Ireland is sitting on a demographic time bomb, set to detonate in about four decades, according to the Department of Finance.
In a report on where it thinks the population will be in 2065 (somewhere between 6.77 million and 7.59 million depending the level of migration), the department highlighted a fundamental problem that is now engulfing most industrialised countries, namely the diminishing ratios of workers to retirees or the increasing ratio of retirees to workers.
Having a multiple of workers for every one retired, pensionable-aged worker is a financial necessity.
The State’s pension system relies on contributions from workers while income tax receipts pay for the State’s healthcare provision.
[ State’s population could hit 7.6m in four decades, department estimatesOpens in new window ]
The department’s report predicts that the State’s old-age dependency ratio (the number of retirees to workers) will increase from 23.1 per cent in 2022 to 55.2 per cent in 2065.
“This will have significant policy implications for pension sustainability, the working-age tax burden, labour market dynamics, and healthcare demand,” it says.
Put simply, instead of having three to four workers for every retiree, we’ll soon only have just one, creating a financial black hole at the heart of the exchequer.
The Government is hoping to build up excess corporation tax receipts in a new national wealth fund to help pay for this but it is unlikely to be enough.
The Government has a very narrow tax base and has essentially sat on its hands in the face of calls to broaden it. The windfall nature of corporation tax has probably driven the inertia.
But as the department’s report highlights it needs to urgently plan for an older population.
It also highlighted that as birth and fertility rates fall, inward migration will be “the sole driver of labour force growth in the long run”.
By the same token, it noted that 60 per cent of high-skilled immigrants left Ireland within five years which had negative implications for productivity and for the Government’s fiscal position as they tend to pay more tax.
It linked this trend to the quality of life issues including the current housing shortage, which is itself a product of the State’s failure to plan for a bigger population.