Latest news with #FutureIrelandFund
The Journal
4 days ago
- Business
- The Journal
Ireland's young population is keeping public spending down - for now, says IFAC
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% of national income lower than other European countries, while it collects 4.7% of national income, or €2,600 per person. When excess corporation tax from several multinationals located in Ireland is excluded, Ireland collects 8.6% of national income or €4,700 per person less than other European countries. Advertisement 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%. 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 euro 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.'
Extra.ie
4 days ago
- Business
- Extra.ie
Ireland isn't saving enough for ageing population
The Government's savings funds won't be enough to deal with an ageing population, the State spending watchdog has warned. Ireland will have to raise the pension age to relieve some of the pressure, the Irish Fiscal Advisory Council said. The Government's fund to plan for the future – the Future Ireland Fund – will only cover between a quarter and a half of the costs of our 'rapidly' ageing population, an IFAC report stated. 'An ageing population is the biggest budgetary challenge Ireland faces over the medium term. One in 6.5 people currently is aged 65 or over. This is set to increase to almost one out of every three people by 2057,' it said. The Government's savings funds won't be enough to deal with an ageing population, the State spending watchdog has warned. Pic: Shutterstock In addition, 'those in retirement are also expected to live longer', it added, which is going to put additional pressure on hospitals and other services, and cost the State more in pensions. It noted the Government is reluctant to increase the pension age, which will cost us billions in the future. 'Despite these pressures, the Government opted not to increase the pension age,' it said. 'While other countries are experiencing ageing populations, Ireland is facing a more rapid change. In budgetary terms, this means more demand for healthcare, long-term care and pensions. It will also mean slower growth in the economy and hence in tax revenues.' Pic: Shutterstock It added: 'Action sooner rather than later will ultimately be less costly. Research by the Fiscal Council has shown that acting sooner to manage ageing challenges would cost less than 40% of what it would if actions were delayed.' The IFAC warned that the cost of looking after older people 'will fall much more heavily on the next generation of taxpayers' unless the Government takes action. It said the Coalition must raise extra revenue or cut spending to insulate the economy from these challenges. According to the IFAC, the State is collecting €2,600 less in taxes per person compared to other European countries. This rises to €4,700 a person once 'exceptional' corporation tax receipts are excluded. Pic: Getty Images Speaking to Niall Conroy, author of the report and acting chief economist with the IFAC, said the body is 'agnostic' on how the Coalition should safeguard the Exchequer. Mr Conroy said the Government should continue to set aside corporation tax revenues while the economy is performing well, noting that saving more now will mean fewer 'adjustments' later. The IFAC paper, which assesses tax and spending levels relative to other high-income EU countries, comes amid uncertainty over our finances in the short and medium term. Ireland has fewer older people compared to other countries, with 15.5% aged 65 and above, versus a European average of 20.9%. Pic: File 'However, this is expected to change… the share of over-65s by 2050 is projected to be higher than any high-income European country today,' the paper said. This change will mean more spending on pensions and healthcare, and will 'gradually bring our public spending closer to levels seen in other European countries'. The IFAC noted that one area where Ireland is already a relatively high spender is healthcare. 'As the population ages, this is likely to rise further, making Ireland even more of an outlier,' it said. Our health spending is significantly greater than that of an average high-income EU country of similar size. A 'heavy reliance on hospital care' is cited as a 'major driver' of big health costs, plus spending on outpatient services, which is higher than in other countries. The IFAC also pointed to a lack of infrastructure – Ireland has 50% less healthcare infrastructure, such as hospital beds, than other high-income European countries. Improving efficiency and productivity will be key to managing increased healthcare costs, it said. 'Shifting more care from hospitals to community settings… could help reduce costs. Recent IMF analysis also indicates that further gains in healthcare efficiency are possible,' it stated. More investment will be needed to meet climate targets, the IFAC noted. The transition from fossil fuels will mean Government revenue streams, including excise duties and the carbon tax, are expected to diminish, further narrowing the tax base
Irish Examiner
08-07-2025
- Business
- Irish Examiner
'Exceptional' corporate tax receipts could at risk in coming years, Central Bank warns
Ireland's "rapidly" growing economy and "exceptional" corporate tax receipts could be at risk in the coming years, the Central Bank of Ireland has warned, with external developments leading the Irish economy into a period of heightened uncertainty. Speaking at the Oireachtas Budgetary Oversight Committee on Tuesday, Deputy Governor of the Central Bank Vasileios Madouros said that while Ireland is in a strong position, underlying vulnerabilities need to be managed carefully. "The exceptional growth in corporation tax receipts since 2015 and the strong pace of economic expansion in recent years have resulted in a marked increase in government revenues," said Mr Madouros. "As a result, even with the substantial rise in government spending and some tax cuts, the headline budget balance has run substantial surpluses in recent years. "However, external developments mean that this benign combination of factors – namely, a rapidly growing economy and exceptional corporate tax receipts – could be at risk in the coming years." The deputy governor added that risks to Ireland's fiscal position from lower corporate taxes and other multinational-dependent taxes have increased, given recent international developments. This is compounded by the "persistent deficit" in Ireland's budget balance once estimated excess corporate tax is excluded. Infrastructure deficits Mr Madouros also highlighted deficits in infrastructure, which he said have become an increasingly significant factor constraining the supply side of the economy. "Addressing infrastructure deficits will not only help meet important societal and economic needs today, but also enable our economy to remain competitive amid a shifting geopolitical landscape," the deputy governor said. The Central Bank also urged the Government to prepare for future funding needs, adding that current funds will not be enough on their own to finance the increased expenditure required to meet the needs of an aging population. "Given demographic trends, Ireland is expected to see the largest increase in age-related spending on areas such as pensions, healthcare and long-term care amongst the EU by 2050," said Mr Madouros. "And we know already that the Future Ireland Fund – the establishment of which has been a very positive public policy intervention – will not be sufficient, on its own." The deputy governor said the current environment presents "important trade-offs" for fiscal policy, which he said can be achieved through "careful management" of the public finances. To do this, the Central Bank is urging the Government to commit to a strong fiscal anchor so that rising expenditure does not add excessively to demand. In addition, it is calling for investment to be prioritised, which can be done by broadening the tax base and mitigating the reliance on corporate tax receipts. Finally, the regulator is calling for measures to reduce delays and, therefore, the ultimate costs in the planning and building of infrastructure. "Measures that incentivise scale and investment in new machinery, equipment and technologies in the construction sector can also help enhance productivity and enable more sustainable delivery of housing and infrastructure," said Mr Madouros. "These structural policies can have an outsized impact on strengthening the supply side of the economy, complementing and adding to the effectiveness of additional public investment in infrastructure."
Irish Times
30-06-2025
- Business
- Irish Times
State must increase spending by €265bn by 2050, Central Bank's Makhlouf warns
Government spending will need to increase by about €265 billion over the next 25 years to pay for an ageing population, more housing and cutting emissions, Central Bank governor Gabriel Makhlouf has said, as he called for a credible spending rule to help prevent future downturns. 'While the State's Future Ireland Fund (FIF) will go some way to paying for what is needed in the years ahead, 'the FIF will be insufficient – on its own – to fund the higher level of public expenditure that will be required to meet the needs of an older population and to fund climate and housing investment,' Mr Makhlouf wrote in his pre-budget letter to Minister for Finance Paschal Donohoe , which was published on Monday. Spending 'will need to rise by 6.5 percentage points of national income (GNI*), or €265 billion, between 2025 and 2050 to fund higher age-related spending and the additional public investment required to meet housing and net zero targets,' he added in the letter, which is considered a key part of the budget planning process. Amid what he described as 'heightened uncertainty' around the global economy, Mr Makhlouf urged the Government to broaden the tax base, amid concerns about how reliant the exchequer is on a small number of companies and individuals to pay maintain its tax revenue. READ MORE Overseas multinationals generated about a fifth of all tax and PRSI in 2023, Mr Makhlouf said, while about 8.5 per cent of tax payers accounted for 56 per cent of personal income taxes paid. Given that backdrop, the Government should install a 'credible' spending rule in the upcoming budget. [ Government must 'anchor' spending as Ireland faces potential permanent economic hit from tariffs, official says Opens in new window ] 'To avoid a repeat of past mistakes and to shift budgetary policy away from an excessive short-term approach, the Government should commit to a credible fiscal anchor for budgetary policy to ensure the overall fiscal stance is suitable, guards against procyclicality and boom-bust dynamics and safeguards long-run fiscal sustainability,' Mr Makhlouf wrote. Successive governments have previously pledged to cap the increase in so-called core spending at 5 per cent per year. Yet in the years since that pledge was introduced, successive ministers have broken that rule. IATA Director General Willie Walsh on airline profits, air fares and why the Dublin Airport passenger cap makes Ireland a laughing stock Listen | 35:56 Mr Makhlouf has been critical of such moves in the past, noting it would likely boost inflation. 'It is important that policy supports rigorous expenditure control – not least of current expenditure – and enables the enforcement of sustainable increases in overall net government expenditure over time,' the governor added. On housing, the Mr Makhlouf noted that public money on its own 'will not be sufficient to address the housing and wider infrastructure gaps that have emerged. Fiscal and broader public policy should more actively consider reforms to crowd-in private investment and to promote productivity growth.' He pointed to measures that could quicken the planning process for housing, adding that such measures which would reduce the delays and costs were needed to help ensure the long term benefits of such projects feed into long-term growth. Mr Makhlouf also pointed to the need for investment in new technologies in the construction sector to help boost large scale projects especially for housing and infrastructure.
Irish Independent
30-06-2025
- Business
- Irish Independent
'Credible' fiscal anchor needed, Central Bank governor says
In his annual letter to the Finance Minister ahead of Budget 2026, Gabriel Makhlouf also warned that the need to widen the narrow tax base has become more immediate. An analysis by Central Bank staff has found that the Government will need to spend an additional €265bn between now and 2050 to fund higher age-related spending and to meet housing and net-zero targets. In that context, Mr Makhlouf has told Paschal Donohoe that it is important the Government keeps putting money into two long-term savings funds, but that they are not seen as a panacea. 'For example, the Future Ireland Fund will be insufficient – on its own – to fund the higher level of public expenditure required to meet the needs of an older population and to fund climate and housing investment,' his letter said. 'Taking prompt and concrete action to broaden the tax base would help to ensure that additional known expenditure needs can be met sustainably even if corporation tax was to decline significantly.' The Central Bank governor also believes that public investment alone will not be enough to fix the housing shortage and to build the necessary infrastructure. 'Fiscal and broader public policy should more actively consider reforms to crowd-in private investment and to promote productivity growth,' he said. The governor writes to the Minister for Finance every year before the Budget, to provide analysis and comment. This year's letter repeats earlier calls by the regulator for the Government to put a ceiling on its spending. 'A credible fiscal anchor is needed to guard against repeating mistakes of the past and to support rigorous expenditure control and enable longer-term investment,' the letter says. The last government introduced a rule in 2021 to limit the increase in spending to 5pc a year, net of taxes. The rule was never adhered to, and this government has not set a new one. There are signs that a benign combination of factors – including exceptional corporation tax receipts and a rapidly growing economy – could be threatened in the future. The risks of a loss of corporation tax, and other taxes that depend on multinationals, have increased due to recent international developments. ADVERTISEMENT Mr Makhlouf said the Central Bank's analysis of what would happen if 'excess' corporation tax was lost, and there was a reduced investment by the multinational sector in Ireland, was that the budget deficit could rise to over 4pc of national income by 2030. Foreign-owned multinationals in the manufacturing sector and ICT generate about 20pc of all tax and PRSI, his letter points out. In addition, the income tax base is highly concentrated with 8.5pc of the highest earners paying 56pc of income tax and USC. 'The VAT base also appears relatively narrow by EU comparison owing to both changes in the composition of household expenditure and the widespread application of reduced and zero rates to a variety of goods and services.'
