Corporation tax windfall should be used to pay for future cost of Ireland’s ageing population, IFAC economist says

The State should use the corporation tax windfall to fund the “iceberg ahead” presented by a rapidly ageing population in Ireland, the chief economist of the Irish Fiscal Advisory Council (IFAC) has argued.

Dr Eddie Casey, who is also head of secretariat at the IFAC, has contended that an ageing society and climate change will present “monumental challenges” to the Irish economy between now and 2050.

He said that an ageing population alone could add almost 10 percentage points to the State’s already-high deficit by mid-century, He said that people in the State are living longer and a much greater percentage of the population is retired.

The number of workers to pensioners is estimated to fall from 5:1 to 2:1 by 2050, he has stated.

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“By 2035 we will be closer to today’s EU norms in terms of this [worker to pensioner] ratio.

“Within a generation, by 2050, Ireland’s population will be ‘older’ than Italy, Greece and Malta are today,” he said.

Dr Casey made a presentation to a finance policy conference organised by the Department of Finance.

In the course of it, he argues that Ireland’s present corporation tax windfall could be used to deal with the challenge presented by an ageing population, and also from climate change.

He has calculated that age-related expenditure could add as much as 7 percentage points to 9.5 percentage points of Gross National Income to the State’s deficit by 2050.

Climate change could add a further 4.2 percentage points to 5.8 percentage points to the deficit.

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“In 1950, a 65-year-old could expect to live to about 78 [13 years after retiring]. Now it is closer to 85 [20 years]. By 2050, [average longevity] will be almost 90.

“But the Pension Age has increased by one year since the 1980s, now at 66.”

Dr Casey argued in the presentation that corporation tax could offer a chance to tackle the big challenges – ageing and climate – in a way that is less costly.

He said it would also help avoid what he called “Dutch Disease”, the phenomenon where windfall, or boom-time, income is spent on short-term measures.

He said that investing corporation tax into tackling the costs of an ageing population would result in a more sustainable debt burden.

“Reinforcing our fiscal framework will help sustain incomes over the longer term, not just in good times.

“It will help us avoid mistakes we made last time we generated surpluses.”

He said that windfall taxes from corporation tax could be used for this purpose and if higher taxes were to be imposed, they should be done sooner rather than later, as this would “ultimately mean far less pain on individual taxpayers”.