The Department of Finance’s scene-setting document for this year’s National Economic Dialogue event centred on what it sees as the four big trends likely to transform Ireland’s economy over the next decade, ones that “cannot be divorced” from the annual budgetary cycle.
“The four Ds”, it called them: demographics, decarbonisation, digitalisation and deglobalisation.
An extra €8 billion to €9 billion in public expenditure will be needed every year by the end of the decade just to pay for the “stand still” costs associated with an older population.
The main driver of these additional costs is the State’s future pension liability. The Government’s decision not to increase the State pension age from 66 has left us with a financial time bomb that won’t be easily defused.
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Minister for Finance Michael McGrath’s decision to establish a new sovereign wealth fund to set aside excess corporate tax receipts was partly motivated by the looming pension liability.
Decarbonising the Irish economy is perhaps the most formidable challenge. The department’s document notes that the State managed to reduce emissions by less than 1 per cent between 2018 and 2021, a shocking indictment of the country’s climate credentials, and that the State remains “off-track in terms of meeting its 51 per cent emissions reduction target by 2030”.
The Economic and Social Research Institute (ESRI) warns that the switch to electric motoring will essentially erase €5 billion a year in tax receipts derived from excise duty on fuel, emphasing the point that these trends can’t be divorced from the annual budgeting. Minister for Public Enterprise Simon Coveney was questioned
Digitisation, was accelerated during the pandemic but the impact of new technologies like AI and whether they will complement labour and productivity or substitute labour and drive unemployment are open questions.
New figures showing data centres now use a fifth of Irish electricity highlight the tension between decarbonising and digitisation.
Deglobalisation is the newest of the four trends. War and rising geopolitical tensions have arrested and arguably sent into reverse one of the more powerful forces of the past 20 years, globalisation, a process that has enriched Ireland. The department’s document warns that “despite remarkable resilience in the face of unprecedented shocks in recent years, neither the economy nor the public finances are bulletproof”.
