Professor John Doyle:

I thank the Cathaoirleach for the invitation to speak. In my opening comments, I will focus briefly on the key arguments, although I will make a longer report available to the Members of the Houses and their staff who wish to avail of it.

A recent report from the Institute of International and European Affairs, which this committee discussed previously, claimed that the cost of a united Ireland would be €20 billion over 20 years. I believe this is wildly inaccurate as the report contains significant errors and is based on entirely unreasonable assumptions. Consequently, the figures in that report are not just the worst-case scenario; they are completely wrong. I will argue briefly why that is the case, and I will be happy to take questions on that.

The IIEA report adds that of the €20 billion for the cost of Irish unity, €4.2 billion per annum is the cost of increasing public sector wages to southern levels, with no allowances made for fact that public servants would, overwhelmingly, pay 40% tax on the marginal rate of increase. They would pay PRSI at 4% and pension contributions of 10%. Of that €4.2 billion, more than half - 54% - would immediately return to the Exchequer at the end of every month. Correcting this error reduces the cost by €2.2 billion per annum.

The report also assumes that public sector salaries would increase on day one of a united Ireland. There is no basis for that. The report acknowledges that Germany took 30 years to regularise the situation of public sector wages. It is unrealistic and unnecessary. There will be many negotiations to be had with trades unions about terms and conditions, which will inevitably differ on a North-South basis. It is to be assumed that the Irish Government would make an opening offer that there would be some increase on day one, just as a gesture of goodwill. If we halved the time it took in Germany from 30 years to 15 years and allowed for taxation, the cost in year one would be €133 million, not €4.2 billion. This is a radically different figure in terms of what is available.

That report also added a cost of €3.8 billion per annum to increase pensions to southern levels. What is not clear from the report is that this figure includes all pensions, private, occupational and State. There are 390,000 pensioners in Northern Ireland. That increase would give every single pensioner an increase of €10,000 per year, not a pension of €10,000, whether they were a retired High Court judge or somebody on a non-contributory pension, as we call it in the South. The likelihood of a Government doing that on day one of a united Ireland is as close to zero as is possible to calculate. I think it is highly unlikely.

The report also makes no allowance for taxation. While those on a non-contributory pension would be extremely unlikely to owe any tax to the State, a fair percentage of those on a State contributory pension who also have other income, or are still in employment, or have a private or occupational pension, would be likely to be paying tax at the 20% rate. If the Northern Ireland contributory and non-contributory pensions were increased to southern levels in year one - as might be politically chosen to do and I could see a future government deciding, as a gesture of good faith, that the State pension would a good place to start - the full cost of that for a full year, after tax, would be €400 million per year, not €3.8 billion. Again, this is a radically different figure from that set out in the report.

The report also uncritically uses the British Government subvention figure of £10 billion per year. We have previously discussed this topic at the committee. For example, it includes two key issues, namely, the full cost of Northern Ireland paying apro ratashare of the UK state debt and an assumption that the UK would entirely renege on any responsibility for the pensions of those who have contributed over their working lives for their pension contribution. Of course, any parliament can legislate to end a state pension. The Irish Parliament could do so. There is nothing to legally stop the Houses of the Oireachtas from abolishing the State pension tomorrow if they wished to do so. However, what is the political likelihood of them deciding to do that? I would argue that, despite all the tensions over Brexit, in the negotiations between the EU and the UK, not once did the UK decide to abandon its pensioners who had been working for the European institutions. Even in the most unlikely circumstances, the notion that a future British government would, even if it legally could, abandon military veterans, former police officers, nurses and others who had paid into a pension for 40 years and leave them high and dry, as no longer being the government's responsibility, seems unlikely. I accept that it is possible but it seems extraordinarily unlikely.

The IIEA report, however, assumes a worst-case scenario, that following referendums being passed North and South and then negotiations between officials and Ministers on a deal, the Irish officials would leave that meeting at which the British Government has agreed not to pay a penny towards pensions. In return, the officials recommend to the Irish Government that it would voluntarily pay a debt for which it has no legal responsibility and the Cabinet would approve €2 billion per year to pay towards a debt that is not owed, in circumstances where the British Government has abandoned its pensioners. It is impossible to envisage a circumstance in which any government would agree to that. Pensions and debt are inextricably linked during those negotiations but there is no possible real outcome in which pensions are abandoned by a future British government and an Irish government would agree to pay a debt for which it has no legal responsibility. We cannot get caught for both. If a British government agreed to pay pensions, one can imagine an Irish government might agree voluntarily to take on some share of the debt, as part of the cut and thrust of negotiations, but if the Irish government got nothing on pensions, why would it pay a debt it did not owe? It is impossible to envisage that circumstance.

The report inaccurately says that the Soviet Union's national debt was shared among the 15 republics. That is not historically true. The Russian Federation agreed to take on all the debt. Obviously, Russia tried to get the others to agree but when the others showed no interest whatsoever, Russia needed to maintain its position as the successor state of the Soviet Union. This was not least because it wanted to stay on the UN Security Council. This is an issue that would also be pertinent to the UK. The UK could only avoid saying that it was not the successor state by saying it was not the United Kingdom any longer and that is almost impossible to envisage. The debt is not legally owed; it would only be part of a barter arrangement. That amounts to billions of euro per year.

My final comment is that the IIEA report has no analysis of economic growth. It assumes no change in the aftermath and simply does not deal with this. Obviously, we cannot predict the future, but under what circumstances could we imagine a political future in which, with the exact same policies in place, North and South, and the same education system, tax regime and regulatory framework, Belfast would remain such a weak region compared with Cork? Why would there not be convergence towards a mean over that time? The fiscal projections in the longer report looked at the experience of countries that joined the European Union in recent years. These can roughly be divided into three categories. The economies of the poorest performers grew by 1% higher than the average EU growth over a decade. The average ones grew by 2% and the best-performing economies grew by 3%. That was also our experience when we joined the EEC. It was also the experience of Spain, Portugal and Greece when they joined the EEC and later the European Union. That convergence is an historic fact, not something that one might wonder whether it would happen or not. To reverse it, what would prevent the North looking more like Munster, say? It does not have to look like the Dublin region, in terms of growth. It would also deal with the overheating of the Dublin economy by offering a city and region more equivalent in scale to what large-scale multinationals are looking for in terms of labour demand. If we consider the European experience, we would expect that the Belfast region, from Newtownabbey to Lisburn, which is home to around 700,000 people, would be more attractive to multinationals even than Cork, Limerick or Galway, rather than being an economic disaster at the end of Ireland.

It is not unrealistic to expect that there would be economic convergence over a period. We can allow for this convergence, based on the European experience, at either 1%, 2% or 3%, from worst to best. If the convergence was remarkably slow, and there was the worst-case scenario of only 1% growth per year, subvention would not grow. It would slowly decline by around €100 million but gradually absorbing the costs of salaries and paid increases without any increase in the deficit over that time. It would basically be a steady-state situation, where the southern part of the economy would have to borrow approximately 0.75% of GNI to finance that. This is readily affordable for the Irish State at this moment.

At 2% growth above EU averages, the deficit would be ended by around year ten and Northern Ireland, as a region, would be returning a surplus from year ten onwards. A 3% growth trajectory, similar to that of the Baltic states, where convergence was more rapid, would mean the deficit would end by around year six. After that, Northern Ireland would have no deficit. I do not think these are unreasonable assumptions, even allowing for the uncertainty of the future.

To recap, some parts of the IIEA report are not a worst-case scenario; they are simply wrong. These include the non-allowance for tax; the assumption that private and occupational pensions would be increased at a cost to the State as well as the State pension; not allowing for tax on pensions; assuming that both debt and pensions would be paid for in negotiations; and assuming that there would be zero economic growth in Northern Ireland. These are so unlikely as to be unreasonable. Therefore, I think it is reasonable to assume that the fiscal future of Northern Ireland within a united Ireland would certainly be at a level that the island's economy as a whole could well afford, based on what we see today.