The Government has been criticised for its lack of longer-term planning in relation to the public finances. The new Future Forty report from the Department of Finance goes some way to address this. It outlines some vital questions. The answers, however, remain to be debated and decided. Amidst all its shorter term priorities, it is important that this is on the Government’s agenda.
The report, published on Tuesday by Minister for Finance, Paschal Donohoe, takes into account a whole range of economic and geopolitical factors and comes up with more than 2,000 potential scenarios for the economy over the next forty years. These range from the relatively optimistic to the more worrying– international and domestic trends can combine in many different ways.
But it is important to focus on three key messages. The first is that, in the longer term, economic growth is likely to slow. This is partly due to demographics, with the population set to age. We have seen across many EU countries how this reduces the growth potential of the economy.
The second is that, partly due to this ageing population, pressure on public spending will rise relentlessly. Paying for the cost of climate change and the so-called digital transition will add further cost and so, most surely, will the unpredictable geopolitical outlook.
RM Block
The third key point also results from the ageing of the population. It is that immigrant labour will continue to be needed in the workforce. Otherwise from the middle of the next decade the size of the labour force will start to shrink, with significant negative economic and social consequences.
None of these points are new. But putting them together in a report on Ireland’s future is nonetheless striking. Politicians on all sides have consistently failed to take account of the longer-term pressures which are certain to emerge on public spending. These are significant for the State finances and will require extra tax revenues. But Irish political debate remains based around the short term and the potential to spend yet more.
Ireland has an opportunity over the next few years when the public finances may remain strong to mitigate much of the risk – by investing in the green transition and measures to address climate damage, building infrastructure effectively and ensuring much better value in key public services, notably health. If this window is missed, then the risks facing the State will be a lot higher, on a range of fronts.
As a State, Ireland needs to consider this and act much more strategically, before it is too late. We only need to look at the miserable nature of the debate ahead of this month’s UK budget – taken up with possible tax rises and welfare cuts – or the financial dangers threatening France to realise that everything possible must be done to keep Ireland’s public finances in positive territory.
