400bn euros price tag for united Ireland ‘just wrong’, expert says

A recent report which suggested that a united Ireland would cost 400 billion euros is “widely inaccurate”, a leading academic has contended.

Last month, a report from the Institute of International and European Affairs (IIEA) calculated the cost of unification at 20 billion a year for two decades.

The analysis took into account the current level of funding Northern Ireland receives from the British Government, as well as the share of UK national debt it presumed the province would carry into a unified state.

It was authored by Prof John FitzGerald, adjunct professor at Trinity College Dublin, and DCU economics professor Edgar Morgenroth.

However, DCU’s vice president of research cast significant doubt on the study on Thursday as he calculated a true total of 25 billion euros spread across 10 years.

Prof John Doyle told the Oireachtas Committee on the Good Friday Agreement that the IIEA study “contains significant errors and is based on entirely unreasonable assumptions”.

He added: “Consequently, the figures in the report are not even a worst-case scenario – they are just wrong.”

Outlining his main objections, Prof Doyle said that the IIEA report adds more than 4.2 billion euros to the annual cost of unity through increasing public sector wages to Republic of Ireland levels.

However, he said this made no allowance for the taxes (which would be overwhelmingly at the higher rate of 40%), PRSI (4%) and pension contributions (expected to be around 10%) to be paid on that increase.

Prof Doyle’s calculations reduce the real cost of salary increases by 2.2 billion euros annually.

A defaced road sign on the border (Niall Carson/PA)

Furthermore, he said it was “unrealistic and unnecessary” to suggest that public-sector pay would immediately increase to Republic of Ireland levels in year one.

“Merging salary levels over 15 years – half the time taken by Germany – would mean a cost of approximately 133 million euro in year one, rising on average by that amount each year.”

The IIEA report includes an annual cost of 3.8 billion euros to bring average pensions in NI up to average rates in the Republic.

However, Prof Doyle said that it was “highly unlikely” to assume the state would cover the entire cost of the increase and that the figure again failed to account for tax to be paid on the pensions of those with higher outcomes.

He calculated the true cost at 400 million euros per annum.

Prof Doyle, who has expertise in cross-border studies, said the IIEA report “uncritically” uses the UK Government’s figure for a subvention to Northern Ireland of £10 billion as a starting point for the fiscal balance of a united state.

“It completely ignores recent research on this issue. For example, it includes the full cost of both state debt and pensions, currently paid by the UK, and which are part of the UK subvention figure.

“It is impossible in reality, that after negotiations between the Irish and British Governments, and where the British side abandon all responsibility for paying pensions to those who have paid national insurance or employer-based public sector pension contributions, that the Irish side would then volunteer to pay a pro-rate share of UK state debt, for which they have no legal liability.

“This is not a question of the debt being waived, as the IIEA report suggests. The state debt is owed by the UK and not by Ireland or Northern Ireland.”

Prof Doyle said it “is not believable” that the Government of a united Ireland would agree to be left with liability for both debt and pensions.

Additionally, he told committee members that the previous study excluded any analysis of economic growth after unification and contained assumptions that other areas would not change.

“It assumes that with the same political system, EU membership, policy framework, education system and tax regime, that NI would not economically converge with the

South.

“This is a very unlikely outcome. Why would Belfast perform so much worse than Cork and Kerry with the same EU access, policies, education and tax system?”

Prof Doyle put forward his own calculations which would see Northern Ireland running a surplus after approximately a decade.

He told the committee that the opening deficit for Northern Ireland in a United Ireland would be 1.5 billion euros, taking account of debt, pensions, defence and tax changes.

He also said there would be an increase in public spending of a further one billion euros per annum to cover the cost of likely policy decisions, including to state pensions and public-sector salaries.

“An increase in the underlying growth rate in Northern Ireland, of 2% above recent long-term patterns would see the costs of transition covered and the fiscal deficit ended in approximately 10 years, after which Northern Ireland would run a surplus.

“In this case, the level of transition costs can be covered by the Irish state, through a modest increase in borrowing or taxation.”

The IIEA has been contacted for comment.