Jim Power: Pensions become the political banana skin
As the great and the good congregate in Davos this week, the mood is somewhat more sombre than we have seen for some time.
A survey of business leaders carried out by PwC suggests that 53% of business leaders believe that economic growth will slow over the coming year.
Two years ago, just 5% believed that to be the case.
Trade tensions, geopolitical uncertainty, and climate change — and how to address it — all appear to be having a downbeat impact on those in Davos.
To coincide with the Davos meeting, the IMF published its latest global economic outlook.
Growth for this year and next year has been revised downwards marginally since the October forecast.
Global growth is estimated at 2.9% in 2019 and is forecast to increase to 3.3% this year and 3.4% in 2021.
This is not exactly a forecast that should cause alarm, but it does suggest a continuation of sluggish growth, with downside risks.
The downside risks identified include rising geopolitical tensions, particularly between the US and Iran; intensifying social unrest; a further worsening of relations between the US and its trading partners; and deepening economic frictions between other countries.
The IMF is warning that a materialisation of these risks could cause global growth to fall below the projected baseline.
Interestingly in an election year, US growth is projected to slow from 2.3% last year, to 2% this year and 1.7% in 2021.
This slowdown is predicated on a return to a neutral fiscal stance following the intoxicating impact of President Trump’s tax cutting package, and a waning appetite for looser financial conditions.
Growth in the eurozone is projected to go from 1.2% last year, to 1.3% this year and 1.4% in 2021.
This is sluggish by any stretch of the imagination and with growth expected to remain well below potential for some time, Irish borrowers can look forward to a continuation of rock-bottom ECB interest rates and the misery for savers looks set to continue.
While this more downbeat mood is evident on the ski slopes of Davos, here in Ireland our politicians are falling over each other to get on to the slippery slopes of fiscal profligacy.
Given what we have come through over the past decade, I am somewhat aghast at the spending promises that are being made by all and sundry.
It would appear that over the next five years we will be treated to thousands of houses; thousands of beds; many more nurses and doctors; free GP care for the youth of the country; more gardaí on the streets; free public transport; and really whatever you are having yourself. A few juicy tax cuts will also be thrown into the mix.
The issue of most controversy is the plan to continue increasing the state pension age. In 2014, it was increased from 65 to 66, and is due to rise to 67 in 2021 and 68 in 2028.
The logic behind these changes is pretty obvious but obviously unpalatable to many.
In 2016, we had just under 630,000 people aged over 65, accounting for 13.3% of the population.
This is projected to rise to at least 1.56 million by 2051, accounting for 26% of the total population.
The implications of this for pensions and health spending are pretty significant.
Furthermore, the age of 65 was set at a time when few people lived beyond that, whereas today life expectancy for males and females is heading north of 80.
The political pressure is intensifying to reduce this to 65 again at a cost of around €620m, or at the very least bridge that gap between retiring from your job at 65 and becoming eligible for the state pension at 66, 67 or 68.
It is not that any of these changes should have come as a surprise over the past week, but it is quite amazing the unexpected things that become an issue at election time.
This appears to represent a significant banana skin for a party that is already struggling on the slippery slopes.
