New sources of tax needed to fund pensions – OECD

The Paris-based Organisation for Economic Cooperation and Development has said that Ireland’s population will age more rapidly than most other countries over the next 40 years.  

In a survey on the Irish economy published this afternoon, it also warns that future changes to international corporate tax rules could lower the attractiveness of Ireland to foreign direct investment. 

The OECD conducts major surveys of member countries every two years. Today’s report on Ireland highlights some of the challenges facing the economy. 

While it notes the economy has been performing strongly, the OECD said more must be done to make domestic companies more productive and skilled in technology. 

It said the high share of foreign-owned firms here is a “great asset” but it is also a risk. 

The OECD also warned that changes to international tax rules could make Ireland less attractive to investment from abroad and lead to lower tax revenues. 

It noted that over the next 40 years our population will age at a faster rate than most other OECD countries. 

In order to pay for the pensions and healthcare this will demand, it said that new sources of tax will have to be found and public spending will have to better managed. 

It also suggested that property taxes should be regularly revalued and that budget planning in health needs to improve.

The think-tank also suggested that property taxes should be tweaked to encourage more development in regional centres to counter Dublin’s dominant position in the economy. 

Today’s report also cautioned that Ireland stands particularly exposed to Brexit risks. 

It noted that the UK is an important trading partner, particularly in agriculture and food, and a vital land bridge for the majority of Irish exports that are bound for Europe. 

“Exports of machinery, equipment, chemicals and tourism to the UK have stagnated or fallen since the 2016 UK referendum on EU membership, and any re-imposition of customs and border controls would hurt flows of goods to EU destinations,” it warned.

The latest OECD survey on Ireland projects GDP growth at 6.2% in 2019, then at still solid rates of 3.6% in 2020 and 3.3% in 2021. 

“Ireland’s open economy has helped it emerge stronger from the crisis, yet the country is very exposed to external factors,” commented the OECD’s chief conomist Laurence Boone.

“Fiscal prudence will be vital with health and pension costs set to rise just as the economy faces disruption from Brexit and a potential drop in corporate tax receipts,” the economist said

“This is a crucial time for Ireland and the focus for the incoming government should be to keep the economy on a solid track,” she added.

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