Finance and economics perspectives on constitutional change

An all-party Oireachtas committee has found that there is “no insurmountable economic or financial barriers to unification” in a report which gathered expert perspectives on the financial and economic implications of constitutional change.

The Joint Committee on the Implementation of the Good Friday Agreement, which is made up of both TDs and senators, comprises representatives from the Irish Government’s tri-party coalition, as well as Sinn Féin, Aontú, and independents.

The first of a series of planned reports contextualising evidence to ilustrate what a ‘new and agreed Ireland’ would mean in practice, Perspectives on Constitutional Change: Finance and Economics outlines views on a number of economic areas ranging from social welfare payments to public sector salaries, as well as how the healthcare and education sectors could be managed.

A significant milestone, the agreed all-party report makes a final recommendation that preparations for referenda on Irish unification must “begin immediately”.

A further significant recommendation within the committee’s report, which will be debated in autumn 2024 when the Dáil resumes, is for the Irish Government to publish a green paper, setting out a vision for a united Ireland.

Importantly, while the Oireachtas committee achieved consensus on the report’s 15 recommendations – and no minority report was published – expert opinion within the report does diverge on several economic and financial challenges.

Perhaps the most widely discussed debate centres around the cost of a united Ireland, particularly in relation to determining the size of the UK Government’s subvention and the finance required to fill the gap between tax revenue raised in Northern Ireland and the levels of public expenditure.

While it is estimated that the current subvention to Northern Ireland is approximately £10 billion, the equivalent cost to the Irish Government in the event of unification is unclear. John FitzGerald and Edgar Morgenroth argue that the financial pressure of a united Ireland would result in “an immediate major reduction” in the living standards in the Republic. They estimate the subvention to Northern Ireland would amount to around €10.9 billion, or 5 per cent of Ireland’s gross national income* (GNI*), while raising welfare rates and public sector pay rates in Northern Ireland to those prevailing in the Republic, would require a further 5 per cent of national income.

In contrast, John Doyle, Vice President of Research at Dublin City University (DCU), disputes this analysis, instead arguing that taxation of pensions and wages, economic convergence, and other items, put the subvention at £1.5 billion – assuming the Republic did not accept responsibility for pension liabilities in Northern Ireland and Northern Ireland’s share of UK debt.

Likewise, the Economic and Social Research Institute’s (ESRI) Seamus McGuinness points to research undertaken with Adele Bergin and published in the Cambridge Journal of Economics which establishes a range of between €4 billion to €7.2 billion. McGuinness further highlights that the lower estimate equated to what Irish Government spending would typically increase by on an annual basis, and outlines his belief that this would not result in a reduction in living standards for the Irish population. In fact, the Republic’s GNI* grew by 5 per cent last year according to the Annual National Accounts 2023 published by the Central Statistics Office (CSO) in July 2024.

However, the Oireachtas committee recognises that the subvention is only one factor in assessing the costs and benefits of a united Ireland. Alongside potential increases in Ireland’s EU budget contribution, and convergence on social welfare payments and public sector salaries, there will also be financial implications for major policy decisions on public services such as healthcare and education.

Education

The identified “prosperity gap” between north and south has been attributed to multiple factors, most notably much poorer levels of productivity in the Northern Ireland economy when compared to the Republic. Underpinning poor productivity in the North is an education system with low levels of attainment for those from poorer socioeconomic backgrounds and which still uses academic selection – which ironically is often used to disguise wider systemic educational failings in the whole.

Indeed, Seamus McGuinness suggests that the use of academic selection explains why “the educational system in Northern Ireland is not a good vehicle for intergenerational progression in terms of education or earnings”.

The committee heard that in the event of a united Ireland, major decisions in relation to education would be required in areas such as the curriculum, examination age, the promotion of social inclusion, and the treatment of the Irish language. To this end, it says that “the complexity of designing an education system post-unification means that a transition period will likely be necessary”.

Social welfare

Social welfare payments are significantly lower in Northern Ireland than in the Republic. The committee heard calls for a united Ireland to be taken as an opportunity to design a new welfare state, and advise against attempting to emulate the UK’s approach. In its related recommendation, the committee says: “Discussions around a united Ireland include a first principles consideration on the role of social welfare, as an opportunity to build a new welfare state from the ground up, adapted to the 21st century and built on respect for socioeconomic rights.”

Healthcare

Noting a lack of sufficient data to compare the two healthcare systems on the island, the committee set out that a strong attachment to the NHS in Northern Ireland exists despite poorer outcomes in comparison to the rest of the UK. Suggesting that a united Ireland could present opportunities for economies of scale regarding healthcare, it recognises that “the scale and complexity” of integrating the healthcare systems may mean that it is necessary to have a transition period after unification. The Committee intends to examine healthcare in a united Ireland in further detail in a subsequent report.

Interestingly, despite recognition that healthcare will be a central theme for which people will require detail – as articulated by John Doyle who argues that answers to questions on the process; the economy; and the health system would probably answer between 70 and 80 per cent of people’s desire for more information – none of the committee’s 15 recommendations relate to, or specifically mention, healthcare.

Instead, the committee recommends that “planning and preparation begin for the possibility of change to the constitutional arrangements for the country”, suggesting a whole-of-government approach is needed, including comprehensive examination of the implications of constitutional change across all departments and state agencies, to be led by the Department of the Taoiseach.

Cooperation

One theme that runs through many of the reports recommendations is that regardless of the constitutional future of the island, “there is scope for much stronger cooperation north/south, and better policy making to address major challenges such as climate change”. The committee notes insufficient data to meaningfully compare many policy issues, adding “there is also scope for greater people to people contact including through an increase in students studying across the border, all-island training opportunities, and professional exchanges.”

Concluding that if the range of policy options for a united Ireland were narrowed down, researchers could better provide information on the costs and benefits of policy choices, the committee says: “Preparation for referenda on Irish unification will be a historic task. The Committee calls for preparation to begin immediately.”