The Government has to spend an extra €2-€3 billion each year just to cover “the standstill costs” associated with an ageing population, the Department of Finance’s chief economist John McCarthy has said.
As Ireland’s population ages, these costs are projected to rise considerably.
At the launch of the department’s new “Future Forty” report, which examined how future migration trends and fertility rates might effect the Republic’s population over the next four decades, Mr McCarthy highlighted the increasing strain on the public purse from Ireland’s changing demographics.
“For the last seven or eight years, we’ve had to allocate about €2-€3 billion each year simply to maintain existing levels of health service and to pay for additional pension drawdowns ... because there are more older people,” he said.
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The Government is hoping to save up to €100 billion of excess corporation tax receipts over the next decade in a new sovereign wealth fund to deal with future spending pressures.
The department’s report estimates that the State’s population could grow to between 6.77 million and 7.59 million by 2065 depending on various assumptions about migration levels and fertility rates.
In a central scenario, the department forecasts the State’s old-age dependency ratio (the ratio of retirees to workers) will increase from 23.1 per cent in 2022 to 55.2 per cent in 2065.
This trend – now evident in most industrialised countries – will have significant implications for State spending on pensions and healthcare, which is funded, in the main, by income tax.
[ Ageing population takes its toll on Ireland’s health systemOpens in new window ]
“On the basis of demographic trends there will – everything else being equal – be a large increase in the debt ratio – something like 50 percentage points of national income between now and 2065,” Mr McCarthy said.
“The public finances will take a hit ... they will be a greater burden on the working-age population,” he said.
In its report, the department notes that immigration is likely to be the main driver population growth over the four decades.
“Economic growth and wage differentials have traditionally been a strong predictor of migration flows, as people tend to move toward regions with better jobs and higher wages,” it said.
“However, recent volatility in migration levels, caused in part by immigration policies, as well as ageing populations across the world, war, and economic convergence in developing countries, has meant that economic growth is no longer a clear and reliable predictor of migration levels,” it said.
Population projections here have tended to underestimate the actual level of population growth because of larger-than-expected net migration.
[ Ireland’s population outperforms increasingly ageing EUOpens in new window ]
According to the Central Statistics Office’s latest statistics, the State’s population rose by 78,300 to stand at 5.4 million in the 12 months to last April.
The increase was driven by net migration of 59,700 but this was down on previous year’s total (79,300).
The department’s report urges Government departments to “prepare contingency plans for a high-case migration scenario to avoid potential infrastructure bottlenecks constraining growth.”
“These plans should include details on when to activate specific actions to respond to higher levels of migration and boost infrastructure capacity,” it said.
