Demographic timebomb to hit public purse, analysts warn
Published 01/09/2015 | 02:30
Ireland's ageing population will place increasing pressure on the State's public finances in the coming years, Davy Stockbrokers has said.
In a monthly economic update to investors, the company also claimed that while the economic recovery is spreading out from Dublin, an urban-rural divide still exists.
As preparations for October's Budget ramp up in the coming weeks, Davy - the country's biggest stockbroking firm - echoed concerns from the Fiscal Advisory Council and European Commission that demographic spending pressures will soon become an issue.
Davy said the ratio between the young and the old and the rest of the workforce was about 50:50 in 2011.
But the too young or too old to work grouping is estimated to rise to 55.4pc by 2016 and 57.8pc by 2021.
"While Ireland's population as a whole is set to expand strongly in the coming years, the population pyramid is becoming more top heavy," Davy economist Conall Mac Coille said.
"The increase in the age dependency ratio is predominantly due to growth in the older age groups, with 108,000 more over 65-year-olds by 2021 versus 2016, bringing increased health and social spending pressures."
Davy pointed out that while Ireland's birth rate has fallen back from its 2010 peak, it remains one of the highest in Europe, placing further pressures on social, health and education infrastructure.
A similar argument has also been made by the State's budgetary watchdog, the Irish Fiscal Advisory Council (IFAC), which has accused the Government of not taking demographic pressures into account when drafting the Spring Economic Statement.
In June, in its first detailed analysis of the Spring Statement, IFAC said government forecasts fail to take full account of an ageing population or the associated spending pressures.
The report called into question the credibility of Government forecasts, arguing they do not make enough allowance for spending on health or population growth
Mr Mac Coille pointed out that the European Commission has also said that age-related expenditure here needs to increase significantly over the coming years, rising to 24pc of gross domestic product in 2024, and possibly even higher.
The spending will largely fall on public pensions, which are set to increase from 7.4pc of GDP in 2013, 8pc in 2020 and 8.7pc in 2025. Age-related healthcare will also be impacted.
"Indeed, the European Commission estimates that pension-related expenditure growth in Ireland will outpace the EU average over the EU average over the next two decades as it falls in the majority of the other countries," Mr Mac Coille added.
Davy also said that while the jobs recovery is now spreading, other regions remain well behind the greater Dublin area.
And it pointed out that while employment in multinationals has increased by 21pc by the end of last year, 60pc, or 17,300 of these gains, were in Dublin.
"While much attention has focused on the growing demand for new housing and infrastructure in the Greater Dublin Area, due to increasing population and migration flows, the demographic data raise longer-term questions about the viability of many rural areas as centres of population and economic activity in the coming years," Mr Mac Coille said.
As officials in Ireland begin to intensify their Budget discussions, Budget 2016 is being crafted against a background of market volatility amid fears over a Chinese slowdown, and the will-they-won't-they debate over whether the US Federal Reserve will increase interest rates next month.
That topic dominated the gathering of central bankers in Jackson Hole last week, as well as the difficulties associated with boosting inflation.