The report of the Review Group on State Assets and Liabilities has been published here. While some of the key recommendations had been signalled over recent days in the media there is a lot of detail in the report. Apart from the recommendations on asset disposal there are lots of recommendations on the regulation and governance of state bodies.
Author: Edgar Morgenroth
Professor of Economics at Dublin City University Business School
The UK Budget was published yesterday. One of the noteworthy changes announced as part of this is a reduction in corporation tax:
“a reduction in the main rate of corporation tax by a further one per cent. From April 2011, the rate will be reduced to 26 per cent with further yearly reductions of one per cent until 2014 when it will reach 23 per cent”.
In addition the UK Treasury has published a consultation document entitled Rebalancing the Northern Ireland Economy, which specifically considers the potential for, and costs and benefits of devolving the power to vary the corporate tax rate in Northern Ireland, potentially reducing the rate in Northern Ireland to the 12.5% that applies in the republic of Ireland.
In the context of the pressure from France and Germany for the Republic of Ireland to raise its corporation tax rate, both the reduction in corporation tax rates in the UK and the potential harmonisation of the corporation tax rate to 12.5% on the island of Ireland are an interesting development.
John Bruton has an interesting opinion piece in the Irish Times – the headline is “Europe also responsible for Ireland’s Banking Crisis”. He is of course absolutely right to point out, as others have done, that this crisis would not have happened if German, UK, Belgian and other banks had not lent to Irish banks, just as much as it would not have happened if Irish banks had not lent to Irish developers. What he does not point out is that other EU members benefitted greatly from the Irish boom e.g. where were the BMWs, Mercs, Audis etc. built?
John Bruton is very critical of the EU response and highlights that it is very narrow and one sided. For example he points out that the agreement reached at the last summit only provides a mechanism for help if the crisis threatens the entire Euro-zone – no scope to help out countries hit by an asymmetric shock. He also points to other crises facing the EU that need serious action.
To me the approach taken at the summit (and during other recent decisions) implies a departure from the principle of solidarity between the EU members that was supposed to underpin the EU. Of course all EU members can start looking after domestic interests only – Angela Merkel might end up with a nasty surprise the next time she is looking for a decision that requires unanimity. In that sense, far from solving problems, the last summit has added more uncertainties for the EU. No doubt the markets will use the Christmas break to sharpen their knives!
An interesting little scrap has broken out between An Taisce and the NRA. As reported in the Irish Times yesterday, An Taisce has accused the NRA of using false data, while the Irish Independent reports that the NRA dismisses the criticism.
The criticism by An Taisce refers to traffic projections which are now seven years old, and the fact that traffic volumes have been falling. The NRA counters that roads are build with a longer time horizon in mind. While I agree with the NRA that roads are build with a longer time horizon in mind, it is nevertheless true that the projections are seriously out of date and that the starting position has changed significantly. Furthermore, there are at least some schemes, which are grossly over designed. An Taisce points to a refusal for planning permission for a dual carriageway between Bohola and Ballina, because the NRA apparently failed to support the project on traffic grounds.
Unfortunately gold-plating of projects is not unusual. In the ESRI Mid-Term Evaluation of NDP 2000-2006 we pointed out that “roads with capacity of 55,500 AADT, or anywhere near it, appear to be a significant overdesign for the numerous lightly-trafficked sections of the N8 and N9”. Such schemes cannot pass a reasonable cost-benefit analysis when compared to more appropriately sized schemes. Unfortunately, the lesson does not seem to have been learned and the tax payer is expected to pay for overdesign again (the fact that some of the schemes are PPPs is irrelevant here as these also have to be paid for by tax payers).
Take the example of the N2, for which there are two proposed schemes in the system. I have already referred to the idiotic scheme to by-pass Slane where the key issue could be simply dealt with via a HGV ban.
The second scheme is in North Monaghan, where a by-pass of Monaghan and Emyvale to dual carriageway standard is being pursued. Interestingly Monaghan has already been by-passed and anyone who knows the road also knows that there is no danger of congestion except through Emyvale (for which a by-pass is likely to be supported by some analysis). Traffic counts bear this out – average total volumes (north and southbound) for 2010 amount to 5,413 AADT. Why then are we building for 35,000 AADT – almost seven times the current volume? Further south, the section between Castleblaney and Clontibret has been upgraded to 2+1, and further south still between the M1 and Castleblaney a wide 2 lane road is perfectly sufficient to achieve the target level of service (80km/h) – both of these sections of road carry a higher level of traffic than that, which is supposed to be upgraded to dual-carriageway standard.
The construction costs of a dual carriageway are 82% higher (according to the NRA Road Needs Study) than for a wide 2 lane road – can we really afford such goldplated schemes?
As has been widely reported the Minister for Finance has established a Review Group on State Assets that is chaired by Colm McCarthy.
The terms of reference are:
While most comments in the media have interpreted the focus on asset disposals to refer only to privatisation, it is perfectly possible that the various state companies hold assets that might not be essential for the efficient running of these businesses and thus could be disposed of without privatisation.
In relation to privatisation it will be important not only to consider the short-run gain in funds through the sale of assets, but the longer-run impact on the competitiveness of the economy. Long-run considerations should include the loss of control of national strategic assets that would result from a sale. This might be addressed by keeping the key infrastructures such as networks in public ownership.
In some cases it might also be useful to consider a long-term lease as an alternative to an outright sale of assets, which will also yield revenue up-front but avoids the ‘selling off of family silver’. Joint ownership is another option.
Looking through the list of assets to be reviewed it is hard to ignore the differences in ownership patterns with many other countries. Electricity generation, ports and airports are private in many countries.