Change is coming in Ireland – just not how the Government or the Opposition imagines

The Sinn Féin Ardfheis this weekend will be a stirring call to change. It will seek to showcase political energy, in contrast to what it claims is the exhaustion of Government. Its ideas will be set against alleged Government failure. That’s the showtime of politics and it is what party conferences are for. Behind the rollicking rhetoric, great change is arriving – it is just not the change that either Sinn Féin or the Government parties are planning for.

Details aside, the plans of all are essentially the same. We are to have a bigger state. This is partly required by an increased and older population, but it is mostly the result of a lazy shift leftward that happened on the watch of what is in the main a centre to centre-right Government. It was fuelled by Covid. The only argument left, and it is one Sinn Féin will vigorously pursue, is who will do it better.

The bigger story is that that a bigger state is unachievable and unsustainable on our current tax base. A corporation tax bonanza, partially linked to Covid era profits for pharmaceutical companies, has likely peaked and will subside to a new normal. Plans across the board, including Sinn Féin’s, were conceived in an era of seemingly permanent low interest rates. But if inflation is taming, interest rates of about 4 per cent will likely be the normal for several years. The cost of inflation, however, is real. The Irish Fiscal Advisory Council has warned that an additional €19 billion will be needed by 2030 to deliver on the increased capital costs of the National Development Plan – and that’s only the start of how we must run faster just to stand still.

Housing and the cost of living generally are the hot-button issues around which politics is revolving. But these are symptoms. Over the long term the underlying issues that must be reckoned with are demography and climate. The wild card is artificial intelligence which will both be a disrupter and an opportunity – and like all technological change, a source of cultural change.

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Today there are two working people for every dependent, young and old. By 2051 that will be less than 1.5. This is the change that is really arriving

The scale of demographic change is astonishing. Ultimately this – and not housing – will be the biggest burden on people under 40. The number of people aged over 65 years increased by 22 per cent between 2016 and 2022 to 776,315. That and an increased population across the board mean that more resources are needed to deliver existing services before new spending is considered. The Department of Finance estimates that paying for demographics, the National Development Plan (but not its black hole), and public sector pay will take at least 50 per cent of the total core budget in the years ahead. But this is only a taster of what is to come. The population over 65 years will be somewhere between 1.5 million and 1.6 million by 2051, according to the CSO. Today there are two working people for every dependent, young and old. By 2051 that will be less than 1.5 working people for every dependent. This is the change that is really arriving.

[ Cost-of-living crisis exacerbating pensions timebomb, research suggests ]

Belatedly, but correctly, the Government has put in place a sovereign wealth fund using some of Ireland’s windfall corporation taxes. An immediate issue facing into the next general election is whether Sinn Féin will commit to saving into the fund, or if it plans to spend what is expected to be a continuing but reducing budget surplus. It is a buffer for younger voters as they face into the heavy lifting over decades to come. Contrary to Sinn Féin’s assertion at the last election, the demographics will not look after themselves. They are a deadly enemy of the young.

In the corridors of power, officials recite what Gore Vidal called the four most beautiful words in the English language: ‘I told you so’

Spending the surplus is superficially attractive but it overheats an already hot economy. The slew of Government housing schemes, including the Help to Buy scheme, are inflationary and effectively subsidise better off first-time buyers to pay higher prices to builders and developers. Pumping over an additional €1 billion into a maxed-out economy to build more houses quickly, as Sinn Féin plans, is a builder’s fantasy and a recipe for bad value for money. It is a continuation of the politics of more money than sense that is so ingrained as to be politically unchallengeable.

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The greatest danger as parties prepare for the next election is that the next Government might be the last one before the current model becomes permanently unstuck. In the corridors of power, officials recite what Gore Vidal called the four most beautiful words in the English language: “I told you so.” But there is no penetration into the public conversation of the fact that our bare necessities – let alone bigger plans – require a far broader and more robust tax base.

Sinn Féin is committed to a deepening of the tax base at the expense of the better-off, but sets its face against broadening it. There is no explanation or consideration as to how an ageing population will provide for existing levels of service, let alone massive new investments. The Commission on Taxation and Welfare stated bluntly in 2022 that the overall level of taxation as a share of national income will have to increase. That is a change nobody will consider.