Spending on health and continuing to fund the State pension age at 65 will add significant amounts to Ireland’s debt, the OECD has said.
In a major report, the Organisation for Economic Co-operation and Development also said it wants to maintain the property tax and for it be assessed at regular intervals and also seeks further carbon hikes for Ireland to hit its obligations to reduce climate-warming emissions.
The recommendations come after an election campaign that was marked by pledges by most political parties to keep the State retirement age at 65 and to invest significant amounts in healthcare.
Launching the report, OECD chief economist Laurence Boone said if there were no changes to current policies on healthcare and the retirement age that the Government’s debt level would rise significantly in the coming decades.
She told reporters said the organisation favours governments across the world raising the retirement age to 68, as people live longer, while Ireland is spending significant amounts compared with other OECD countries in funding healthcare, but getting poor outcomes in terms of health provision.
Ireland is the only western European country without universal healthcare and the health of its people is suffering as a result, which requires much better control over health budgets as investment increases, Ms Boone said.
On ways to boost the building of new homes, she said the OECD favours incentives such as rezoning publicly-owned land for residential homes and provide public transport for residential sites over other measures that would only increase demand.
Asked about the political uncertainty and the OECD’s views on the potential of a high-spending, left-leaning government coming to power, Ms Boone said the report was about addressing structural issues in Ireland and ways in which the country can continue to thrive by broadening its reliance on tax revenues beyond the multinationals.
The chief economist reiterated that successive Irish budgets had benefitted from windfall corporate tax receipts, of which the bulk is collected from multinationals.
This matters because any setback to world trade that affects foreign-owned firms could harm Irish government revenues, she said.
The OECD Economic Survey of Ireland runs to 118 pages and details scores of recommendations for an incoming government.
It wants taxes to rise “somewhat” should the UK agree a Brexit deal, and it wants the corporate tax revenues to pay down debt.
The report recommends regular updates of house values to assess the local property tax and to help low-income households most affected by the charge.
Overall, the report finds that the Irish economy will continue to grow strongly in the short term, while facing significant problems in helping people to reskill to narrow the skills gap.
The economy faces significant challenges over world trade in the coming years and from an ageing population in the long term.
Separately, the European Commission projected Irish GDP will continue to expand strongly, by 3.6% this year and by 3.2% in 2021. In its winter forecasts, it said growth has slowed in 2019 from 5.7%, the fastest rate in the EU.
The disparity in economic clout between Dublin and other regions is leading to increased inequality and needs to be “closely monitored”, says the OECD.
In its report on the economy, the Paris-based organisation calls on the government to look carefully at the way Dublin is growing at the expense of other regions and pushing people to live further out, in surrounding counties, for a place to live.
“An increasing concentration of economic activity in relatively wealthy parts of the country, such as Dublin, is prompting concerns about rising regional inequality,” states the report.
“Regional inequalities have been rising, with Dublin accounting for a larger share of economic activity. Nevertheless, the Dublin-born population is increasingly moving to other counties due to escalating dwelling prices in the capital.”
The report says “some” plans by the outgoing government for spending on infrastructure projects, under Ireland 2040, would help concentrate population growth in designated cities and rural centres.
To tackle congestion, the OECD sees a need for car-riding services because the greater Dublin region is so spread out for public transport to cope.
“Under such a ride-sharing model, individual private car rides are replaced by rides in shared taxis or shared taxi-buses. These services are modelled to be available on-demand either at the doorstep or at the next street corner.”
To cut carbon emissions, “a more ambitious arrangement that shifted all private car travel in Dublin to shared mobility services and the existing rail and light-rail transport network could result in even more dramatic results”.
The OECD has provided a scorecard on the progress of the outgoing Government in meeting previous recommendations to boost housing output.
Its major report on the Irish economy shows that the 21,000 new homes it estimates were built last year falls far short of the 34,000 that experts believe will be needed each year through 2030.
Previous recommendations by the OECD included encouraging local authorities to rezone sites for residential home building, and relaxing building regulations for apartment sizes in city centres.
It said that since then, the Government has set up an Office of the Planning Regulator “to ensure that the zoning and planning decisions of local authorities are aligned” with national planning rules “and that planning systems are functioning in a coherent way”.
The OECD also stated that the Department of Housing has published new guidelines on apartments that allow “for the construction of north-facing apartments where necessary”.
The report said that it had also recommended building more social housing, with spending increasing in October’s budget by €300m to €2.6bn.
“To meet the future needs of the growing Irish population, the capacity of the housing construction sector will need to continue expanding to avoid dwelling supply constraints and a further acceleration in prices,” it said.
“Key to achieving this will be promoting the efficiency of Ireland’s construction sector,” the report stated, adding that Irish construction has low productivity growth compared with other European countries.
“It will also be important that appropriately-sized dwellings in the right locations are being built,” the report said.
“In Dublin, less than 30% of dwellings are apartments, compared with over 60% in other major cities in Europe.”
Ireland spends significant amounts on hospitals without getting much in benefits in terms of better healthcare and improved health for its people, according to the OECD.
Additionally, an ageing population will put significant new stresses on the Irish healthcare system, which stands out in western Europe as the country with no universal health coverage.
The OECD report said that providing universal coverage and improving healthcare outcomes are achievable through reforms.
The report finds that much of the higher levels of spending have gone into hospitals. “However, it has led to no significant increase in measured outputs, insofar as the overall number of patients on hospital waiting lists has not declined,” it said, citing experts.
“This contributes to poor disease management and congestion in hospitals. A clearer path to universal access to primary healthcare must be spelled out.
“Unbudgeted health spending has been attributed to both weak spending controls and weak budget planning.”
It also reports on the progress made to control healthcare budgets in hospitals.
“Activity-based funding (whereby budgets are allocated to each hospital based on the number and complexity of patients) has replaced block funding for inpatient and day-case procedures,” it said.
“The HSE also introduced an Accountability Framework for the sector, with a review undertaken in 2015. However, several of the review’s recommendations, including the requirement for hospitals to produce their own productivity plans, have not been implemented.”
The latest major report from the OECD will please few politicians of all colours.
Its Economic Survey of Ireland lists the major problems of the hospitals and securing a place to live that influenced voters last weekend.
Ireland pumps a lot of money into its hospitals without getting much back and the country has a long way to go to provide universal health coverage, which almost all western European countries provide already.
In housing, the report reiterates that output is nowhere near meeting the annual demand for new homes, leading to a huge rise in rental costs.
Its recommendations to solve the problem of housing shortages nonetheless appear to be underwhelming. But there is little in the report for any potential Sinn Féin-led government to cheer.
The OECD shows that the costs of healthcare and keeping the retirement age at 65 are daunting.