Ireland needs to prepare for public spending rise as population ages – watchdog

By Gráinne Ní Aodha, PA

Ireland’s young population means the State is spending less on pensions and healthcare than other European countries, according to the budgetary watchdog.

As a result, the Irish State needs to prepare for a growth in spending as demographics shift and the demand for public services increase.

Analysis by the Irish Fiscal Advisory Council (IFAC) found that while Ireland appeared to be a low-tax, low-spend country, public spending is low relative to national income.

The fiscal advisory body said this was mainly due to Ireland’s young population and a buoyant economy.

But as Ireland’s population ages, public spending on pensions and healthcare is expected to rise, IFAC said, bringing it closer to levels in other European countries.

Currently, Irish Government spending is 3.3 per cent of national income lower than other European countries, while it collects 4.7 per cent of national income, or €2,600 per person.

When excess corporation tax from several multinationals located in Ireland is excluded, Ireland collects 8.6 per cent of national income or €4,700 per person less than other European countries.

Employers and employees in Ireland pay less in social insurance than is typical across Europe.

The fiscal watchdog said that additional pressures will be put on the budget in the years ahead, driven by an ageing population and climate change.

Since 2015, the number of people aged 65 years and over in Ireland has increased by 37 per cent.

The Government’s new savings funds – the Future Ireland Fund and the Infrastructure, Climate and Nature Fund – will help cover some of the costs but will not cover them all.

Author of the report Niall Conroy said Ireland needed to prepare for higher levels of public spending in the future.

“Ireland collects a lower level of government revenue than most other high-income European countries,” he said.

“This is mostly driven by social insurance paid both by employees and employers. When exceptional corporation tax is excluded, government revenue in Ireland is €4,700 per person lower than the European average.

“As a result, the Government will need to raise additional revenue or reallocate existing spending.

“The more the Government saves today, the easier it will be to navigate these challenges.”