ANALYSIS:Any proposal that can save 70,000 jobs has to be welcomed, even if that is a lobby group's estimate

GIVEN THE current economic backdrop, any proposal that aspires to save 70,000 jobs in the Irish economy has to be taken seriously even if it does come from a lobby group in the construction industry.

On the face of it, the so-called infrastructure bond is something of a win-win for everyone.

If implemented, it would involve Irish pension funds investing about €6 billion at home in a range of State building projects that might not otherwise see the light of day because of the collapse in exchequer finances.

About 90 per cent of Irish pension fund money is invested abroad. Switching that money to the Irish economy has got to be a good thing and the fund managers are keen to switch out of shares and property and into infrastructure, which offers a long-term return and is deemed a lower risk.

The construction industry estimates that this money would “protect” about 70,000 jobs, a figure it has arrived at in a detailed 70-page report compiled by Goodbody Corporate Finance and DKM Economic Consultants.

It argues that the outlook for the Irish construction sector is grim, given that there is little or no activity in residential or commercial property at present.

The Government, meanwhile, would be able to progress projects that might not otherwise be built.

Neither the Construction Industry Council nor the various pension fund groups have been prescriptive about what projects should be built.

They could, conceivably, include schools, hospitals, prisons, roads, railways, recycling facilities and water and sewerage plants. These would be popular with voters.

In addition, there would be no need for tax breaks, which in the current climate are unlikely to be acceptable to hardpressed taxpayers.

Another important benefit for the Government is that no clearance from the European Commission is required before it could launch such an infrastructure bond.

Furthermore, it would not have an adverse impact on the national finances.

Such a bond would sit “off balance sheet” and not count towards our budget deficit, which the European Commission yesterday predicted would rise to 12 per cent in 2009 – the highest in the euro zone.

Of course, the funds will have to be paid back, albeit over a period of 20 to 25 years.

The key will be the rate of interest paid.

In its proposal to the Government, the Construction Industry Council has estimated a return of about 250 basis points (2.5 percentage points) above the level of government gilts.

In the current financial climate, the figure does not seem outlandish.

Fund managers believe this would be an attractive return, although the indication from the Government side is that it considers the figure a bit high.

Neither side wants to show its hand just yet.

The Construction Industry Council argues that a “do nothing” scenario would cost the exchequer €2.6 billion in lost tax revenue and increased social welfare payments.

And, after being hammered for the money it took out of the economy in the supplementary Budget, the Government will be keen to provide some kind of stimulus to protect employment.

The industry wants to agree this plan quickly so the projects can be fast-tracked through the planning process and work can begin in 2010.

The devil will be in the detail but after months of relentless bad news this proposal should be welcomed.