‘Significant errors’ in €400bn price tag for united Ireland – expert

Cost assessment in recent report ‘just wrong’, says academic

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

The report last month from the Institute of International and European Affairs (IIEA) calculated the cost of unification at €20bn 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 it would carry into a unified state.

It was written by Professor 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 yesterday as he calculated a true total of €25bn 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 the IIEA report adds more than €4.2bn 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 40pc), PRSI (4pc) and pension contributions (expected to be around 10pc) to be paid on that increase.

Prof Doyle’s calculations reduce the real cost of salary increases by €2.2bn a year. Furthermore, he said it was “unrealistic and unnecessary” to suggest public-sector pay would immediately increase to Republic levels in year one.

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

The IIEA report includes an annual cost of €3.8bn to bring average pensions in Northern Ireland up to average rates in the Republic.

However, Prof Doyle said 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 pensions. He calculated the true cost at €400m a year.

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 £10bn (€11.74bn) as a starting point for the fiscal balance of a united state.

“It ignores recent research on this issue,” he said. “For example, it includes the full cost of both state debt and pensions,currentlypaidbytheUKandwhich 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.”

He added that the previous study excluded any analysis of economic growth after unification and contained assumptions other areas would not change.

Prof Doyle put forward his own calculations that would see Northern Ireland running a surplus after approximately a decade. He told the committee the opening deficit for Northern Ireland in a united Ireland would be €1.5bn, taking account of debt, pensions, defence and tax changes.

Séamus McGuinness, adjunct professor at TCD and research co-ordinator with the ESRI, also told the committee the IIEA’s €20bn-a-year figure was not “plausible”.

He added: “We do not believe the figures in that report represent a realistic scenario that would feasibly occur.”

The IIEA was contacted for comment.

“We do not believe the figures report represent a realistic scenario”