National debt to increase significantly over coming decades as corporate tax falls and age-related costs increase

By 2065, age-related expenditure, such as healthcare, long-term care and pensions, will account for 46% of all voted expenditure, report finds

The report, 'Future Forty: A Fiscal and Economic Outlook to 2065', was published by the Department of Finance. Picture: Stephen Collins /Collins Photos

A decline in corporation tax receipts coupled with additional spending on long-term healthcare, pensions, and climate change measures will see the national debt increase significantly over the coming decades, with economic growth expected to slow, a new long-term economic outlook report has found.

In its report, entitled 'Future Forty: A Fiscal and Economic Outlook to 2065', the Department of Finance looks to provide a long-term economic and fiscal outlook for Ireland, set out over four decades on a "no policy change" basis.

The report presents a “central scenario” alongside more than 2,000 alternative scenarios based on the potential responses and outcomes to various future challenges and opportunities.

Under the report’s central scenario, modified gross national income (GNI*) — which is a preferred measure of the Irish economy — will reach €537bn in 2065. As of 2024, GNI* stood at €321bn.

However, annual economic growth is projected to decelerate over this time period, converging toward 0.5% by the mid-2060s.

GNI* per capita — a measure of living standards — is also expected to slow over time to 0.5% by the late 2040s and remain around that rate.

“While living standards are expected to improve, they will grow just 52% over the next four decades,” the report said, in comparison to the 143% increase over the last three decades.

The report's central scenario projects real GNI* per-capita will reach €79,000 per head by 2065. 

Windfall corporation tax receipts are projected to decline from 2030, “significantly reducing corporate tax receipts, from 8% of GNI* in 2025 to 4.5% of GNI* by 2040”.

“Thus, by 2065, total tax revenue is projected to be 31.6% of GNI*, down from 34.5% in 2025.” 

Government expenditure is expected to grow on average at 2.1% over this time period, however, some expenditure items are projected to grow at a far higher rate, with expenditure on climate change growing by 6.4%, while spending on long-term care and pensions will increase by 3.6% and 3.1% annually, respectively.

By 2065, age-related expenditure, such as healthcare, long-term care and pensions, will account for 46% of all voted expenditure.

If the current policies remain unchanged, under the central scenario, national debt is projected to grow to 148% of GNI* by 2065, which would "considerably hinder the State’s ability to respond to crises or deliver public services and investment". 

Under these additional spending obligations, national debt per person is expected to rise to €117,000 by 2065. As of the end of 2024, the national debt stood at an estimated €218bn, which equates to €40,500 per person in Ireland.

The report said demographic growth would be a “key determinant” of both economic and fiscal growth.

It noted that in 2025, there are 116 people in the labour force in Ireland for every 100 not working. By 2065, 98 people will be in the labour force for every 100 not working.

“Ireland’s ageing population is projected to result in a stagnating labour force, suppressing economic growth, increasing the dependency ratio and straining public finances,” the report said.

Continued inward migration will be vital to maintain growth in the labour force.

Across the range of alternative scenarios presented in the report, Ireland’s 2065 GNI* is projected to be between €421bn and €677bn in 2020 prices, with national debt estimated to reach as high as 424% of GNI*, or as low as 27%.

“To avoid this outcome, increased taxation, reduced public expenditure, increased public sector productivity, or a combination of all three might be required,” the report said.

“Actions that drive productivity growth will be key to increasing wealth levels that will, in-turn, increase taxation. This will include ongoing investment in physical infrastructure.” 

The most “significant fiscal risks” will come from extreme outcomes for climate change and the green transition, closely followed by the poorest outcomes from the healthcare system and the lowest future population growth.

 

“Failing to reap the productivity benefits from digitalisation will also significantly dampen long-term economic growth.” 

The report said the next 10 years will be crucial for implementing reforms as by the mid-to-late 2030s, demographic “shifts will constrain economic growth and increase fiscal pressures”.

In terms of policy considerations, the report suggests early investment in skills, healthcare reform, climate adaptation and infrastructure can yield significant future benefits.

“Certain issues call for more urgent responses before the fiscal tides begin to turn. Addressing housing supply shortfalls throughout the next decade could prevent severe bottlenecks in later years, while efficiency gains made in the health and aged care systems will soften the fiscal blow as demographic pressures rise,” the report said.

The report said that policymakers face a narrowing window of opportunity to strengthen productivity, invest in infrastructure, manage the impending decline in the labour force, and improve the efficiency of public spending.