Workers in Ireland may see their taxes increased at the next budget in an effort to fund future pensions, the government has indicated.
The news comes after Ireland’s budgetary watchdog, the Irish Fiscal Advisory Council (IFAC), released a document entitled “Saving for Ireland’s Future,” which outlines a plan to fund future pensions without significant overnight tax increases down the line.
“Ireland’s population is ageing rapidly,” the group said.
“This will put increasing pressures on the State Pension in the years to come. The current “pay-as-you-go” approach to funding the State Pension means that today’s PRSI contributions are broadly used to meet today’s pension payments.”
The watchdog went on to claim that this plan would ultimately put less of a “burden” on taxpayers.
“Moving to a system where the PRSI rate is set at a constant rate to finance the pension system over the long term, as in Canada, rather than year-by-year would avoid the need for larger increases in PRSI rates in the future,” they argued.
“This would be achieved by raising contributions from the baby boomers while they are working. This would reduce the burden on future taxpayers.”
The group recommends that combined employee and employer’s PRSI rates rise by “about 3.5 percentage points” over the current rate of 15%.
Social Protection Minister Heather Humphreys is expected to bring proposals to the government cabinet in June outlining plans for “small, gradual increases” in PRSI to fund the State’s social insurance fund.
Speaking to the Irish Examiner this week, Taoiseach Leo Varadkar said that IFAC’s view is the sooner PSRI is increased, the better.
“Because we have decided not to increase the pension age, PRSI will have to go up,” he told the Examiner.
“But we will make a decision as a government in advance of the budget as to whether we need to start that in this budget or whether we can do it in the future budget.”
The issues of pensions and funding social services due to ageing populations has been highly contentious across Europe, with French President Emmanuel Macron recently moving to raise the pension age from 62 to 64.
This prompted weeks of riots across Paris and further afield within the country.
The Paris pensions protests are fast becoming a major crisis for Macron https://t.co/SgLV1R0QWt
— Sky News (@SkyNews) March 28, 2023
At Ireland’s last general election in 2020, there was uproar over Fine Gael’s proposal to raise the pension age. Originally the party had planned to increase the age from 66 to 67 in January 2021, and then ultimately to 68 in 2028.
However, after significant backlash, this plan was dropped.
However, last February Minister Humphreys said that the current pension age of 66 was “not sustainable,” with the Pensions Commission recommending that it be increased to 67 by 2031 and 68 by 2039.