The Tax Strategy Group has sounded the alarm about the Social Security Fund, warning it could leave a black hole of up to €335 billion by 2071.
Officials have warned the Treasury Secretary of tax changes that will be needed to encourage an increase in older workers.
The government is working on pension reform that will keep the statutory retirement age at 66, with higher pensions for those who choose to retire later.
Officials are also working on proposals to measure pensions and other benefits against average wages.
Tax Strategy Group officials have warned Minister Paschal Donohoe that the state’s “rapidly aging” population means tax changes need to be made to increase the number of older workers.
“Major structural reforms (e.g. raising the statutory retirement age) and changes in tax policy by facilitating increased labor force participation among older workers and increasing productivity (e.g. research and development tax credits to stimulate innovation) will be required to achieve this to support the transition. said the Tax Strategy Group.
500,000 taxpayers and 10 multinational companies account for a third of total tax revenue
The paper points to how the state’s demographics will change “significantly” over the coming decades as Ireland becomes one of the “fastest aging EU member states”.
The PRSI-funded Social Security Fund responsible for pension and welfare payments could be running into billions of dollars in debt as early as 2030.
The ministry forecasts a deficit of more than 2.3 billion euros in 2030, which will rise to 13 billion euros by 2050.
The expected annual deficits are expected to increase steadily to around 21 billion euros by 2070.
However, the group warns that these deficits will worsen, leaving a cumulative deficit of 335 billion euros by 2071.
The Tax Strategy Group also warns Secretary Donohoe of difficulties in funding pensions in the future.
“The main reason for the increase in projected total spending is pension-related spending,” the group notes.
“People are living longer than previous generations – and as a result, the duration of state pension payments has steadily increased over time and will continue to do so.”
In 2030, the social security fund is expected to have revenues of 14.64 billion euros, with expenditures of 17 billion euros. Contribution-financed state pension payments of 9.6 billion euros leave a deficit of 2.36 billion euros.
In 1991 there were five people of working age for every pensioner. This ratio is expected to be 3.5 to 1 by 2031 and 2.3 to 1 by 2051
However, the big pension reforms on the way aim to improve the fund’s sustainability.
By 2050, the number of pensioners is expected to double and tax revenue to fall because jobs are becoming scarcer.
Officials point out that in 1991 there were five working-age people for every retiree, but that ratio is expected to fall to 3.5:1 by 2031 and 2.3:1 by 2051.
The Pensions Commission had recommended gradually raising the statutory retirement age to 67 between 2028 and 2031, before gradually raising it to 68 by 2039.
However, the government will keep the official statutory retirement age at 66, but will allow workers to retire later for a higher pension.
Department of Social Protection officials are considering proposals to compare pensions and other benefits with the average industry wage.
The group states that “a number of cost-saving and revenue-enhancing measures” need to be considered when setting future PRSI rates.
The Tax Strategy Group also raised significant concerns about the state’s over-reliance on corporate taxes, warning of “significant vulnerabilities” in tax revenues and the sustainability of public finances.
Around 500,000 taxpayers and 10 multinational companies account for just over a third of total tax revenue.
“A shock to the multinational sector could affect income taxes and corporate tax revenues, with a significant impact on public finances,” the group explains.
The “volatile” nature of the tax should be taken into account when considering whether or not the state should remain within the OECD framework, the group said.
https://www.independent.ie/business/personal-finance/tax-experts-warn-of-335bn-black-hole-in-social-insurance-fund-41910498.html Tax experts warn of a €335 billion black hole in social security