Reshape National Reserve Fund to fund State pensions, fiscal watchdog urges

"This option could reduce its reliance on excess corporation tax receipts and save for future pensions costs,” said IFAC chairperson Sebastian Barnes

In its latest assessment of Budget 2023, the fiscal watchdog said the slowing economy had significantly increased the short-term risks, but the Government also needs to improve planning for long-term spending, with its climate targets lacking "clarity". 

The Government should think about reshaping the so-called rainy-day or National Reserve Fund and "should be transparent" about the costs of funding future State pensions, the Irish Fiscal Advisory Council has said. 

In its latest assessment of Budget 2023, the fiscal watchdog said the slowing economy had significantly increased the short-term risks, but the Government also needs to improve planning for long-term spending, with its climate targets lacking "clarity".                              

The Government nonetheless struck "an appropriate balance" in shielding households and firms from the full brunt of soaring energy prices, but any significant spending in the future would risk fueling inflation, it said.    

Highlighting the risks of depending on corporation tax receipts, IFAC wants the Government to "be transparent" over its the decision to maintain the retirement age at 66, and to spell out the other costs entailed by an ageing population.      

Funding the National Reserve Fund from part of an estimated windfall of €9bn in corporation tax revenues was a welcome move, but the fund should be "better designed and re-focused" to help pay for some future pension costs, the watchdog said.

As few as five multinational companies account for a significant share of all corporation tax revenues and are skewed to digital firms, it said. 

"Ireland’s economic growth has slowed considerably, stunted by the surge in energy and food prices. While the jobs market remains exceptionally tight, recent data show signs of a softening, including in digital sectors," the fiscal watchdog said.    

“While the Government is navigating a steady path through the energy crisis, Ireland’s big longer-term challenges, from ageing to climate, to the over-reliance on corporation tax are becoming ever more urgent. 

"To help tackle these areas, the Government needs to start planning ahead by forecasting at least five years ahead, making credible plans to address ageing and climate change, and reinforcing the budgetary framework around its 5% spending rule," said IFAC chairperson Sebastian Barnes. 

Mr Barnes said a new fund reshaped into a National Pension Reserve Fund would help meet future costs. "This option could reduce its reliance on excess corporation tax receipts and save for future pensions costs,” he said.