Ireland is economically closer to Boston than Berlin

IFAC report finds economy benefits from young population

Ireland collects a lower level of government revenue than most other high-income European countries. Picture Denis Minihane.

Ireland's young population means it is closer to Boston than Berlin when it comes to tax and spending levels.

New research from the Irish Fiscal Advisory Council (IFAC) shows the public finances are benefitting from a young population and a strong economy. 

IFAC said Ireland’s relatively young population means the government spends less on pensions and healthcare than it otherwise would. However, as our population ages, spending in these areas is expected to rise. This demographic shift will gradually bring Ireland’s public spending closer to levels seen in other European countries. 

Ireland’s strong economy also helps to explain why public spending is low relative to national income. After adjusting for these factors, Irish government spending is 3.3% of national income lower than other European countries.

Ireland collects a lower level of government revenue than most other high-income European countries. This is equivalent to 4.7% of national income, or €2,600 per person. When excess corporation tax is excluded, the gap widens to 8.6% of national income or €4,700 per person.

“Demographics can have a big impact on government spending and tax levels," the report's author Niall Conroy said. "Ireland’s public finances are benefitting from its relatively young population. That means we are spending less on pensions and healthcare than would otherwise be the case. As a result, spending levels in Ireland are lower than in other European countries."

"Both an ageing population and climate change will mean higher levels of spending. The two savings funds the government has introduced will help address these costs. But they will not cover all of these costs. As a result, the government will need to raise additional revenue or reallocate existing spending. The more the government saves today, the easier it will be to navigate these challenges," Mr Conroy said.