We've had bank bailouts.....Now we have a Government Bailout

Dr Galen

http://www.irishtimes.com/newspaper/frontpage/2009/0506/1224245994684.html

CIARÁN HANCOCK, Business Affairs Correspondent
IRISH PENSIONS funds have indicated to the Government they would be prepared to invest up to €6 billion over the next three years in a range of State infrastructure projects as part of a plan that could secure about 70,000 jobs in the construction industry here, The Irish Times has learned.

Under a detailed plan devised by the Construction Industry Council (CIC) and submitted to Minister for Finance Brian Lenihan in the run-up to the supplementary Budget, Irish pension funds would invest in a State infrastructure bond that would provide much-needed finance for the building of roads, railways, schools, hospitals and utility projects.

The funds would receive a return on their money over a period of possibly 20-25 years at a rate superior to that paid on Government gilts – possibly 2.5 percentage points above the rates offered for gilts.

Such a move would have two major benefits for the Government. It would provide cash for infrastructure projects that might otherwise be shelved due to the recession and it would sit “off balance sheet” and not count towards the crucial debt-to-GDP ratio, which has to be agreed with Brussels.

It is understood that the bond would not require the approval of the European Commission.

It would also provide a major stimulus to the construction industry here, securing about 70,000 jobs at a time when the industry is in disarray.

In a detailed report sent to Government in advance of the supplementary Budget, the construction council warned that employment in the industry will decline to 126,000 by the end of 2011 from 302,000 at the end of last year unless the sector receives a substantial stimulus.

The Department of Finance confirmed last night that it was in detailed talks with representatives of the pension fund industry here, including the Irish Association of Investment Managers (IAIM) and the Irish Association of Pension Funds.

“The department has met with the pension fund industry and further meetings are scheduled,” a spokesman said. “The intention is to access funds that will support jobs in projects that offer value for money for the State.”

He said a number of issues remain to be resolved, including the rate of return that would be paid to the pension funds.

Frank O’Dwyer, head of IAIM, said the industry supports the idea of an infrastructure bond. “The institutional investment community here believes this is a suitable vehicle for long-term investment providing long maturities with good returns.”

IAIM’s membership comprises 13 asset management firms, who between them handle about €200 billion of clients’ money.

About €90 billion of that is managed on behalf of Irish clients, including large pension funds, pooled funds and individuals.

Only about 3.5 per cent of this money is invested in Irish fixed-income products and the industry here is keen to increase this figure as it switches away from investing in shares and property. This would allow the Irish fund managers to allocate more money to the Irish economy.

Talks have also taken place with pension consultants who advise the trustees of pension funds on how they should spend their money.

The innovative plan was devised by the CIC, an umbrella body that represents architects, engineers, chartered surveyors and construction firms. The project is being led by Tom Costello, managing director of John Sisk Son Ireland, one of the country’s biggest contractors.

The CIC submitted a detailed 70-page report – jointly compiled by Goodbody Corporate Finance and DKM Economic Consultants – to the Department of Finance in March.

The report, which has been seen by The Irish Times , predicts that turnover in the construction sector will drop by 38 per cent this year to €17.6 billion and to €10.2 billion in 2010 without any stimulus.

It argues that if the Government does nothing, 70,000 construction jobs will be lost, which would result in the State having to pick up a social welfare tab of €1.3 billion. The lost tax revenue would be €1.3 billion, it says.

“The CIC believes that it is essential to provide a stimulus now so that design, planning permission and tenders can be advanced in 2009 in order to ensure projects reach construction in 2010,” the CIC says.

This article appears in the print edition of the Irish Times

A lot of talk about this today in the papers and on the radio. What are people's thoughts?

Is this a "bailout" for the government as such? They don't have the money to spend on infrastructure projects, but 6billion could build a lot of schools, clinics and roads surely, and keep people in jobs. Keeping people in those jobs could provide a welcome consumer stimulus as well, with people maybe a little less apprehensive about spending their cash in the shops.

I'd have severe reservations though about how this could operate. If it's a blank cheque type situation to the current government, I'd have little confidence that they would know how to spend the money wisely, or that the good old parish pump politics could get in the way, with TD's from all over fighting for a few quid for the folks back home, with scant regard for the greater good of the country. In saying that though, if run properly, it could have many positive effects.

mike65

Well its the best idea for generating some additional turnover anyones had so far. Sure we can all worry about Pork Barreling but thats not a reason to say nay to this.
As you say yourself there's plenty that needs doing.

silverharp

I caught a piece about it on the luchtime news. It really depends , if the projects are income generating great by all means build a toll road if there is demand for it, but building non income generating projects now is just building up debt or spending savings when the country is up to its t*** in debt. It will basically be a tax on the private economy that will benefit the building lobby.

ardmacha

This is another form of debt and there is already plenty of that. However it may have some things in its favour

- the things built (roads, sewers) will still be used by those who have to repay the debt, much better than having to pay for current activities which no longer benefit those who repay the debt.
- build costs are 10-20% cheaper at present. Waiting until things improve would mean higher costs
- these probably don't involve tolls but shadow payments. These can be based on volume of traffic etc, amount of crap passed through sewer etc. These payments can be based to some extent on the usage, if the economy does well and there are more cars then government can afford to pay more.
Pension funds like this aspect too, if the economy does well they get more, allowing their funds keep up with growth.

Permabear

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Tech3

It is a bailout as such for the construction industry.

If it was to go ahead there is still some priority road projects to be built in the country. The N17/N18 or M17/M18 after redesignation is the big one. Its 57km of dual carriageway/motorway. The number of vehicles that use the current road is high. Its a huge project for the west of Ireland and would cost roughly 600 - 700 million. It will link Limerick-Galway-Tuam fully by motorway/dual carriageway There is also other schemes such as the Limerick to Cork motorway. These are not small projects linking roads to nowhere. The traffic numbers on these roads are high.

Others:
Newlands Cross
M11 link

Dr Galen

silverharp wrote: »

I caught a piece about it on the luchtime news. It really depends , if the projects are income generating great by all means build a toll road if there is demand for it, but building non income generating projects now is just building up debt or spending savings when the country is up to its t*** in debt. It will basically be a tax on the private economy that will benefit the building lobby.

i'd advocate a balanced approach to this if it got through. Certainly we'd need to be building things that would have a definite benefit to the economy, things that will either generate revenue directly, or have a strong link to someone else generating revenue.

There would also be a case for looking at some of the non-revenue generating but equally important things being covered in this, like schools for example, taking advantage of the lower construction costs etc. I wouldn't be calling for anyone to be going mad though and building a few brand new hospitals along with a university or 2.

I'd like to see some of the funding being used to support and invest in renewable energy sources. Not from a hippy greeny point of view, but purely because breaking the dependance on imported oil,coal and gas would be of longer term benefit to the economy, plus the knock on effects, of increasing investment in some of the newer technologies could lead to further indigenous job creation in the sector.

thebman

donegalfella wrote: »

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I agree with everything you say but we also have appalling infrastructure in this country.

Just because it is what you say does not mean no good can come from it. If we can get some good infrastructure projects out of this then great. I think they will try to do as much PPP as possible on this too as they can't afford not to so I don't see it as being all bad.

It shouldn't be happening all the same but how many times have we said that about FF in the past 6 months (or ever years)?

I think these projects should be done through dole payments
we will have 17% unemployment even by ESRI/govt projections next year

hundreds of thousands of potential workers, even a few hours a day or 2 or 3 days a week. Nothing about making them earn it - they paid PRSI - pay related social INSURANCE. I think it should be voluntary with extra dole payments for those who volunteer. Of course with us running a huge deficit the payment will need to be reduced massively first

My point - why risk pensions to bail out builders, it`ll be cheaper to employ them next year

Permabear

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ardmacha

We've been literally throwing billions at education and health in recent years.

Nonsense. Ireland has been spending a declining proportion of its GDP on education and has one of lowest levels of spend as a proportion of GDP in the OECD. Even with a high GDP the absolute level of expenditure was below that of other W European countries. There is no doubt that maths levels are not what they should be, but you can take a horse to water but not make him drink, Irish society parents and students alike simply do not value maths. Some of the posters here don't seem to value figures much either, preferring hearsay statements instead.

It would be entirely sensible to build some new schools, which could be economically heated and which removed the need for prefab rental.

Dr Galen

donegalfella wrote: »

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it doesn't have to be like this though. We'll need to se more of the details behind the plan before we totally shoot it down. There may well be an element of private ownership for some projects, such as roads.

As for your views on teachers? Well i find it hard to believe that every teacher is bad at their job. Sure there are some bad ones but there are lots of good ones too though and you know that as well as i do DF. Improved facilities can only but help students, and may well improve overall educational performance