Construction Industry Federation  Annual Conference 2015

Address by Minister for Public Expenditure & Reform  Brendan Howlin, T.D

Good morning Ladies and Gentlemen. I would like to thank the CIF for inviting me here today. I am very pleased to have the opportunity to update you on the efforts being made by my Department and across Government which demonstrate our commitment to rebuild the construction sector and deliver key infrastructure across the country.

On Tuesday I announced the Government’s 6 year capital investment framework, Building on Recovery which represents an exchequer spend of €27 billion over six years. If we add investment from the wider semi-state sector, and off-balance sheet mechanisms like PPPs, total state investment amounts to €42 billion over the period, an average of 3.5% of GNP per annum.

By working together, the State and you, the construction industry, will deliver key investments in transport, education, health and enterprise across every part of the country, which will boost our competitiveness, create jobs, and upgrade our social infrastructure.

Progress
Significant progress has been achieved in recent years in stabilising the construction sector. The Capital Plan announced in 2011 contained necessary reductions in expenditure which reflected the fiscal position we were then in. Those difficult but necessary decisions are now paying off and have allowed Government to increase the level of expenditure on capital infrastructure over the course of the remainder of the decade in a way that is sustainable and long term in its design and focus. The new Capital Plan contains a direct Exchequer increase of some €10 billion over the previous 5-year plan.

Capital Plan Overview
Decisions to allocate funding were made following a lengthy review process, which included input from stakeholders at the National Economic Dialogue and construction industry representatives. The analysis identified capacity constraints, infrastructural bottlenecks and areas where demand pressures were building. It informed the investment decisions contained in the Framework, directing funding where it is most needed and looking to maximise the economic and social return to the taxpayer.

In order to sustain growth, we must invest. But we must invest in the right way. We will make affordable, sustainable investments that boost the productive capacity of our economy, improve public services and lay the foundations for future growth.

Fiscal Rules
This plan is not a departure from the prudent management of the public finances that has been the hallmark of this Government. Rather it is an affirmation of that approach.
The fiscal rules – enshrined in both national and European law – ensure that increases in expenditure reflect the underlying strength of our economy. Building on Recovery is entirely consistent with this approach.

Economy
There is no doubt that the economy is now in a sustained recovery. All the data so far this year has been encouraging. Consumer spending has been strong in 2015 with retail sales up by almost 10 per cent year on year in July. Core sales were up by almost 7 per cent over the same period.

Investment is also growing with both building/construction and machinery/equipment spending on a rising path. Recovery in the construction sector continued in July with the Purchasing Managers’ Index for the sector recording its twenty-third successive month of expansion. Today we heard that trend has continued for a 24th month.

These encouraging macroeconomic data are mirrored in the total taxation receipts which are up 9.8 per cent to end-August year-on-year.
The Department of Finance published its macroeconomic forecasts in April in which GDP is expected to expand by 4.0 per cent in 2015 and by 3.8 per cent in 2016.

These forecasts will be updated for the Budget and I expect them to show significantly higher growth rates than this.

Jobs
Since the launch of the First Action Plan for Jobs at the beginning of 2012, 126,000 more people are at work – the target was to have 100,000 more people at work by 2016. Employment has grown in most economic sectors in the past year.  I am happy to note that the largest increases were recorded in construction (up 18.4 per cent from Q2 2014), financial, insurance and real estate activities (up 5.8 per cent) and industry (up 4.7 per cent).

I would also emphasise that jobs growth has not just been centered in the Dublin area. In fact employment has increased in all regions in the past year.
The strongest growth was in the border region (up 4.4 per cent since Q2 2014), the south east region (up 4.1 per cent) and the south west region (up 3.5 per cent). The national rate was 3 per cent year on year.

Job creation was the top of this Government’s agenda given the unacceptably high numbers of people without a job. Unemployment, which peaked at 15.1 per cent in February 2012, dropped to 9.4 per cent this month. Large reductions have been seen, not just in the number of short-term unemployed, but also in the number of long-term unemployed, which has dropped from a peak of 184,800 to 118,600 – a decrease of more than 66,000 individuals – showing the success of the revamped Labour Activation Programmes included in the Pathways to Work strategy.

The new Capital Programme supports this Government’s No.1 priority: getting people back to work. An estimated 45,000 construction jobs will be directly supported as a result of the Exchequer investment set out under this Plan.

The Government has also committed to spending €3 billion supporting business and innovation through our enterprise agencies over the 6 year period. The IDA, Enterprise Ireland and Science Foundation Ireland support 320,000 jobs in this country. We will continue to support these agencies by providing funding for grants, equity investments and innovation supports.

Transport
In order to grow, businesses need fast, efficient transport networks. In the decade up to 2008, Ireland addressed many of the infrastructural deficits that had been constraining economic growth. Large scale investments were made in our road network, public transport links and airport facilities. As Europe’s fastest growing and most dynamic economy, it is essential that we preserve our competitiveness by building on these key investments.

In recognition of the fact that large transport projects have long lead-in times, the Government will provide a 7 year capital envelope to the Department of Transport, Tourism and Sport.
A total of €10 billion will be available to the Department over the period. By 2022, we will have doubled the level of annual investment in the transport area to €2 billion per annum.

Health
The proportion of our citizens that are over 65 is increasing. This poses challenges to our healthcare system. To meet these challenges, there will be large scale investment in healthcare facilities. By 2021, €600 million will be spent every year upgrading our hospitals, residential facilities and the primary care network. This level of funding restores capital expenditure in the health sector back to its previous peak.

The Capital Framework also provides funding for the relocation of the Dublin Maternity Hospitals, as well as Limerick Maternity Hospital.

Under the Plan, an additional €300 million will be invested in upgrading residential facilities around the country to meet HIQA standards.
These facilities will not only provide an excellent standard of care and recovery, they will ease the pressure on our hospitals and improve efficiency across the system.

Education
Our young and growing population will allow us to sustain our recovery over the next decade and more. But we must ensure that public infrastructure is in place that will support our young families. Nowhere is this more important than in Education.

Between 2012 and 2014, this Government has built over 84 new schools and 55 large scale school extensions. The Capital Investment Framework continues our commitment to Education. We will spend over €3 billion in the next six years investing in our children’s future by building new schools and upgrading existing school buildings.

These new and upgraded buildings will be fit for 21st century learning.

The Capital Plan provides over €400 million for the installation of wireless networks in all schools, for investment in IT hardware and for a programme to replace the remaining prefabs in schools.

Many of the record number of pupils due to complete school over the coming years will inevitably go on to college. We must plan for this fact and invest accordingly. A total of €350 million will be invested in third level, including a new €200 million PPP investment in our Institutes of Technology.

Justice
An Garda Síochána is embarked on a programme of substantial reform. A critical priority for this Government is to support that process of reform through increased expenditure on Garda information technology. We want to remove any impediments to the development of a modern, state of the art police force.  To support that goal, over the 6 year period of this Plan we will invest over €200 million in Garda ICT systems and technologies and €46 million on new and upgraded Garda vehicles.

Broadband
This Government is committed to ensuring that our economic recovery benefits all our regions. Investment in ICT is critical to our national economy. The Department of Communications, Energy and Natural Resources has recently agreed the National Broadband Plan. The Plan will utilise significant private sector investment and be supported by investment by the Exchequer. It will ensure that every business and household in Ireland has access to high speed broadband and help to connect communities, spread growth and support local business.

Climate Change and Flood Risk
As a country we have a responsibility to play our part in reducing reliance on fossils fuels. We also have legally binding renewable energy targets and could face costs of up to €600 million if we fail to meet those targets by 2020.
To help avoid these costs, €444 million will be spent on energy efficiency and renewable energy programmes over the six year period.

The effects of climate change are already visible in towns and villages across Ireland. To protect vulnerable communities, the Government has prioritised the introduction of a new flood risk management programme. By 2021, spending on this programme will be €100 million per annum.

PPPs
As I’ve already indicated, capital spending declined for obvious reasons during the recession. As Minister for Public Expenditure I sought ways to supplement our capital spend. I was pleased in 2012 to be in a position to resurrect our PPP programme. Proceeds from the sale of state assets, and the longer national lottery licence, have also provided funding for capital investment purposes. As I have mentioned a new PPP programme valued at around €500 million will be developed in the Justice, Education and Health sectors.   The programme will build on recent successes, utilise the significant level of expertise that has developed in the area and leverage Ireland’s positive reputation among investors.

To coincide with the new PPP programme, the Government will introduce a PPP Investment Policy Framework.   The Framework will limit expenditure on PPPs to a % of annual capital spending. It will provide transparency and clarity and ensure the long term interests of the taxpayer are protected.

Social Housing Strategy
Access to housing is becoming more acute across the country and we need to increase housing supply. The Capital Plan provides for €2.9bn of investment in Social Housing. An additional 35,000 units will be delivered through, what is known as Pillar I of the Social Housing Strategy, a combination of capital investment (construction and acquisition) and leasing programmes.
Pillar II of the Social Housing Strategy will deliver housing through social housing supports in the private rental sector.   It provides for up to 75,000 households to be accommodated through the Housing Assistance Payment (HAP) and the Rental Accommodation Scheme (RAS).

Budget 2015 committed to an overall capital investment of over €2.2 billion for social housing provision for the next three years.  This will be delivered through a combination of direct Exchequer investment (over €1.5bn), the use of Public Private Partnerships (€300m) and an off-balance sheet financial vehicle (€400m) which will invest through the Approved Housing Bodies.

The Social Housing Strategy is quickly delivering on targets. By September 2015, 65% of the targeted capital units for 2015 have been delivered. These are mainly the return to productive use of over 1,100 voids.

Planning Bills
I know that there have been issues around planning and the regulatory environment for building and development. We need to strike a balance here between removing unnecessary bottlenecks while promoting sustainable and appropriate development. With this in mind, a number of significant changes have been made in the Urban Regeneration and Housing Act 2015.

Specifically it makes provision for:

• the retrospective application of reductions in development contributions for planning permissions already granted;
• the reduction in the Part V requirement for developers from making 20% of ‘housing units’ in a development available for social housing to 10% and
• the introduction of a vacant site levy.

This piece of legislation is part of the implementation of the Government’s Construction 2020, a Strategy for a Renewed Construction Sector, to help deliver a competitive and sustainable construction sector that can make its proper contribution to the economy.

Conclusion
In conclusion, it is evident that we are about to embark on a period of significant Capital development. The Government’s commitment will provide a responsible, affordable and sustainable way forward and by working together, state and industry will deliver modern, strategic infrastructure which will build on our economic recovery and allow for continued success.

I know that your industry is ready to play its part in delivering this investment and continuing to contribute to our recovery.

Thank you for your attention and I hope you all enjoy today’s conference.
ENDS