National Social Monitor : Policies for the Next Generation - Taxation

This section of our National Social Monitor: The Future Starts Now: Policies for the Next Generation looks briefly at taxation and young people. 

Increasing the Overall Tax Take 

The provision of public services, including healthcare, education and social protection, depends on the adequacy of the State’s revenue base. As demographic pressures increase, ensuring a sustainable level of tax revenue is essential for maintaining and improving services. Decisions surrounding the scale and structure of taxation therefore have long-term implications for younger generations. 

Younger cohorts will both contribute to and rely upon future public services. An insufficient revenue base may result in reduced service provision or increased fiscal pressure in later decades.

Chart 1 illustrates that Ireland’s tax take as a percentage of GDP (22.4 per cent) is significantly lower than the comparable EU-14 average. Even when accounting for the distortion of Irish GDP figures due to multinational activity, the gap is substantial. When alternative income measures such as GNP (29.9 per cent) and GNDI (30.2 per cent) are used, Ireland’s tax ratio increases considerably. 

Chart 1: Tax-take as a percentage of GDP across Comparable European Countries (EU-14)*

Source: Eurostat, Table gov_10a_taxag & CSO Annual National Accounts 2024 Notes: *GNP and GNDI % calculated using data from Annual National Accounts and Eurostat Main national accounts tax aggregates. EU-14: We pick these countries because they are in the Eurozone and because they have adjusted to the European Union standards. We believe this comparison provides a useful benchmark that shows what similar countries have achieved.

However, even these adjusted measures remain far below that of the other EU-14 countries. Ireland’s old-age dependency ratio is set to rise significantly in the coming decades. An ageing population will place increased demands on healthcare, pensions and social protection expenditure. Ensuring the adequacy and sustainability of the State’s tax revenue is essential to prepare for these demographic changes. Decisions regarding the structure and scale of our taxation system therefore carry long-term implications for future service provision.

Future pension provision

Pension provision is a central component of long-term social protection policy. Although retirement may seem distant for those aged 15-29, as previously discussed, today’s young people will spend the majority of their lives contributing to a system under increasing demographic pressure. Ireland’s current State Pension system operates largely on a pay-as-you-go basis. Current workers fund current retirees through taxation and social insurance contributions (Pensions Commission, 2021).

As shown in Chart 2, the projected old-age dependency ratio under the CSO’s central (M2) scenario is expected to increase from the 23.1 per cent recorded in 2022 to 49.8 per cent in 2057. This prediction means that the number of people aged 65 and over relative to the working-age population will more than double, leaving fewer working-age individuals supporting retirees. While those currently aged 15-29 will not yet be retired in 2057, this ageing demography will shape the fiscal environment in which they will contribute throughout their working lives. Younger workers may be subject to higher contribution requirements during their working lives whilst also facing uncertainty regarding future pension benefits.

Chart 2: Projected Old-Age Dependency Ratio^ (%)

Source: CSO, Table PEC22 Central Scenario (M2)

In response to the demographic pressures, the Government introduced an automatic enrolment pension scheme at the beginning of 2026 for employees aged 23 and above who meet the eligibility criteria. This reform aims to increase pension coverage among young workers and to reduce future dependency on the State Pension system alone. However, these pension contributions will reduce disposable income in the short term. 

In the context of the current cost of living crisis, it is essential to balance long-term pension sustainability with income adequacy today, and to do so in such a way that younger generations are not disproportionately impacted in the future.

Policy Priorities

• Set a new tax-take target on a per capita basis and gradually increase the total tax-take to reach this target.
• Ensure Ireland maintains a sustainable revenue base capable of funding long-term public services.
• Develop a long-term strategy to ensure sustainable pension provision for current and future generations.

*GNP and GNDI % calculated using data from Annual National Accounts and Eurostat Main national accounts tax aggregates. EU-14: We pick these countries because they are in the Eurozone and because they have adjusted to the European Union standards. We believe this comparison provides a useful benchmark that shows what similar countries have achieved.

^The ratio is calculated by expressing the population aged 65 years and over as a percentage of the population aged 15-64 years.