Taxes would have to increase dramatically and public expenditure south of the Border be cut to pay costs of Irish unification that could run to €20 billion each year for two decades, according to a major study published on Thursday.
The report published by the Institute of International and European Affairs is authored by the Economic and Social Research Institute’s John FitzGerald of Trinity College Dublin, and Dublin City University academic Prof Edgar Morgenroth.
Excluding the impact of Covid on public spending everywhere, the two academics put the cost of the UK treasury’s contribution to the running of Northern Ireland at £10.5 billion (€12.3 billion) annually, the figure given in 2019.
Basic unification costs after losing the London subvention and adjusting for other factors would run to nearly €11 billion a year. However, the cost would jump to €20.5 billion if social welfare, pensions and public service pay rates to people in Northern Ireland were brought into line with those currently in force in the Republic.
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Public spending would rise by one-quarter, they note, while the higher borrowing costs that would last for years afterwards would prompt “a dramatic increase” in taxes, “and/or a major reduction in expenditure south of the Border”.
Noting that it took 30 years before pension and public sector wages in the unified Germany were made equal, while private sector wages were still not equal, the academics said “It would be difficult to postpone such a standardisation of rates across a united Ireland for long.”
Such action would add €10 billion annually to State spending.
However, the costs of unification could begin to be cut if Northern Ireland quickly reformed schooling that discriminated against poorer-off children but the benefits, even if started now, would take up to 20 years to filter through.
In addition, productivity in Northern Ireland could be improved if the “brain drain” of students to British colleges who never come back could be stopped, along with tempting older graduates living in Britain to return.
The shape of a final deal on unification, if it ever happens, will be complicated on the British side by the follow-on consequences a departure of Northern Ireland from the United Kingdom would have on future Scottish independence intentions.
Such consequences would mean that a British government would refuse to continue paying £2.5 billion worth of pensions to people living in Northern Ireland, without collecting social insurance contributions from them.
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