Report signals impact population ageing could have on public finances - Donohoe
- Demographic shift expected in Ireland over medium- to long- term
- Ratio of retirees to workers set to more than double by 2050
- Growth rate of the Irish economy set to slow over the coming decades
- Reducing high level of public indebtedness could increase capacity of public finances to absorb additional costs
- Policies that increase employment rate of older workers and those of working age could help to mitigate the impact of population ageing on the public finances
The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe, released the findings of a report carried out by his Department entitled Population Ageing and the Public Finances in Ireland. The purpose of the Report is to highlight the likely economic and budgetary impacts of demographic change in Ireland in the coming years. While Ireland’s demographic structure is relatively favourable at present, shifting demographics in the coming decades could lead to a slower pace of economic growth, putting additional pressure on the public finances.
Analysis in the report suggests that while there are currently around 5 persons of working age for each person aged 65 and over in Ireland, the equivalent figure will be just over 2 by 2050. This shift in the age profile of the population will involve increased spending in demographically-sensitive components of public expenditure, such as pensions and healthcare. Age-related expenditure is projected to increase by 6.5 percentage points of GNI* by 2050 (and also by 6.5 percentage points of GNI* by 2070).
In addition to the associated expenditure pressures, the ageing of the population is expected to reduce the growth rate of the economy to just under 2 per cent per annum over the 2020-2050 period, making it more difficult for the public finances to absorb the increase in age-related spending. As stated in the report on public debt which was published last week by the Department, current high level of public indebtedness – the debt-to-GNI* ratio is in excess of 110 per cent –weighs on the capacity of the public finances in Ireland to absorb these additional costs. Analysis in the report shows that in the absence of further policy responses, population ageing would increase the debt-to-GNI* ratio by approximately 50 percentage points by 2070.
Commenting on the analysis, the Minister for Finance and Public Expenditure and Reform, Paschal Donohoe said:
The analysis published today by my Department clearly illustrates the additional pressure that the impending shift in the demographic profile of the population could place on the public finances. In addition to the associated expenditure pressures, a reduced economic growth rate would add pose additional challenges for the public finances of the State.
This report provides valuable insight and signals the need to ensure that the right policy levers are in place to help us deal with the demographic changes that lie ahead. A range of policy reforms, such as increases in the State Pension age, have already been implemented to mitigate against the costs associated with population ageing. However, additional measures including fiscal restraint in non-age-related expenditure, such as our debt servicing costs and , will be necessary to safeguard the sustainability of the public finances. This is why the Government is intent on reducing the debt burden, building up fiscal buffers and ensuring the public finances are sound. Balancing the books over the cycle is also crucial, which is a primary focus of Government.
Note to Editors:
- The report builds on work undertaken by the Department of Finance in conjunction with other Finance Ministries in the European Union, together with the European Commission.
- For the purpose of the analysis in this document, the working age population is defined as the population aged 15-64 and the old-age population is defined as the population aged 65 and over. This in line with standard international definitions, although it is recognised inter alia that many individuals continue working beyond their 65th
- In this report, age-related expenditure is defined as the sum of public expenditure on pensions, healthcare, long-term care, education and unemployment benefits.