Report warns of Ireland’s growing fiscal deficit and aging population

Ireland’s economy faces threats from an aging population, a drop in windfall tax receipts and a growing fiscal deficit, a new government report has found.

Launched on Tuesday by the Minister for Finance Paschal Donohoe, “Future Forty: A Fiscal and Economic Outlook to 2065” is a long-term assessment of Ireland’s economy and society.

It modelled more than 2,000 scenarios for Ireland’s future over the next four decades, based on global “megatrends” and trends within the Irish economy.”

The Central Scenario, the most likely outcome based on the data now, forecasts over the next 40 years “a continued growth in living standards, but with slowing growth over the long-term, and a steady decline of our fiscal position”.

It found that this would most likely be due to “demographic shifts, slowing productivity, climate costs and a slowdown in corporation tax receipts”.

The Department’s chief economist John McCarthy said the “key takeaway” from the report is the importance of productivity.

It is projected to fall gradually until 2046, but the report found even “modest productivity gains” could “significantly improve the economic and fiscal outlook”.

The report says another key issue that will determine economic growth is population change and said “continued inward migration will be vital to maintain growth in the labour force”.

And as an example, it said if inward migration was zero, the labour force would contract by 2035.

While most tax receipts are expected to remain steady in line with economic growth, “windfall” corporation tax is projected to decline to zero between 2030 and 2040.

The report also said it is expected to take until the 2040s before housing supply eases significantly, with demand expected to peak in the early 2030s.

The authors of the report stress it is not a prediction, but a tool “that provides us with an evidence-base, to guide us over a longer term. It highlights risks while underlining opportunities to better inform the decisions we make today”.

The analysis is based on current Government policy and similar to research carried out by Canada, Finland and Austria.

Mr Donohoe described the project as a “catalyst for debate” on Ireland’s future.

Mr McCarthy added there is a tendency in Ireland to focus on the short-term economic outlook, and this work was designed to “address that imbalance”

The Department of Finance has also released an interactive tool based on their research which allows users to see how different choices on housing, healthcare, climate, technology, and more could shape Ireland’s economy and society.