Ireland reverses budget cuts to spend on construction

Reuters News
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Posted: Jul 17, 2012 6:51 PM
Ireland reverses budget cuts to spend on construction

DUBLIN (Reuters) - Ireland reversed some of the cuts laid out in last year's budget plan on Tuesday and will spend 2.25 billion euros ($2.75 billion) to help its decimated construction industry.

As part of cuts aimed at bringing the worst budget deficit in Europe under control, the government announced last November that it would spend 2 billion euros less between 2012 and 2014 on capital projects than previously envisaged.

However the government said on Tuesday that it would funnel 750 million euros from its pension reserve fund, 850 million from the proposed sale of state assets, 100 million of European Investment Bank funds and a further 550 million to be raised from the private sector into financing the new stimulus package.

Spending minister Brendan Howlin said the first phase of the plan would see most of the funds used on transport, with the rest going to building projects in the health, education and justice departments in a bid to generate up to 13,000 jobs.

"The global economic crisis has had a significant impact on the construction sector. The stimulus package announced today will help generate a significant number of jobs in the sector," Howlin told a news conference.

Ireland's construction sector, which employed one in every seven workers before the bursting of a property bubble sent the economy into freefall in 2008, has seen nearly 60 percent of its workforce laid off in the past four years.

The state-owned National Asset Management Agency (NAMA) also plans to spend 2 billion euros to complete work on properties it has bought from the country's banks in the hopes of creating an estimated 25,000 construction jobs.

While not increasing government debt which is set to peak at just under 120 percent of gross domestic product next year, some economists said the measures announced on Tuesday would have a marginal impact on near-term growth and could raise questions among investors about Ireland's commitment to cut its deficit.

"We're in the middle of very harsh fiscal consolidation so now seems like a bit of an odd time to be embarking on new fiscal stimulus, bearing in mind that the government is spending much more than it takes in revenue," said Conall Mac Coille, chief economist at Davy Stockbrokers.

"We're on the border line of debt sustainability. Any kind of use of these cash balances or the failure to use state asset sales to pay down debt, that certainly raises question on the commitment to stabilize the debt level," he said.

($1 = 0.8188 euros)

(Reporting by Padraic Halpin; Editing by Louise Ireland)