Irish unity would trigger financial shock in Republic, committee hears

Irish reunification would cause a financial shock in the Republic, requiring either a major hike in taxes or a significant reduction in public spending, according to Trinity College Dublin economist John FitzGerald.

Such a move would be likely to trigger a drop in living standards, he said. Speaking at the Oireachtas Committee on the Implementation of the Good Friday Agreement, Prof FitzGerald, who is also a columnist with The Irish Times, said the cost of Irish unity would depend on how much subvention would be needed for Northern Ireland.

The North currently runs a budget deficit of £9 billion-£10 billion, which requires an annual subsidy or subvention from the UK exchequer.

How much of this subvention would fall on the shoulders of an all-island entity in the event of a united Ireland is a matter for debate.

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"Funding that substantial subvention would require either higher taxes or lower expenditure in the Republic in the absence of Northern Ireland raising its productivity," Prof FitzGerald said.

If Northern Ireland tackles its low productivity, the funding gap would narrow “and Northern Ireland would have the option of remaining more successful in the UK”. It would also reduce the cost of Irish unity if that option was taken, he said.

“But, at the moment, the rise in taxes or cuts in expenditure just to fund the subvention [for the Republic] would be very substantial,” he said.

He also noted that if there were an equalisation of welfare rates and pay rates, the financial to cost the Republic would be “dramatic”.

Standard of living

Brexit, Scottish independence and a possible Border poll on Irish unity has triggered a renewed focus on North-South issues, including the possibility of economic reunification.

In a previous study, Prof FitzGerald and his TCD colleague Edgar Morgenroth calculated that if the Republic took on that cost of the North's subvention, it would cause a 5-10 per cent decline in the standard of living in the Republic.

“Since its establishment as a separate regime in 1921, Northern Ireland has received significant support from central government to provide services within Northern Ireland,” Prof FitzGerald and Prof Morgenroth said in a joint submission to the committee.

“This has reflected the lower level of productivity in Northern Ireland than in the UK as a whole, which impacts on government revenue arising locally,” they said.

The subvention to Northern Ireland is part of a pattern of regional transfers that is normal in developed economies, they said.

"For example, there is also a substantial transfer of resources from the southeast of England to the rest of the UK, reflecting differences in the underlying productivity of the different regional economies," they said, noting that, in the Republic, there is a large transfer of resources from the greater Dublin region to the rest of the State, especially the Border and western regions.