Scaling back capital spending has been a central plank of the Government’s fiscal adjustment strategy. Nominal voted capital spending is set to fall from €7.2 bl. in 2009, to €6.5 bl. this year, to a planned €5.5 bl. in 2011. However, based on an examination of the project pipeline, the Construction Industry Federation believes that the procyclical cutback in spending will be considerably more severe, and conclude that “the Government’s ability to achieve its own spending targets in 2011 and 2012 is now in serious question”.
The Taoiseach defended his Government’s capital spending plans at the IBEC President’s Dinner last evening. In response, it is interesting to see both Lee Crawford, the incoming IBEC president, and David Begg argue vigorously for more protection of capital spending in side–by-side opinion pieces in today’s Irish Times. Unfortunately, in arguing for investment to support domestic demand, neither addresses the likelihood of a national creditworthiness/domestic demand trade off. This is just as limited a view as held by those who focus only on bond market constraints and ignore the demand implications of austerity plans.
I hope there will be more debate on the appropriate current-capital mix of adjustment measures in the coming months — though I can’t say I’m optimistic. It would be a pity if we end up following the path of least political resistance.