Opinion: How should Ireland spend €14 billion?
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By Rory O'Farrell, Lecturer in the School of Tourism and Hospitality Management
In the 1985 film ‘Brewster’s Millions’, Montgomery Brewster is tasked with spending a vast fortune within a month, and have nothing to show for it at the end. He succeeds, though in the process learns value of money and some life lessons. Ireland is at risk of squandering a far larger fortune, without learning anything from the process.
When people are asked how to spend €14 billion, they general think of ‘on what’. However, the mechanisms through which money is spent, and controls in place, are just as important in deciding ‘how’ to spend money. Ireland needs a new system for procurement and investing in infrastructure.
Although Ireland is likely to receive the best part of €14 billion from Apple as a result of a European Court of Justice decision, we have already received even greater windfalls in recent years. The Fiscal Advisory Council estimates that Ireland has received €44bn from 2015 to 2023 in windfall corporation tax receipts. This amount is roughly equal to what was spent by Ireland on bank bailouts during the Global Financial Crisis. In 2024 we can expect another €11bn in windfall gains.
So far most of this has gone on day-to-day spending such as tax cuts or increases in items such as wages and social welfare. Nevertheless, the prospect of receiving an extra €14 billion encourages us to rethink how strategically we spend money.
Ireland has clear deficits. Staffing levels in public services have not kept pace with population increases. This has led to problems with waiting in Limerick hospital, a lack of school places for children, and the navy lacks the sailors to crew all its ships. These all need to be addressed. However, long-term funding issues require long-term sources of income such as from taxation, and using one-off windfalls only postpones problems.
Instead, one-off gains should be spent on one-off items like infrastructure, for which we have clear deficiencies.
Ireland’s housing problem is acute. There is a growing consensus that we need to almost double the number of new homes being built, with groups such as IBEC, trade unions, and government in agreement. However recent trends are worrying, both employment in construction and the number of new dwellings completed are both down almost 5% this year. Greater spending in this area is clearly warranted.
Ireland also lacks infrastructure that is typical in other European countries, such as a metro. Greater spending is needed to simply to keep pace with our growing population and to meet the targets set in the National Development Plan as construction prices have increased.
While windfall gains mean fiscal constraints have eased, there are physical constraints as to how much money the economy can absorb. A large investment stimulus would likely be inflationary. Unemployment is close to record lows limiting the number of people that can be hired for day-to-day services, or for construction projects. Therefore, a prudent course would be to raise taxes to take out some of the heat from an investment boom, and this revenue would also solve long-term funding needs.
It has been proposed that rather than spend the corporation tax windfalls, Ireland should set the money aside to help meet future pension costs as Ireland’s population ages. However, establishing a fund for this purpose would do little to ease future pension costs. This is as ageing costs rise with the size of the economy, as pensions are implicitly linked to wages and incomes, which in turn depend
on economic growth. As the economy will grow substantially over the next decades, setting aside a proportion of a comparatively small economy has a moderate impact on a future larger economy.
Instead, Ireland should create a National Infrastructure Fund to absorb windfall corporation tax receipts, and gradually increase infrastructure spending, preventing a return to the past boom-bust pattern of public investment.
In addition, a new agency should be established that is responsible for procurement of infrastructure, drawing down from the infrastructure fund. Ireland is replete with examples of poor procurement, from bike sheds at Leinster House to cost overruns in the National Children’s Hospital. Mistakes can be forgiven, so long as they are learned from. However, procurement experience gained in individual projects is repeatedly lost. Instead, having one procurement agency would allow that agency to learn from negative experiences and build up expertise.
In addition, local government should be trusted to build social housing. At present various methods such as public private partnerships and approved housing bodies are used to keep spending on housing ‘off-the-books’ and in line within boundaries agreed with the EU. This has always been a false economy, and our large surpluses mean this reasoning is no longer valid.
In the film, Brewster squandered a fortune, but due to the lessons learned, he inherited an even larger fortune. Learning lessons on how we spend money could be one of the greatest benefits from gaining €14 billion.