The Irish media has referred a lot in recent days to the Fine Gael stimulus plan, so I decided to go take a look at it. A one-sentence summary of the plan is that it would see the government borrowing an additional €11 billion over the period 2010-2013 and spending this on a set of energy, environmental and communications projects.
The plan is, to put it mildly, puzzling. The main source of funds is the Pension Reserve Fund, which our politicians (untrained in the sophisticated distinction between gross and net debt) apparently view as free money. In addition, the investments will be financed by a special bond issued to “the Irish public” and to “pension funds and international markets”. The plan states that the NPRF will be “replenished” with dividends from state companies carrying out these investments and from the sale of some state assets (of course, these state assets could be sold even without borrowing €11 billion).
I do not claim to be an expert in the microeconomics of Irish energy or communications markets, but it seems pretty far-fetched to think that these investments would pay back to the taxpayer at anything other than a very long horizon. I’d be interested to know what others think on this.
Next week’s budget will see the government raising taxes and cutting expenditure on front-line services, with painful adjustments totalling €4 to €6 billion likely to occur. However, few doubt that this adjustment is necessary. Against that background, the opposition’s plan to borrow an extra €11 billion to spend on a bunch of energy projects just seems to me to be very strange.