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Irish Times
6 days ago
- Business
- Irish Times
Twenty five years on, is Ireland still closer to Boston than Berlin ?
Many households feel they pay too much tax and get too little back in return in terms of State services. But what kind of 'deal' do the public actually get from the Irish Government? In terms of what tax we pay and what Irish people benefit from in terms of Government spending, new research from the Fiscal Advisory Council, the budget watchdog , written by economist Niall Conroy, provides new pointers. 1. Boston or Berlin? The overall picture is that both tax and State spending are relatively low here by the standards of other richer EU countries. However, in terms of the numbers, Ireland sits between the high spending levels of higher-income European countries- used as comparators throughout the study – and the lower spending US. In 2000, then Tánaiste Mary Harney opined that Ireland was spiritually closer to Boston than Berlin. In terms of spending and tax levels, the headline figures suggest we remain closer to other English-speaking countries, but even more so to the UK and Canada than the US – you could say more Bristol or British Columbia than Boston or Berlin. Government spending here, at around 40 per cent of national output (using adjusted gross national income or GNI* for Ireland to remove multinational distortions) is well below the 49 per cent in the dozen other richer EU countries. However, part of this is due to demographics and a strong economy, both of which mean Government spending is a bit lower. More than 60 per cent of this gap is accounted for by the younger age profile of the Irish population and the stronger economic growth rates here. And so we are a bit closer to European spending levels than it looks at first glance. READ MORE However, even accounting for this, the spending gap between Ireland and the richer European group is still around €1,800 per person. (The group used to compare us to includes Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Portugal, Spain and Sweden). But while State spending here is lower, so too are taxes. The tax 'gap' is around €2,600 per person. The IFAC paper points out that this includes what it classifies as 'excess' levels of corporation tax due to multinational planning, which boosts the Irish coffers. Excluding these windfall receipts, the gap rises to €4,700 per annum, on IFAC calculations. So on the face of it Ireland is a lower tax/lower spend economy than many other high income European countries. But as the population ages, Irish spending will inevitably rise – particularly in areas like pensions, health and social care. This may move Ireland close to a European model but with key policy decisions to make. 2. How does what Irish people pay in tax compare? : Government revenues in Ireland are towards the bottom of the European league – as a percentage of national income. The tax 'gap' here, compared to an average of other high-income European countries, is calculated at 4.7 per cent of national income, or €2,600 per person. Looking beyond Europe, Ireland's tax share is more in line with countries like the UK, Canada, Australia and New Zealand, but still higher than the US. So how come many households still feel they are paying a lot of tax? There are reasons. The biggest gap between Ireland and other higher-income European countries is the lower levels of tax on income here. But two things are worth noting. Irish people pay similar levels of income tax on average as the European comparator group, but much lower levels of social security, or PRSI in the Irish context, is paid by both employers and employees. The relatively young age of the population may be a factor here – and more PRSI may need to be collected in future to support a rising State pensions bill. An important point when comparing social contributions is that what really matters is not just what you pay, but also what you get in return in terms of services. In some European countries this includes, for example, better healthcare services. The second key point is that the low level of taxes on income here 'is driven entirely by lower-income households' who face low effective rates, according to the paper, particularly if they have children. The paper adds: 'In contrast, higher earners in Ireland face similar combined rates of income tax and social contributions as those in other high-income European countries.' OECD data show that a low earning household in Ireland (on less than €50,000) pays combined tax and social security of about 17.8 per cent of income, compared to a European average of 23.4 per cent. An average earning household (earning just over €70,000) pays around the same as other better off EU countries at around 28-29 per cent while a higher earner here (€118,000) pays a bit more – 37.2 per cent versus 36.4 per cent. So if you are a middle or higher earner, you pay the same or a bit more than those in other rich European countries. The other area where Ireland stands out, of course, is corporation tax, where Ireland collects roughly twice as much as other richer European countries in terms of share of national income. As the paper points out, this helps to support lower taxes and higher spending elsewhere – for as long as it lasts. Looking at taxes on consumption – like VAT and excise – Ireland has traditionally levied more. These days, however, the State is slightly below the European average due to decreasing revenues – as a percentage of the total – from excises on alcohol, tobacco and petrol. 3. What about the services the public receive, paid for by their taxes? The paper looks at key services accessed by the public and again compares Ireland with other richer European countries. This is vital, too, for living standards. It is easy enough to measure spending here in areas like health and education and compare it with other countries. But comparing the actual services people receive is more complicated, depending on the structure and efficiency of what is delivered. However, the paper makes some interesting points. In education, it finds that Ireland spends its money relatively efficiently. After adjusting for Ireland's relatively young population, the paper finds that Ireland spends a bit below the average of other richer European countries in this area. But, despite this, Ireland's level of overall educational attainment is high, ranking below only Finland. And Ireland has the highest proportion of the population with a third-level degree. Ireland also scores well in standardised tests in areas like reading, science and maths. In other words, Ireland gets good outcomes from a relatively low spend. In healthcare, the picture is different. Ireland is a high spender, particularly when adjustment is made for the young population – and insurance-funded spending is also higher here. Ireland does have good health 'outcomes' in terms of life expectancy and population health, but key pressure points in accident and emergency services and in public waiting lists remain. The paper asks whether better value is needed from the money spent, with the cost of delivering services having soared in recent years. Looking at pensions , Ireland spends less than other richer European countries, even when adjustment is made for the younger population. Irish pension payments- while they rose during the 2000 to 2010 era – remain lower than the European average. A key point here is that Ireland's state pension is not linked to inflation, as it is in most other countries. In childcare and family social protection, meanwhile, Ireland has a lower level of spending – again adjusted for the population. However, cash transfers to families are higher here. Where Ireland falls behind is that, in most other countries, the State plays a bigger role in investing in and providing childcare services. 4. The policy questions : The vital policy question is that the population is ageing and revenues will be needed to pay the higher bills that will come with that in areas like healthcare and pensions in particular. On the other side of the exchequer equation, Ireland is increasingly reliant on corporate tax revenues, which are potentially volatile. Meanwhile, spending is rising rapidly, though the result in terms of better services to the public is mixed. The Government is working on a medium-term financial strategy for the autumn and thus has much to grapple with, most importantly how to pay the bills coming down the road.
The Journal
7 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.'
RTÉ News
7 days ago
- Business
- RTÉ News
Public finances benefitting from young population
The Irish Fiscal Advisory Council (Ifac) is warning that Ireland faces major spending pressures from an ageing population and climate change. A new report - 'Boston or Berlin? How does Ireland's tax and spending compare?' - states that Ireland looks like a low tax, low spend country relative to other high-income European countries. But it says this is mainly due to Ireland's "relatively young population and strong economic growth". A younger population means the government currently spends less on pensions and healthcare than it otherwise would. It says that as Ireland's population ages, spending in these areas is expected to rise. This demographic shift will gradually bring Ireland's government spending more in line with levels seen in other European countries. One area it highlights where Ireland is already a relatively high spender is healthcare. It says that as the population ages, this is likely to rise further, which would make Ireland even more of an outlier. The report states that Ireland collects a lower level of government revenue than most other high-income European countries. "This mostly driven by social insurance paid both by employees and employers," explained Niall Conroy, author of the report. "When exceptional corporation tax is excluded, government revenue in Ireland is €4,700 per person lower than the European average," he added. At the same time, Ireland collects a high level of corporation tax. This is partly because many highly profitable multinational companies have a strong presence in Ireland. In conclusion the report notes that recently introduced savings funds are a step in the right direction, but won't cover all future spending pressures and additional revenue will need to be raised or spending reallocated. It advises the more the government sets aside today, the smaller the fiscal adjustments required in the decades to come.
Extra.ie
06-08-2025
- 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
06-08-2025
- Business
- Irish Examiner
Ireland is economically closer to Boston than Berlin
Ireland's young population means it is closer to Boston than Berlin when it comes to tax and spending levels. New research from the Irish Fiscal Advisory Council (IFAC) shows the public finances are benefitting from a young population and a strong economy. IFAC said Ireland's relatively young population means the government spends less on pensions and healthcare than it otherwise would. However, as our population ages, spending in these areas is expected to rise. This demographic shift will gradually bring Ireland's public spending closer to levels seen in other European countries. Ireland's strong economy also helps to explain why public spending is low relative to national income. After adjusting for these factors, Irish government spending is 3.3% of national income lower than other European countries. Ireland collects a lower level of government revenue than most other high-income European countries. This is equivalent to 4.7% of national income, or €2,600 per person. When excess corporation tax is excluded, the gap widens to 8.6% of national income or €4,700 per person. 'Demographics can have a big impact on government spending and tax levels," the report's author Niall Conroy said. "Ireland's public finances are benefitting from its relatively young population. That means we are spending less on pensions and healthcare than would otherwise be the case. As a result, spending levels in Ireland are lower than in other European countries." "Both an ageing population and climate change will mean higher levels of spending. The two savings funds the government has introduced will help address these costs. But they will not cover all of these costs. 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," Mr Conroy said.
