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Risks of cost overruns in NDP, warns IFAC

The Irish Fiscal Advisory Council (IFAC) has said the planned increases in public investment under the National Development Plan (NDP) will help Ireland achieve its climate and housing goals.

However, it warns that projects will have to be better run to avoid substantial cost overruns.

The NDP raises public investment to an average €11.8 billion per year over the next five years and maintains it to the end of the decade.

As a percentage of national income, that level of investment has only been surpassed twice in the past 25 years.

IFAC says this will help the country achieve its goals for housing and climate action but it warns there are risks.

It says projects will have to be better run to avoid the multi-million euro overruns in projects such as the National Children’s Hospital and the National Broadband Plan.

It estimates an additional 32,000 construction workers on top of pre-Covid numbers will be required.

However, attracting workers from abroad will, it believes, be more difficult as wages have improved in other countries and the cost of living here has gone up.

The council also points out that tender prices for construction have been rising steadily and will add to the problem of getting value for money for planned projects.

IFAC estimates the plans for capital spending will raise public investment to 5.4% of national income by 2024.

This compares to average rates across the OECD (Organisation for Economic Co-operation and Development) of 3-4%.

“Rarely have public spending plans been this big … and costs need to be accounted for,” IFAC’s Chief economist, Dr Eddie Casey told RTÉ’s Morning Ireland.

IFAC says Ireland’s public investment has fluctuated in the past. Just before the crash in 2008 it was 6.3%, falling to 2.6% in 2013.

The council estimates that economic activity will be boosted by 1% by the end of the decade as a result of the investment but it will push inflation up too, by around 0.6%.

It notes that the relative attractiveness of Ireland as a location for migrant construction workers has fallen since the days of the boom.

Back then, 8.7% of Ireland’s construction workers, which reached a peak of 241,000 in 2007, came from the so-called “accession states”.

These were countries such as Poland which joined the European Union in 2004. Back then, wages in Ireland were 5.7 times higher than the accession states.

In 2020, however, hourly wages in construction in Ireland were just 2.6 times higher than the accession states.

It also points out that Ireland’s comparative price level for consumer goods and services is 75% higher than the accession states.

It also cites estimates of cost overruns on major public infrastructure projects as a warning that better governance will be needed to ensure value for money in the future.

It calculates the Dublin Port Tunnel overran by 160% or €500m and cites current overruns at the National Children’s Hospital of €1.1 billion or 135% and some €2.2 billion or 440% on the National Broadband Plan.

It acknowledges some improvements in how the Government oversees large infrastructure projects, but warns that the level of investment planned is of a scale “…with little historical and international precedent…” and that it is “urgent” for the Government to implement other measures as recommended by bodies such as the International Monetary Fund.

Article Source – Risks of cost overruns in NDP, warns IFAC – RTE – Robert Shortt

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