Dr. Tom McDonnell:

In essence, demographics was the single biggest reason why the Commission on Taxation and Welfare felt that taxes would have to go up over the longer term. This is because one of the commission's five principles was adequacy. We are failing as a society if we do not provide adequacy for our citizens. The deprivation rate is a score of our failure in a sense. We are failing every single person experiencing deprivation. The answer cannot be that we do not want adequate pensions; they must be adequate. We must establish what that adequacy benchmark is in any event. Our demographic change is a positive story because people will live longer, but there is a fiscal cost to this. Many people argue that the working-age ratio is problematic and that, in some cases, people may wish to work beyond 65, 66 or whatever. There may be solutions to allow us to do this. It is also worth noting that while growth will be slower in future, it will be growing from a higher point. It must be borne in mind that this is not comparable to where we were in the 1980s, 1990s or the 2000s.

Ultimately, it is very much the case, and the Commission on Taxation and Welfare was clear on this point, that if we are to maintain minimum adequate standards for the population as a whole, then we need to do something about our revenue base, either tax or our social security contributions, whichever it might be. Many ideas were put forth in that report on to how to do this, acknowledging that increasing taxes is challenging. One of the advantages of non-indexation of the tax system is that it is actually the least salient way to increase taxes. It is, arguably, the least politically toxic way to do it. Governments have generally done this throughout the world because it is very hard to introduce new taxes.

It is important to acknowledge that there is a fiscal cost to this approach, but also that, ultimately, this is a bottom-line principle for a civilised society. I refer to ensuring minimum adequacy for people who are no longer able to work because they are in retirement and of a certain age. This is how I would answer that point, and it means that we need to be very careful in budget 2025 and subsequent budgets in the context of the drive to cut taxes. This can be a very politically expedient sugar rush at particular times, but it is not a sustainable fiscal strategy into the future. It is not tax cutting we should be undertaking but identifying sensible new sources of revenue and broadening the tax base.

The Commission on Taxation and Welfare emphasised the need to increase taxes on wealth as a broader class on foot of the much lower effective tax rates that apply. Inheritances, for example, are taxed. Net wealth in Ireland amounts to about €1 trillion. We get about €500 million a year from inheritance tax, but there is obviously only one generation involved at any one time or one application of such a tax every 25 years. It works, therefore, at about a rate of 1% and 2%, whereas the effective taxes on labour and consumption are ten times greater, or even more. This is just one example. The point is that we can fix the tax system and do so in a way that does not hurt the average family, while at the same time providing an adequate standard of living to our older population in future.