merrion street

I am delighted to be here this morning at this important Conference. I welcome the opportunity to give you an overview of our Capital spending plans for the next five years. I will also touch briefly on the current economic position and outlook and the broader public sector reform agenda of my Department.

Despite the challenges we are facing as a country, the Government agreed to provide €17 billion for our capital programme for 2012 to 2016.

I know that the past few years have been especially turbulent and difficult for your sector, as private sector investment has virtually ceased and exchequer capital investment had been cut to help restore balance to the public finances. We know that this is not ideal but we are all aware of the overriding necessity to reduce spending in order to cut our deficit. We know that this has to be our primary objective. We need to do this in order to regain our national sovereignty and put ourselves in a position where we have more resources available.

Of course it’s not just a matter of cutting the government deficit and downsizing the public sector.

The Government is acutely aware of the need to grow the economy and stimulate activity. That is why we published our Jobs Action Plan last week. It is why, as I made clear at the launch of the Government’s Infrastructure and Capital Investment Programme last year, that my Department is interested in leveraging additional investment for the Irish economy that meets obvious value for money criteria. It is why we sought to maximise the proportion of asset sale proceeds to be invested in our economy. Let me be clear, my Department is open to ideas from pension funds and others for projects that work for both the state and the investor concerned. That such investment requires to be compatible with our Troika programme fiscal targets is a fact of life.

I think it is worth making a few remarks about the current economic situation. The latest figures show that GDP increased by an average of 0.7 per cent in the first three quarters of 2011. For the year as a whole, growth of 1.0 per cent is expected.

The external sector is leading the recovery, with exports of goods and services now well in excess of pre-crisis levels. This shows that the improvement in competitiveness, which has been evident in recent years, is standing to us. This, I believe, demonstrates the inherent flexibility of the Irish economy – prices and costs in Ireland have fallen significantly, and further improvements are in the pipeline. The strong export performance also means that our balance of payments with the rest of the world moved into surplus in 2010 for the first time in over a decade and is expected to remain in surplus through the forecast horizon.

Obviously as a small open economy whose recovery is being driven by exports, we will be affected by the difficult patch that the global economy is going through. However, the composition of our exports and the aforementioned competitiveness improvements will provide some support. Notwithstanding this uncertainty, I would emphasise that all forecasters, both institutional and private, expect that Ireland will record positive GDP growth again in 2012.

Looking toward the medium term, the external environment is expected to strengthen from 2013 onwards, as is export growth. As this stronger export performance starts to feed through to investment and employment, coupled with the Government’s domestic initiatives, consumer confidence is expected to return and the savings rate should start to unwind somewhat. So what we expect to see is economic activity beginning to gradually firm and broaden out - from being externally-driven to domestic demand also making a renewed contribution.

I think it is also worth mentioning that market sentiment towards Ireland is improving. I understand that for instance the fund managers who are marketing our Strategic Investment Fund are getting a consistent message from the investor community that there is renewed interest in investment in Ireland and international funds managers are actively looking at the potential here. The yields on our government bonds have stabilised and have been falling steadily since last summer. This is positive and encouraging and a vote of confidence in the steps we have been taking to stabilise the banking system and the public finances.

As you will be aware, last year I initiated a comprehensive review across all government departments to identify expenditure programme savings, scope for savings arising from efficiency and other reforms, proposals for reducing and/or merging of agencies and associated reductions in staff numbers. Alongside this review, I also asked my Department to carry out a review of the exchequer capital programme, to identify what critical infrastructure is required to best support economic growth and recovery, achieve the highest sustainable employment impact in the short to medium term, or meet urgent and compelling social needs.

Based on the outcome of that review, last November I published the Government’s capital spending programme of over €17 billion for the next five years. This level of expenditure is based primarily on what we can afford. In that context, we have prioritised the investments that are most needed. Some other desirable projects have to be put on hold until the public finances have improved.

Our priorities as a Government are clear and are evident in the plan - in summary: jobs, schools and health. Over the past decade, some €70 billion was invested in infrastructure and the productive sector. Judged by a range of measures, the quality and quantity of the country’s stock of infrastructure has been considerably augmented in recent years. I am sure that many of you participating at today’s conference will have contributed to the successful management and delivery of that important investment.

Obviously, when I was discussing the plan with my cabinet colleagues, we had to make some stark choices, focus on key needs and have had to delay or cancel some projects.

However, I was also keen to progress some worthwhile important and large infrastructure projects that have been planned for some time. I agreed that we should part-fund the construction of the New Children’s Hospital with some of the proceeds from a new licensing arrangement for the National Lottery involving an up front payment in exchange for a longer term licence. My Department is working on the details of this proposal which I will bring to Government at the earliest opportunity.

Although our Capital Investment report is primarily about allocations through the Public Capital Programme, the Government is determined to maximise the use of all available resources to promote growth and job creation.

The Government is pursuing an investment strategy, which brings together a number of strands of non-traditional funding, through NewERA and the Strategic Investment Fund. The SIF will channel commercial investment from the NPRF towards productive investment in the Irish economy. The Fund will seek additional commercial investment from private investors and target investment in areas of strategic significance to the future of the Irish economy. We need to look at additional ways to utilise the potential of the NPRF to stimulate the domestic economy and I have had discussions both with Minister Noonan, and the NTMA family of agencies, including New Era and the National Development Finance Agency in this regard.

The Strategic Investment Fund will comprise a series of sub-funds targeted at commercial investment in critical areas of the Irish economy, including infrastructure, venture capital and the provision of long-term capital for SMEs. The NPRF has committed €250 m to the infrastructure fund which is now being actively marketed with a view to raising a total of €1 billion.

Members of the construction industry will benefit from the additional investment that this will generate.

We will also continue to pursue the PPP approach to deliver public infrastructure alongside more traditional procurement, where it makes sense and offers value for money. Of course I acknowledge that the private funding market for PPPs is very challenging. Bank credit is in short supply internationally; our sovereign debt situation presents its own difficulties. I have asked my officials to actively engage with private institutional investors to see whether it might be possible to match our immediate funding requirements for projects with their long term income stream needs.

My officials are also in consultation with our European counterparts to explore best practice and similar initiatives in other jurisdictions like the UK. This work is being given immediate priority by my Department.

As I have already indicated I announced that, following intense engagement, the Troika has agreed that a third of the proceeds of our asset disposals programme can be used for re-investment in to our economy. This is a substantial change to the Troika’s previous position and will help promote recovery in the economy.

The Government has agreed with the Troika sale of state assets up to a value of €3 billion which would mean that we could retain around €1bn. We are now considering carefully how we should use this money to maximise the return to the economy.

While the level of resources available to us does not match the investment of recent years, it remains the case that the Capital Investment Plan sets out a significant tranche of investment over the next five years. It has been designed to facilitate economic growth and build our social infrastructure. Capital spend will now see an increasing share of our scarce resources allocated to jobs, schools and healthcare facilities. Again as I’ve indicated we remain interested in doing more.

We need to urgently deliver additional school places to meet population growth. We will be spending €2.2 billion for 40 New Schools and 180 other major School Projects.

Despite the fact that we have nearly completed our major inter urban motorway network, we will be spending €2.9 billion on our national and regional road programme, including a new PPP road, the Ballaghadreen By-pass, motorway maintenance and provision for local and regional roads. We will also be providing €1.4 billion for the LUAS interconnection, Rail Safety and regional cities traffic management and removal of bottlenecks.

We need to continue to spend some €1.5 billion for Water Services and €1.4 billion is being provided for Social Housing Provision and some Regeneration schemes.

Creating jobs remains a top priority for Government. Accordingly, I committed €2.3 billion to the Department of Jobs, Enterprise and Innovation. We are ensuring that our direct supports to industry will be maintained in excess of pre-recession levels when total capital expenditure was at its highest.

This represents a wide range of programmes and projects that will be funded over the next five years. €17 billion is still a remarkable amount of money reflecting my priorities and those of the Government. The State will be spending some €17 billion over the next five years on activities throughout the country and this will help support employment in many key areas.

It is important to note that less expensive re-fit, refurbishment, and up-grade works can be more labour-intensive than larger capital-intensive projects. I’m sure that most people here will know that smaller scale projects such as school building and repair, or smaller local and regional road-works, tend to be more labour intensive than major national infrastructural projects.

However, I believe that we are providing for a level of funding that will not constrain the capacity of the economy to grow. This is the normal benchmark for deciding on the appropriate level of infrastructure investment. It is worth pointing out that in the years to 2016 rate of public capital spending will remain broadly in line with the European average, despite the tight fiscal constraints. I believe that our investment framework will provide greater certainty to Departments engaged in planning and public works programmes and to the construction sector who deliver on those programmes.

While I recognize that it is important to support employment in the construction sector, immediate job creation is not the primary goal of investment policy. Adding value and helping to create sustainable employment in the medium term is. The economic reasons for a project to go ahead should be based around what the level of demand for the project is. At present our infrastructure capacity is largely sufficient to cater for demand, meaning that the return on additional capacity is low or absent.

However, the government is keen to continue to provide supports for the sector and more than 23,000 people were working in Enterprise Ireland supported companies in the construction and timber sector during 2011.

Of course we also appreciate that there is an immediate challenge in terms of re–skilling construction workers that have been most affected by the downturn for alternative employment opportunities in the future. Earlier this month, my colleague the Minister for Jobs, Enterprise and Innovation, Mr. Richard Bruton T.D. launched the Government’s Action Plan for Jobs. Included in the plan is a commitment to prepare a national strategy for the construction sector to 2015 outlining the opportunities, challenges and actions needed to realise the potential of the sector, to retain expertise in Ireland and to continue to develop capabilities over coming years and to contribute to the development of a cluster development initiative for the sector.

On the training side, the Department of Education and Skills will review the apprenticeship model including costs, duration and demand with a view to providing an updated model of training that delivers the necessary skilled workforce to service the needs of a rapidly changing economy and ensures appropriate balance between supply and demand.

They will also aim to ensure that labour activation programmes continue to be aimed at enhancing the employability of the unemployed, reskilling, upskilling and keeping redundant workers/unemployed persons close to the labour market and are tailored specific to the needs of this cohort of unemployed. Steps will also be taken to ensure that Higher Education Instittutes and other providers meet emerging and future skills needs of enterprise within the Green economy relevant to construction.

These measures should help to maintain and create employment opportunities both within and outside the construction sector.

On other areas of public spending, we need to ensure that we have a more robust decision making framework going forward. The Comprehensive Expenditure Review was a useful start but I do not want this to be seen as a once off exercise.

I am committed to implementing wide-ranging reform of the State’s budgetary architecture. A number of expenditure reforms will improve management of scarce public resources and tackle inefficiency. The old ‘bottom up’ processes of expenditure growth – whereby the total expenditure allocation for a year only became apparent once all of the demands had been catered for – is being replaced with advance planning by Government based on the resources that are available.

I’m replacing the old annual Estimates process with a modern, multi-annual framework which will allow for full transparency about the allocations available to each Department over the coming three-year period. This will open the way for structural, medium-term planning and prioritisation within each area, with full public input and parliamentary oversight.

In a time when resources are exceedingly scarce, old expenditure lines are no longer sacrosanct, and all areas of spending should be subject to rigorous scrutiny. A tough, clear new VFM Code is also being launched. Under this VFM Code, the Government will re-double the processes for ongoing scrutiny and evaluation of public expenditure; and all Departments will work to demanding new timetables in this regard each year, answerable to their Oireachtas Committees for progress and action.

More detailed information on government spend

Today my Department is publishing an unprecedented amount of information about what exactly Departments have achieved, and what they are aiming to achieve, with the public funds that are granted to them by the Dáil. It is not enough to know how much Departments are looking to spend. We need to know, and the public need to know, what exactly is being delivered.

The Government is determined that every area of public service should be accountable for performance and results. This will apply to Ministers and their Departments, as well as to all Offices and Agencies.

All of these reforms should help us to ensure that we allocate the right level of our scarce resources to the right areas and that we are getting the best value possible from those resources. With the current constraints on the public purse it is vital that value for money is obtained in the capital expenditure programme whilst at the same time delivering the much needed social and physical infrastructure which is the subject of many of the presentations here today.

In this regard I am confident that the reforms delivered as part of the Construction Procurement Reform initiative underway in my department will play a significant role in maximising the potential of this investment. Fixed-price, lump sum tenders have been sought since the introduction of the public works contracts in 2007 which has brought greater cost certainty to government departments and public bodies in administering capital budgets whilst ensuring greater cost control on the projects themselves.

As a public sector, we need to improve how we deliver services that meet our citizens needs where and when they are needed. Last December I published an ambitious and action focused Public Service Reform Plan.

The Reform Plan contains some 70 recommendations and 200 actions and sets out five main areas. These are:

· Maximising new and innovative service delivery channels;

· Radically reducing our costs to drive better value for money;

· Leading, Organising and Working in new ways; and

· Maintaining a strong focus on implementation and delivery.

· Placing customer service at the core of everything we do.

This is a challenging agenda but I am confident that we have the capacity to deliver on it. I can assure you that we will continue to take the right decisions and that we can create stronger systems so that can avoid past mistakes happening again.

Thank you for your attention and I hope that you enjoy the conference today- the programme looks interesting and I have no doubt it will generate plenty of debate and food for thought.