Pearse Doherty (Donegal, Sinn Fein)
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206. To ask the Minister for Finance the projected General Government Balance as a percentage of both GDP and GNI* in each of the years 2021 to 2069 consistent with the methodology and assumptions used in his Department’s publication Population Ageing and the Public Finances in Ireland in the two scenarios outlined in table 6 of page 26, in which the SPA remains constant and in which previously legislated increases in the SPA take place in tabular form. [45847/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Department of Finance published a report entitled Population Ageing and the Public Finances in Ireland on Friday September 17th. The purpose of the report is to highlight the likely economic and budgetary impacts of population ageing in Ireland over the coming decades.

Included in the report, for illustrative purposes, is a hypothetical simulation that analyses the potential evolution of the budget balance and public debt in the event that budgetary policy did not adjust to the challenges posed by population ageing. In this hypothetical no-policy-change scenario, non-age related expenditure as a share of GDP/GNI* is assumed to remain unchanged over the forecast horizon while total revenue is assumed to move in line with nominal GDP/GNI*.

Age-related increases in public expenditure and a slower pace of revenue growth lead to the emergence of a significant deficit by the end of the next decade, reaching just below 3 per cent of GDP (4.7 per cent of GNI*). The deficit is projected to continue to increase sharply thereafter, reaching just below 6 per cent of GDP (9.3 per cent of GNI*) by 2070, without policy intervention.

As well as the baseline assumption of the State Pension Age (SPA) remaining at 66 years of age indefinitely, tables 1 and 2 below present simulations of the potential evolution of the budgetary balance if: a) the previously legislated increases in the SPA went ahead as planned (i.e. the SPA increased to 67 in 2021 and 68 in 2028); and b) if the previously legislated increases went ahead as planned and after that, the SPA increased by ¾ of a year for every projected increase of one year in life expectancy.

The simulations suggest that linking the SPA to life expectancy would reduce the projected General Government Deficit by 1.4 percentage points of GDP (2.3 percentage points of GNI*) by 2070. Analysis suggests that this would reduce the debt-to-GNI* ratio by approximately 40 percentage points by the end of the projection period.

It is important to note that the simulations presented do not take into account second-round effects or non-linearities. For example, continuing to run deficits of this magnitude would, almost certainly, result in a significant risk premium, with adverse implications for sovereign borrowing costs and the interest bill. Increases in interest rates with such elevated levels of debt would put significant pressure on the public finances. In addition, the starting point for this exercise was outturn fiscal data from 2019. While the macroeconomic projections underpinning this analysis envisaged a sharp decline in output in 2020, they did not capture the significant increase in expenditure related to the support measures implemented by the Irish Government during the Covid-19 pandemic. As such, the deficit in this exercise in the short-term may be understated.

While these simulations are for illustrative purposes only, they do highlight the need for policy intervention.

The tables below present figures in the base year of the exercise, 2019, 2021 and after this, projections at a 10-year interval. My Department will provide the Deputy’s office with projections for every year from 2021 to 2069, as requested.

Table 1

Table 2