrastructure fund that would lock in Exchequer funds for capital spending.
Money would then be drawn down from the fund as projects come on stream, therefore eliminating the risk of underspend and protecting the capital from the business cycle.
"There is also something to be said for taking advantage when long term interest rates are low [as in 2005] to borrow, on the assumption that the return on public investment is likely to be well in excess of 3-4 per cent," Dr McLaughlin added.