Minister Donohoe publishes Population Ageing and the Public Finances in Ireland Report
Foilsithe
An t-eolas is déanaí
Teanga: Níl leagan Gaeilge den mhír seo ar fáil.
Foilsithe
An t-eolas is déanaí
Teanga: Níl leagan Gaeilge den mhír seo ar fáil.
The Minister for Finance, Paschal Donohoe has today (Friday) published a report entitled Population Ageing and the Public Finances in Ireland. This is the second publication by the Department on the impact of population ageing on the public finances, following the publication of the first report in September 2018.
The purpose of the analysis set out in the report is to highlight the likely economic and budgetary impacts of demographic change in Ireland over the coming decades. The analysis set out attempts inter alia to quantify the likely budgetary costs of population ageing in order to inform the appropriate policy response. While Ireland’s demographic structure is relatively favourable at present, a projected shift in the demographic composition of the Irish population means Ireland will have one of the most rapidly ageing populations in the EU over the coming decades. This will lead to a slower pace of economic growth and put significant pressure on the public finances.
The composition of Ireland’s population is set to change significantly over the coming decades. The old-age dependency ratio in Ireland – the number of retirees as a fraction of the number of workers – is set to nearly double over the next 30 years, from 24 per cent at present to 47 per cent by the middle of this century (53 per cent by 2070). To put it another way, there are currently around 4 persons of working age to support each person aged 65 and over; by 2050, the equivalent figure will be just over 2.
Such developments will see demand for demographically-sensitive public expenditure such as health and pensions grow, with significant costs for the State. Analysis suggests such expenditure will increase by approximately 8 percentage points of GNI* by the mid-part of the century (10 percentage points of GNI* by 2070). At the same time, as the pace of growth of the working age population slows, the rate of economic growth will moderate, as additional labour supply becomes more scarce. As a result, fiscal revenues will, evolve at a slower rate.
Significant structural reforms are, therefore, absolutely necessary to meet the fiscal costs associated with population ageing. Analysis in the report suggests that without structural reform, a large deficit will emerge and the debt ratio will move onto an unsustainable path, reaching 180 per cent of GNI* by 2070.
This analysis does not capture the significant deterioration in the public finances as a result of the Covid-19 pandemic. In these circumstances, risks to the projections presented in the document are, if anything, to the downside.
Further analysis contained in this report suggest reforms such as linking the State Pension Age to life expectancy could significantly reduce the cost burden.
While Ireland is fortunate to have the opportunity to undertake the necessary policy changes to ensure the sustainability of the public pension system before the budgetary implications of population ageing begin to impact, the window of opportunity is rapidly closing. Any delay in implementing the necessary policy interventions will inevitably raise the fiscal cost of population ageing.
Minister Donohoe said:
'Looking at the years ahead, the analysis of the impact of demographic change in Population Ageing and the Public Finances in Ireland, highlights the need for serious policy considerations in this area. In November 2020, the Government established the Commission on Pensions to examine the sustainability and eligibility issues with the State Pension and the Social Insurance Fund. As my Department’s report states, delaying policy decisions in this area has the potential to negatively impact the public finances in the years ahead, emphasising the importance of further progressing the Government’s work in this area’
Ends
Note to Editors