Standard & Poor's: Government must limit health spending or risk increasing debt pile

The Government will have to do more to rein in health costs if it is to avoid a bigger debt pile, S&P Global Ratings has warned.

Projecting the Republic’s population will grow to five million by 2050 from 4.7m currently, S&P said there will be fewer people proportionately of working age paying taxes to support increased spending demands from health and pensions.

The major report comes amid fresh speculation the minority-led Fine Gael Government may face an early election, at which spending on health service will again likely to be a major campaign issue.

Investec Ireland yesterday told international clients there was likely to be a second election late this year.

“With no major legislation slated for the coming months, a minority Fine Gael administration may limp on until October, when it is unlikely to win enough support to implement a budget. In that scenario, we could be looking at a second general election in late 2016,” said the bank’s chief economist Philip O’Sullivan.

Paddy Power said since the latest opinion polls it had shortened its odds on Fianna Fáil emerging as the largest party at the next election to 8/11. 

The odds for Fine Gael have remained at Evens to win the most seats.

Spending on health again broke its budget this year, the latest exchequer returns published earlier this week have shown.

“We forecast pensions account for two-thirds of 10 increase in age-related spending in 2015 to 2050, with one-third representing health care spending.

The Irish Government has been proactive in reforming its pensions policy, but faces significant challenges in modifying health care policy while maintaining the adequacy and sustainability of health care expenditure,” the ratings firm said.

Its report said such age- related spending could relatively quickly reverse the progress in reducing the Government’s debt pile.

“In the absence of further reforms or expenditure cuts in other areas, the growth in spending would weaken Ireland’s fiscal position and reverse the current decline in net general government debt in 10 years’ time,” it said.

Under a scenario where spending on health continues unchecked, net government debt would climb strongly, to almost 131% of GDP in 2050 from 88.5% last year.

It said healthcare spending is “the greatest policy challenge” facing Irish Governments.

“Health care spending is under increasing upward pressure, yet the Irish Government faces significant challenges in modifying healthcare policy. Public health care expenditure has exceeded the budget by 0.1% to 0.3% of GDP annually in the past few years, in contrast to a rapid consolidation of spending in other government departments. This is despite a high contribution from private health care insurance and the means-testing of free primary health care,” said S&P.

Hypothetically, Ireland would lose its current ‘A+’ credit rating by 2045, if the age-related increases continue apace.

Meanwhile, Mr O’Sullivan at Investec said that it was unlikely Irish bond yields would rise if, as he predicts, a second election were called later this year. 

He said international investors understood that the big parties here had very few differences on economic policies. 

Yields in Spain had risen ahead of its recent election because there was a major debate about economic policy, he said.


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