Summary & Key message from the scoping paper published yesterday 10April2023:
There are known risks to the public finances
˃ The Department estimates that windfall corporation tax receipts will be in the region of €12 billion
this year. When these windfall receipts are stripped out, the forecast headline budgetary surplus
is turned on its head, with an underlying budgetary deficit somewhere in the region €1¾ billion.
˃ Pressures on the public finances are building. Perhaps the best understood pipeline-cost relates
to an ageing population. Increased longevity means higher healthcare, pension, and long-term
care spending; the bill will have to be met by a relatively smaller working age cohort in the years
ahead.
˃ To put this into perspective, age-related spending will be around €7-8 billion higher by the end of
this decade than it was at the start of the decade – this is simply the ‘stand-still’ cost. These costs
are set to increase exponentially thereafter. Less-well understood future costs include those
relating to the ‘twin transitions’ (climate and digital).
Long-term funds have been established to help with future risks
˃ The National Pensions Reserve Fund was established in 2001 as a long-term savings vehicle to
meet part of the cost of population ageing. This Fund was partially liquidated during the joint
banking / sovereign debt crisis of 2008-2012, with the residual amount re-purposed as the Irish
Strategic Investment Fund in 2014.
˃ There are numerous examples of advanced countries establishing sovereign wealth funds in order
to build up fiscal buffers and to (part) pre-fund future liabilities. This document highlights the
approach of Norway, Australia and Japan in building up their fiscal reserves.
˃ In 2019, the Government established the National Reserve Fund; the objective was to provide
sufficient funds to mobilise counter-cyclical fiscal support in the event of a severe economic
downturn.
˃ Recognising the role of ‘windfall’ corporation tax receipts, the Government has subsequently
transferred €6 billion to this Fund.
A longer-term fund could be established to help meet future costs
˃ Large headline budgetary surpluses are currently projected, though much of this stems from what
are likely to be ‘windfall’ corporation tax receipts.
˃ While acknowledging the benefits of paying down public debt, which is relatively high by
international standards, this document assesses the pros and cons of establishing some form of
public sector longer-term saving vehicle in Ireland. The fund would be capitalised by windfall taxes
and some fraction of any future budgetary surplus. This could be drawn-down over time as agerelated
and other structural expenditure pressures build in the future.
˃ Simulations suggest that drawdowns from such a fund would not cover the entirety of the
projected increase in age-related costs under any of the illustrative options presented here,
indicating that it is a complement to, and not a substitute for, other necessary reforms, including
increases in rates of PRSI.
Full document:
https://www.gov.ie/pdf/?file=https:...fc8-1411-4a64-9425-b3a42e1b6423.pdf#page=null