Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Apologies have been received from Senator Niall Blaney. The first, pleasant duty I have is to welcome our new member of committee, Senator Malachai O'Hara, who represents the Green Party. He is more than welcome and we look forward to working with him over the time that remains, be that long or short. On behalf of the committee, I welcome Professor John Doyle, vice-president of research at DCU, and our two witnesses from the ESRI, Dr. Adele Bergin, associate research professor, and Professor Seamus McGuinness, research professor. We are continuing our meetings on finance and economics and resuming our discussions on the all-island economy. I thank the witnesses for their attendance.

I will explain some limitations to parliamentary privilege and the practices of the Houses as regards references witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary is protected, pursuant to both to the Constitution and statute, by absolute privilege. However, witnesses and participants who are to give evidence from a location outside the parliamentary precincts are asked to note that they may not benefit from the same level of immunity from legal proceedings as a witness giving evidence from within the parliamentary precincts does and may consider it appropriate to take legal advice on this matter. Witnesses are also asked to note that only evidence connected with the subject matter should be given and should respect directions given by the Chair. They should also respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the person's or entity's good name.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against any person outside the Houses or an official either by name or in such a way as to make him, her or it identifiable.

Some members are attending online. Witnesses will see them on the screens. The way this committee operates is that each party or group is allocated time - it will be ten minutes initially today - after which there will be an informal question-and-answer session. The rotation is as follows: Sinn Féin, Fianna Fáil, Fine Gael, SDLP, Alliance, Sinn Féin, Independents and we also have the Green Party member. We give preference to members who are present but we make sure everyone is included. We take a relaxed, informal approach.

I thank the witnesses for their patience. I call Professor Doyle to make his opening statement.

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.

Professor Seamus McGuinness:

I thank the Chair for inviting the ESRI to appear before the committee and for the opportunity to discuss the work of the ESRI comparing the economies of the Republic of Ireland and Northern Ireland. I am joined by my colleague, Dr. Adele Bergin.

Together, we have been producing comparative research on the economies of Northern Ireland and the Republic of Ireland for several years. This research journey began with a study on potential constitutional change, published in 2020 in the Cambridge Journal of Economics, in which we provided an initial assessment of the key economic issues relevant to a border poll on Irish unity.

In that study, we demonstrated Northern Ireland’s poor economic performance relative to the Republic of Ireland and hypothesised that this is likely to be due to lower levels of productivity, a widening gap in educational attainment, lower-intensity and poorer-quality FDI and lower levels of export orientation. Since then, we have engaged in research that builds on and informs several of these topics, and now we will present summaries of the research on living standards and overall economic performance, productivity and education.

Others engaged in the debate on future constitutional change have focused on the implications of the performance gap between the Northern Ireland and Republic of Ireland economies on the size of the fiscal subvention to Northern Ireland and the capacity of the Irish State to absorb this sum in a united Ireland. While this is clearly an important issue, we have sought to broaden the discussion. Specifically, our research has focused on identifying the factors that give rise to a situation whereby the UK Government must support Northern Ireland to the degree reflected in the scale of the subvention estimates. A natural follow-on from this is to ask if there are policies that could improve the economic performance of Northern Ireland whereby the scale of the subvention would fall over time to a point where it was less relevant in any discussions of constitutional change. It should be noted that irrespective of constitutional change, policies that can potentially yield economic gains to Northern Ireland should be explored and implemented. However, it is also our view that policies aimed at narrowing the productivity gap between Northern Ireland and the Republic of Ireland should form an integral part of any planning for future constitutional change.

Regarding research findings on living standards and overall economic performance, there is an emerging body of research pointing to the existence of substantial gaps in economic output and living standards between Northern Ireland and the Republic of Ireland. For example, GNI* per capitain the Republic of Ireland was around 51% higher than GDP per capitain Northern Ireland in 2018. Other metrics also point towards higher living standards in the Republic of Ireland relative to Northern Ireland. OECD data showed a gap in household disposable income of 12% in 2017, in favour of the Republic of Ireland. In addition, the proportion of individuals at risk of poverty in Northern Ireland was 14.3% compared with 8.9% in the Republic of Ireland.

An overarching measure that captures overall differences in living standards is life expectancy. For 2020, OECD data revealed that life expectancy at birth for males and females in the Republic of Ireland exceeded that in Northern Ireland by two years. A broad range of factors including income, education and access to healthcare services will together determine life expectancy in a region. As such, differences in life expectancy across countries can be interpreted as a cumulative measure of differences in general welfare and living standards.

With regard to research findings on productivity, the poor performance of the Northern Ireland economy, relative to both the economies of the Republic of Ireland and British regions, has been previously linked to its relative low productivity levels. Productivity is measured by the value of goods and services produced per worker and is a key performance metric. While productivity levels were broadly similar in 2000, over the period 2001 to 2020 productivity in the Republic of Ireland increased by 0.2% per annum and fell by 1.1% per annum in Northern Ireland. By 2020, productivity levels were approximately 40% higher in the Republic of Ireland compared with Northern Ireland.

Our research has shown that productivity in the Republic of Ireland increases with the share of educated workers employed and with levels of investment. For example, with respect to education, our models show that a 1% increase in the share of graduates employed generates a 1% increase in sectoral productivity. The research also finds that export intensity is an important factor in driving Irish productivity. Lower levels of educational provision and investment are important for understanding the gap in productivity between the two regions. Our research indicates that the level of productivity in the Republic of Ireland would be around 50% lower if the country had the same levels of investment and education as Northern Ireland.

However, despite using comparable data sources and the same methodology, we do not find evidence of causal relationships between the usual factors that drive productivity - such as education, investment, exports, etc. - and Northern Ireland productivity. This apparent lack of evidence on the relationship between productivity and the usual drivers for Northern Ireland suggests that productivity in the region has historically been relatively unresponsive to single policy levers, such as changes in education and skills provision. Our analysis suggests that a comprehensive strategy is needed aimed at improving underlying competitiveness among Northern Ireland firms, reforming education and skills provision, and increasing investment in an integrated way. A more integrated approach to economic policy making that is strongly co-ordinated across Government Departments is also required.

On research findings on the education and training systems in Northern Ireland and the Republic of Ireland, in 2022 the ESRI published the first major comparative study of education and training systems in Northern Ireland and the Republic of Ireland. Key findings emerging from the study were that levels of educational attainment in Northern Ireland are lower than those in the Republic of Ireland, with a higher share of the population possessing lower levels of schooling. At the upper end of the qualifications spectrum the proportion of people with third-level qualifications is broadly similar across both regions. However, Northern Ireland has a relatively small proportion who complete a post-secondary, non-third level qualification compared with the Republic of Ireland, where post leaving certificate courses have become more popular. Some 10% of the population in Northern Ireland has this level of qualification, which is typically highly vocational in nature, compared with 30% in the Republic of Ireland.

At the other end of the spectrum, early school leaving is two to three times higher in Northern Ireland compared with the Republic of Ireland and this gap has widened over time. The proportion of 16- to 24-year-olds who leave school with at most a lower secondary qualification is 14% in Northern Ireland, compared with 6% in the Republic of Ireland. This is concerning as early school leavers are more likely to be non-employed or work in low-wage and potentially insecure jobs later in life. At all levels of qualifications, wages are around 40% higher in the Republic of Ireland than in Northern Ireland.

Social class is a much stronger predictor of educational failure in Northern Ireland and the ongoing use of academic selection is likely to strengthen this adverse effect. During the course of extensive interviews and workshops with key stakeholders in both jurisdictions, there was a strong consensus that continued academic selection was generally damaging to social progression through education in Northern Ireland. In the Republic of Ireland, the Delivering Equality of Opportunity in Schools, DEIS, programme was thought to have been very effective in lowering social inequalities and improving outcomes of children from lower-income groups.

More recent research has found evidence of educational downgrading in both regions, whereby a person’s educational attainment actually falls below that of their parents. The extent of educational downgrading among young people was approximately 17% in both jurisdictions. On the other hand, 38% of young people in the Republic Ireland exceeded their parents’ level of education compared with 29% in Northern Ireland. Given the relatively low levels of education in Northern Ireland among older cohorts, we would have expected educational upgrading to be more prevalent in Northern Ireland than it currently is. The continued use of academic selection in Northern Ireland was again identified in our research to be a contributory factor limiting the extent to which the educational system in Northern Ireland facilitates intergenerational educational and earnings mobility.

With regard to other North-South research undertaken by the ESRI, as part of our research programme with the shared island unit, the ESRI has also undertaken research and published reports on topics such as primary healthcare, foreign direct investment, childcare, migrant integration, cross-Border trade and services, housing supply, student mobility, social and political attitudes and gender dimensions to the labour market. We do not have time in the opening statement to discuss this work but we can try to answer any questions from the committee.

To conclude, much discussion about possible constitutional change on the island of Ireland returns to questions related to the fiscal capacity of the Republic of Ireland to absorb Northern Ireland. Much of the ESRI research mentioned here questions the assumptions and analysis underpinning these perspectives. To the extent that the subvention to Northern Ireland from the UK reflects poor economic outcomes that are in turn related to sub-optimal policy, a reduction in the subvention can and should be achieved through improved policy.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank Professor McGuinness. Before I open it up, if it is agreed, maybe we will extend the slots to 15 minutes because there are a lot of very important issues here for each group.

I am not an economist and I am certainly not a professor, so I would not dare to challenge the assumptions that anybody makes from that perspective. However, I would like to think that maybe we could see where we could converge, what we could agree on, and things we can agree on. The educational issue is huge, and how to improve the economy in the interim. Those issues are critical. I am not making a political judgment on that but maybe we can concentrate on how we can improve things North and South to lead in to the issues that are disputed.

I very much respect our witnesses who may hold a view contrary to that of other people. It is right that we have that debate here. That is what brings life to economics and jumps off the page. It is what people are interested in because it is a key issue. The points Professor McGuinness raised are absolutely key. What is the reality and what will it be?

Let us drill down into the facts. To do so, we need experts like those present to inform us.

We will rotate speakers in the following order: Sinn Féin, Fianna Fáil, Fine Gael, the SDLP, the Alliance Party, Sinn Féin, the Independents and so on. We will get everybody in. Sinn Féin is first and will have 15 minutes.

Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I thank the witnesses for being here today. It is very important that they are. I thank them for coming back, because we are trying to finalise the report we are producing on an all-Ireland economy. I thank them for giving of their time today.

I recognise what happened yesterday and commend the Government, after ten years, for the recognition of the state of Palestine.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Sure. That is no problem. We all agree on that.

Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Exactly. There has been an agreement across these Houses. I recognise how important it is, as is the Good Friday agreement. I am sure Senator Black will refer to it.

I welcome Senator O'Hara, our new member.

I read the witnesses' statements with interest. I want to begin by asking an overall question on the IIEA report. We heard from its authors that reunification could cost €20 billion per year for 20 years. Do any of the witnesses, in their professional capacity, agree that this sum is possible?

Professor Seamus McGuinness:

We do not believe it represents a plausible scenario that would transpire. It is important to state the paper the Deputy is referring to is a paper on subvention, but large elements of that paper are not related to subvention. Subvention, we must remember, is the difference between the cost of running Northern Ireland and the tax receipts taken in. A large component – €10 billion of the €20 billion, for example – relates to a decision related to recalibrating social welfare rates and public sector pay in Northern Ireland to match those in the Republic of Ireland. That is not a subvention issue; that is a policy decision that would be taken after reunification. It is important when talking about the subvention cost to separate the subvention issues and the other elements of the analysis, such as that in question or the assumption that Northern Ireland would pay a share of the Republic of Ireland's defence cost. Those are not part of the subvention bill. It is important to state that.

From our perspective, the set-up scenario is not one that could reasonably transpire. For the €20 billion to arise, there would have to be a border poll on a Friday and reunification on a Monday, with the Irish Government saying immediately that it would pay all the pensions bill, continue to pay Northern Ireland's share of the debt, immediately recalibrate public sector pay and immediately recalibrate the social welfare bill, at a cost of €10 billion to the Irish Exchequer. That is just not a realistic outcome. It emphasises the importance of planning properly for reunification. You need to decide what the subvention costs are, identify what is driving them and then have a plausible plan for the period after reunification, recognising that there will be a transition period that will allow for some policy adjustment whereby you can implement policies that are aimed at tackling the low productivity that drives the subvention. The ultimate point is that where operational responsibility for Northern Ireland is transferred to the Republic of Ireland in a scenario whereby that is ratified in a border poll, then subvention becomes less of an issue. That is what planning should really be targeted towards. To summarise, given the context of how we believe a responsible Irish Government would plan for constitutional change, we do not believe the figures in the report represent a realistic scenario that could feasibly occur.

Professor John Doyle:

The phrase "20 over 20" is obviously very memorable. Everybody remembers it, so it sticks in your head. If you actually strip things away, you realise public servants would pay tax with regard to pensions. I am referring to things that are simply so unlikely for a government. About €1.5 billion would be inherited from day one. That sits there; there is a deficit. Assuming the Government would want to do something in year one, I suggest a figure of around €1 billion would allow equalisation of state pensions, the first pay rise for public servants and some discretionary spending. It would represent a significant uplift in public expenditure in Northern Ireland. If the Executive had an extra €1 billion per year to spend today, it would not be anxious about balancing budgets. That implies €2.5 billion. It is not a small amount but it presents a radically different funding perspective to a government. That is a much more likely scenario than €20 billion over 20 years.

Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

When I talked about the tax situation and PRSI, the authors of the report said it would be neutralised, or that it was insignificant. Could Professor Doyle tease that out a little?

Professor John Doyle:

The authors have allowed for the full gross cost. If on day one of a united Ireland, every public servant in the North were immediately, without any negotiation on terms and conditions or trade union negotiations, put on the much higher wages in the South, which have been prevalent across the private and public sectors – it is not exclusively a public sector issue – the gross cost would be €4.2 billion. However, there is no circumstance in which that would be paid tax-free. It is not marginal; it would be 54% of the cost if we assumed it were happening today, with the current tax rates, PRSI rates and pension arrangements. You have got to assume that if this happened in ten years' time, there would not be a radical difference. It is more than half the cost. It is simply not a factor for discussion and it would never arise, even if you decided to have the increase on day one of a united Ireland, which I would argue is an unlikely outcome for all sorts of reasons, not least that the cost of living would not increase the following morning. The cost of living would converge over time, not instantly. Housing is the biggest driver, and housing costs. They change, but they do so over time, not instantly.

Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

With regard to pensions, there are 110,000 British people living here at present, and there are Irish people here who are entitled to pensions from the UK. You come across the latter all the time. Obviously, it is a continuous liability on the British state, regardless of any constitutional change. Would that not automatically mean that, in respect of those who paid contributory pensions in the North, this would continue regardless?

Professor John Doyle:

That is my assumption, but the authors of the IIEA report dispute that. The argument is that there is no written constitution in the UK. Its Parliament is absolutely sovereign and can wake up one morning and repeal any legislation it likes, so you cannot say for certain what a future British Government would do.

Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Would Britain not have to do the same thing for expatriates in Spain, France and other countries?

Professor John Doyle:

That is even less likely. To be fair to the officials in the two states, when people who have worked in both Ireland and the UK receive their pensions, it is a really seamless procedure. The officials in the two jurisdictions send you documentation outlining your best outcome based on your movements and ask whether you agree. From the retiree's point of view, it is a really efficient system. In the event of what the Deputy is referring to regarding the IIEA report, it would mean either that English expatriates in the south of Spain would lose their pension, which seems highly unlikely, or, even more extraordinary, that somebody who moved from Newry to Dundalk in retirement would continue to receive their pension while a retired army officer living in, say, Lisburn would lose his or her pension. The latter seems even less likely than the scenario with the expatriates. It is not a simple matter of saying that, because you have left the UK, you are not getting a penny. How do you actually untangle things? Does it matter if you worked for your life in England rather than Northern Ireland? Would you keep your pension or lose it? Does the system even hold the information? If you worked for a multinational company or large UK company and moved around England, Scotland, Wales and Northern Ireland, could the authorities even tell where you worked? It seems to be very unlikely.

Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Obviously, we welcome all discussions on this but we want them to be based on a reality. To carry out an assessment on a static situation is really not helpful to the conversation, as Professor McGuinness pointed out.

I have a question for Professor McGuinness or Dr. Bergin. German reunification has been cited continuously in support of the €20 billion estimate. What are the economic similarities and differences between German reunification and reunification here in Ireland?

Dr. Adele Bergin:

I will make a general point first. The time dimension to all of this is really important and whether there is some sort of transition period. Even in the work done in the IIEA paper, the doubling of the estimate, how they went from the €10 billion to €20 billion, was very much around this rewriting of the social welfare and the public sector pensions. According to the paper, this took 30 years to happen in Germany but they assumed it was going to happen overnight. To broaden the discussion a little bit, that is a massive sum that we would be talking about injecting into the Northern Ireland economy overnight. To put a couple of figures on this, the figure they have for 2019 for this re-rating is around €9 billion. Northern Ireland GDP in that year was around €50 billion. You are talking about injecting not quite, but almost, 20% of GDP into an economy overnight. I do not think anybody is proposing-----

Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

That would be crazy. That has never happened in any economy, or has it?

Dr. Adele Bergin:

It is an amount of money of magnitude. You may rightly want to increase welfare and public sector pensions but to inject that amount overnight would arguably be counterproductive because you could just end up with a surge in inflation. If we know this took 30 years in Germany, that could be a good benchmark. I do not know. We need to consider a range and it is not from overnight to 30 years. Professor Doyle mentioned in some of his comments about how it would be if it happened gradually over 15 years. The way we could and should approach any of this is to consider if we are talking about convergence, which is a policy choice, over what period of time, which is also a policy choice, and then you come up with a range which goes from a small number to potentially a very large number.

Professor Seamus McGuinness:

It is also important to state that in the German situation, East Germany had obviously been run under a Soviet-style planning system so by the time the Berlin Wall came down, there were huge structural gaps between the economies of East and West Germany. We pointed out that there are some structural gaps opening up between the economies of Northern Ireland and the Republic of Ireland but nothing of that scale. Over a 20-year period, reconstruction costs in East Germany rose to something close to €2 trillion. Each situation is really a stand-alone situation. There is nowhere we can look to that is very similar and that tells us what we should do. Even with the situation in Scotland, there are things we can look at that would inform the situation, such as its planning process and the Scotland's Future documentation that was produced. This was 640 pages that told voters what the monetary fiscal industrial framework would look like and what the social policy would look like post-independence. However, even that situation is very different to here because that was where you had an entity breaking away from an entity. Here, we are talking about the amalgamation of two entities. There is really little to be gained by looking at the situation either in East Germany or Scotland. We need to plan for this process based on the facts on the ground as they currently stand North and South and that needs to be done in a systematic way that is managed and verified by government. Again, we can look at other major referendums. There was the Brexit situation where again there was no verified information, or a verifiable process to the information that was being produced, and we have seen the outcome of that. Many of those claims are now know to be false. At least when the Scottish Government was engaged in the planning and in the information-gathering process, less spurious claims were made in the run-up to that Scottish referendum. That is a lesson that we can take in how we can plan for constitutional change and the processes we need to build in systematically going forward but there is little to be learned from the East German case.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I apologise for missing the earlier part of the contributions because I was in the Chamber for questions to the Minister of further and higher education. I welcome the contribution of the witnesses here today. They question a lot of the IIEA report and it is good to have the varied opinions and the questioning. It is extremely important. In Professor Doyle's statement, I notice he refers to the cost of pensions in the advent of a united Ireland and the need for equalisation. He mentions the figure of €10,000 per person per annum. Is there that big a deferential between a person who receives a pension in Northern Ireland at the moment and people in our State?

Professor John Doyle:

That is what the IIEA report stated. It did not break it down but it said the cost of equalising pensions would be €3.8 billion per year. There are 390,000 pensioners so if that is spread evenly across each pensioner, that equates to just under €10,000 each. There is no likelihood of future governments agreeing to that. The contributory pension is the new one post 2026 where they had improved pensions a lot in the North and in the wider UK. There is now about €20 per week difference for a contributory pension and about €32 per week in the non-contributory. The cost of equalising the state pensions, North and South, would be about €400 million a year, not €3.8 billion.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

On the differential in the figures Professor Doyle has just quote, I have often heard from people, particularly those living in Britain who may be home on holidays, talking about the good social protection systems here in comparison to what they are in receipt of in London, for example. I presume Northern Ireland is not better than London regarding state pensions.

Professor John Doyle:

Pre-2016, for those people who have an older level of contribution, their pensions are pretty miserable. It is €85 a week, as is unemployment assistance. It is all merged in the universal credit now. Basically, the traditional pension in the North was around €80 a week. It was very poor. That is still the case for unemployment and disability assistance, those normal working age benefits, but there was a radical change in the British state pension in about 2016. That has gradually become the norm.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Is there no equalisation within pension recipients?

Professor John Doyle:

No.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Professor Doyle is saying there are different levels of payment depending on when someone entered into a pension scheme.

Professor John Doyle:

There are. Depending on when people retired, they could be getting €80 a week or €200 a week and that was never equalised across the UK. It is a London decision, not of devolved power. There is a radical difference between older pensioners and people who retired more recently and it was never equalised.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I recall meeting an Irish lady who was a young widow and she told me she was getting a widow's pension in London that was half of what her sister, who lived here in this State, was getting.

Professor John Doyle:

That would still be the case for older retirees today.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Right. Our system, for all its deficits, is much better than that.

Professor John Doyle:

The ESRI report on poverty North and South shows that is true across all age ranges. Poverty among older pensioners is massive because nobody can live on €80 a week in the modern world. That is why across the UK, including the North, between 10% and 20% of people attend a food bank once a month. There are shocking levels of poverty.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Professor Doyle also mentioned economic growth in his opening statement. Unfortunately, I did not get the chance to study his opening statements in detail and I missed his oral presentation. None of the presentations referred to the growth in the all-island economy since 1998. I have often said in this committee that one of the unsung successes of the Good Friday Agreement is the remarkable growth in trade, particularly benefiting Northern Ireland with the increase in trade North-South, though we have benefited as well.

Does Professor Doyle not think there should be much more emphasis on outlining, in detail, what has happened in the context of us having a political system that allows co-operation on a North-South basis, quite rightly, and the new political dispensation - if you want to call it that - with the cessation of violence and the Good Friday Agreement being in place? Our Cathaoirleach invited IBEC when we were doing a report on the workings of the Good Friday Agreement to mark its 25th anniversary a year ago. IBEC, InterTradeIreland and others were here and they made very heartening presentations from the point of view of what has been achieved and the potential to do even more.

Professor John Doyle:

That is true at one level in the sense that Northern Ireland is a radically different place than it was before the ceasefire, so all the critique of the economy is that. There has been a big increase in North-South trade. With the Brexit figures still hard to disentangle and with the Windsor Framework and others, it is somewhat a moving target. There is an improvement in North-South trade.

Going back to the discussions in the 1990s, everyone’s assumption was that the economic benefits that would flow from peace would be mostly in Northern Ireland and the Republic would gain as well because it is a small island. However, the balance would primarily be in Northern Ireland because the impact of the armed conflict was most immediate there. Dr. Bergin’s and Professor McGuinness’s research clearly shows that for Northern Ireland, the reverse has been the case. The economic growth has been primarily in the South – the growth of wages and living standards. With regard to productivity, Professor McGuinness or Dr. Bergin quoted Nobel prize-winning economist, Paul Krugman, that productivity is not everything when it comes to wage levels but it is nearly everything. We have a situation where the two economies were broadly similar at the time of the Good Friday Agreement, and now there is this 40% gap in productivity, North and South. Two thirds of that is because the Northern economy has disimproved from the point of view of the living standards. However, there is very little unemployment in Northern Ireland. Unemployment is actually a bit lower than in the Republic. It is close to zero. However, people earn low wages. Even though only 3% of people are unemployed, the latest figures show that up to 27% of the working-age population received benefits because they were earning so little that even with the low benefit levels, people needed a top-up to what they earn. Northern Ireland is fundamentally a low-wage economy.

The reason for the oversized public sector is not that there are too many public services - anyone who has tried to access the health service knows the opposite is true - but that the private sector is so weak and because of the wage levels in the private sector. With regard to economic growth, if Belfast looked like Cork and Kerry, the level of revenue available for public services would be sufficient to meet the needs and the clear deficit. There is no miracle growth pattern. We are just looking for a level of growth that would be equivalent effectively to Munster. Therefore, it is not unimaginable; rather, it is a drive away.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

In his presentation, Professor McGuinness referred to the share of educated workers employed. The sectoral productivity in the Republic increases with the share of educated workers employed and levels of investment. Is that investment public sector investment plus foreign direct investment?

Dr. Adele Bergin:

All investment.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Roughly, how does that divide between public, international and domestic investment?

Dr. Adele Bergin:

We do not have that breakdown in the data.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Would Dr. Bergin hazard a guess at it?

Dr. Adele Bergin:

I do not have a breakdown at a sectoral level, so no, I would not hazard a guess. Apologies.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Presumably foreign directly investment is a significant part of the whole broad investment.

Dr. Adele Bergin:

At an aggregate level, yes. I cannot tell the Deputy what sector exactly that is in and how much FDI makes up investment in individual sectors. However, at an aggregate level, FDI is way more intensive in the South than in the North.

Professor Seamus McGuinness:

With regard to our analysis, we strip out the sectors that are heavily influenced by FDI. Our comparator is basically the Irish indigenous part of the economy with almost all of the Northern Ireland economy because we are very aware of the distortions of some of the FDI in the national accounts. The fundamental point that comes out of that analysis is that productivity in the Republic of Ireland responds as one would expect to increases in things such as export intensity, human capital, proportion of people with educational qualifications and levels of investment. When we do the same thing for the Northern Ireland economy – build the data up in the same way and estimate the models in the same way – we do not see any of that. There is no evidence in the Northern Ireland economy that if you increase educational attainment – and we see the gaps there at the moment – there is no guarantee that would increase productivity in Northern Ireland in the same way that it would in the Republic of Ireland, which tells us that there is something fundamentally amiss with the underlying level of competitiveness in the Northern Ireland economy that needs to be addressed also. That may be related to several factors, such as the legacy of the Troubles and also the siloed nature of policymaking in Northern Ireland. Perhaps there needs to be a more integrated approach to policymaking in Northern Ireland to generate that productivity and growth. Again, that may be a question for planning for reunification, for example, whether that provides an opportunity for new approaches to policymaking that can address that underlying structural problem whereby when you are making changes to key levers of productivity like investment, industrial policy and educational skills, you are actually getting a tangible return in respect of productivity side of the equation. At the moment, we do not see that happening.

Professor John Doyle:

One of the things we are doing at DCU with colleagues in Ulster University is taking on from the work of Professor McGuinness and Dr. Bergin on the technical and quantitative aspects. We are doing a follow-up, more qualitative piece of work, talking to policymakers, people who make decisions around state aid, officials who try to bring business to the island of Ireland, North and South, and companies that decided to come South but did not decide to go North. What was their decision-making basis? Why did they pick Ireland rather than Slovenia? Why did they pick Cork rather than Belfast? We are only halfway through it, so it is very tentative. However, the drivers are clear. One official, who is 40 years working for a State agency in investment, said not once in 40 years was Northern Ireland a competition. He said there was almost no city in Europe that was not a competition once for a factory or an investment, but never Northern Ireland. They said it was political stability, market stability, graduate numbers and tax was number four. It was really consistent. Normally, with qualitative research, you get a scatter. I have never come across a piece of research like this, even though we are only at the halfway stage. What they are telling us could all be wrong, of course, but they all believe the same things.

One person told me that from the point of view of an American company, we are heading into an election, but they did not see things radically change for them as a company depending on who was in power in Dublin. Regarding the various political parties, they thought Sinn Féin might increase their personal taxes by a couple of percent, but probably not the corporation tax rate. CEOs are generally on over €100,000, so they were in target for it. Nobody wants to pay more tax, but they did not care. They saw it as a stable market inside the EU. It is stable market-wise and stable political-wise. They asked us who is making the decision when you talk about going to Belfast. Is it the Executive? You can get your head around that. Is it a civil servant who has no authority to talk to you at all and is afraid to move outside the strict rules of the game because they have no authority to do so, or is it a Minister in London? That is a radically different scenario. If you are making a ten-year investment, which of those people will be deciding what is facing Intel or Meta in eight years’ time? There is a political and market stability in the South that simply does not exist in Northern Ireland. I would not be surprised when we get to December and finish our report if we complement Dr. Bergin’s and Professor McGuinness's point of view and say that those intangible perception issues are why foreign direct investment in Northern Ireland is about 20% of the level in the South when you allow for population. Wage levels in foreign direct companies in Northern Ireland are lower than average rather than higher, which is not the case almost everywhere in western Europe. Multinationals pay well, by and large. There might be other issues but they by and large pay well, although they do not in Northern Ireland.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

In Professor McGuinness's paper, he stated:

More recent research has found evidence of educational downgrading in both regions, whereby a person’s educational attainment actually falls below that of their parents.

I am shocked with that research. In our role, we mix with people. We are very much up to date with what is going on in our communities and across our constituencies. Far more people are getting better educational attainment today than their parents got. I think of the community I live in. Deputy Tully and I represent the same two counties and I am sure for our Cathaoirleach in the Border region and his own county of Louth and most people nowadays, after second level, if they do not go on to higher education, they go on to further education or an apprenticeship. There are very few people going straight into work today with their leaving certificate. In my knowledge from mixing around with people – there is nothing scientific about what I am saying – I am absolutely shocked by that piece of analysis.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

We have reached the end of Deputy Smith's 15 minutes.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I must go to a question.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I am trying to be helpful.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I am sorry.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is no problem at all. I know speakers want to get in but if everyone is happy, we will allow an answer to the question.

Professor Seamus McGuinness:

The Deputy asked what the reality is. The reality in the Republic of Ireland is that 40% of young people will match their parents' education, 40% will exceed their parents' education and 20% will fall below it. These figures are similar for Northern Ireland and the Republic of Ireland but the proportion that do better than their parents is much higher in the Republic of Ireland relative to Northern Ireland. This is the opposite of what we would expect because educational standards among older cohorts are lower in Northern Ireland. We would expect a higher proportion of young people in Northern Ireland to do better than their parents. The fact that it is lower in Northern Ireland relative to the Republic of Ireland is particularly worrying.

We did an in-depth study where we spoke to many people. We ran that data and we also ran workshops and we held interviews. It is not randomly distributed. Those young people doing less well are predominantly from lower-income families, particularly in Northern Ireland. A major constraint and a major factor in this is the continued use of academic selection in Northern Ireland. It is now particularly problematic. It excludes children from low-income families because many schools in Northern Ireland do not prepare for the transfer test that gives access to the top 30% of the best schools. To participate in it parents typically have to pay for private tuition at £20 or £30 an hour. This excludes children from low-income families. The continued use of academic selection in Northern Ireland, which filters out children from low-income families from realistically being able to participate or compete for places in those better schools, is a problematic factor, which explains why the educational system in Northern Ireland is not a good vehicle for intergenerational progression in terms of education or earnings. It is a real problem.

Dr. Adele Bergin:

Early school leaving is two to three times higher in Northern Ireland than it is in the South. The number of young people who have at most a lower secondary level qualification is approximately 14% in the North whereas it is just 6% in the South.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The next slot is a Fine Gael slot and we can continue this questioning if that is okay with Deputy Smith.

Brendan Smith (Cavan-Monaghan, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

That is okay.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

We will keep the Deputy in the picture because it is an important point. Today's witnesses and Professor FitzGerald are saying the same thing about education attainment, young people with talent not staying in the North and wages being lower because jobs are poorly paid because people are not highly skilled. That is the point that Professor FitzGerald made. People with a higher grade of third level education get much more attractive salaries elsewhere. That means these people are not working in Northern Ireland. I am trying to find agreement notwithstanding the academic powerful arguments on both sides, and a key issue on which we can all agree is the education process has to change. The political process has to change. People have to be educated to understand and embrace this. This is the part for politicians. The question of what it will cost is a very clear definitive issue. Some people say it will cost a lot more than others. Unless we get the ground moving and get young people involved in changing the education system, no matter what we do nothing will happen other than a continuation of the same. Is that not the reality?

Professor John Doyle:

For members who might not be as familiar with the academic selection process in Northern Ireland, a Member of one of the Houses here described it as the leaving certificate for ten-year-olds. There is a formal academic examination at the age of ten. It is horrendous from a social point of view. It divides people at the age of 11 into schools where they are very likely to get A-levels and schools where statistically they have no chance of getting A-levels. It is an horrific division of kids at such a young age. On going into secondary school their chances of getting A-levels and going on to further education is so low.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The point then, from a political point of view, is that if all of the parties in Northern Ireland embraced this change, whether or not in a united Ireland, it would make a significant difference. It is the most realistic path for change because everybody's boat would be floating higher. The political system must focus on how to persuade people from various political backgrounds to consent to change. Changing the education system is obviously a job for the Northern Executive to make it more integrated and more available to everybody. There are different religious schools in the same town and resources are needed to keep all of these things going, as opposed to everybody going to the one school. There are many issues. It seems that if we could change the way people think in the North and the way they are educated, the economy would change and it would be far more productive.

One of the problems is that change is also not happening for people who do not believe in a united Ireland. In many ways they are part of the unchanging politics. If we can educate people and work towards getting much more progressive education policies, and if the Executive embraced this, it would make a big difference. The job of the witnesses is to argue the economics and our job is to take the economics and make the political system work with best practice. As somebody who has great respect for the witnesses and for Professor FitzGerald, I want to concentrate on the common themes. Then, where there is division of opinion, let the academics argue it out. We need more clarity on this, which is what the witnesses are bringing to the debate. If we are to have a future together education is the key.

Professor Seamus McGuinness:

It is certainly one of the major glaring gaps. There is a problem with academic selection and of early school leaving in the North, which is also an issue. There is a more immediate problem as when we look at the drivers of economic growth in industrial economies, we find that vocational skills are also very important. Our major vehicle for vocational skills is the post-leaving certificate programme. We have evaluated it and it is very successful, particularly in terms of employment outcomes for young people and as a vehicle towards higher education, particularly for young people from lower-income backgrounds. The post-leaving certificate system in the Republic of Ireland works very well as a vehicle for vocational education. Approximately 30% of young people in the Republic of Ireland have these post-second level qualifications. It is only 10% in Northern Ireland and this is the large gap in terms of skills provision and skills output. Further education college provision and vocational education provision is a key gap. If it were addressed with a matter of urgency, it would have tangible impacts in terms of human capital structure and outputs of the Northern Ireland economy. Of course, that needs to be coupled with much improved industrial policy. As Professor Doyle pointed out, industrial policy in Northern Ireland in terms of foreign direct investment has not been good.

Despite the gaps in educational attainment between the North and the South, educational attainment is increasing over time in Northern Ireland but at a much slower rate relative to the Republic of Ireland. At the same time, we are seeing productivity per worker falling. That can only happen if the quality of jobs is falling over time. That puts real question marks around what agencies such as Invest NI have been doing. There are sets of policies, such as industrial and education and training policies, that can increase and improve productivity in Northern Ireland and they should be addressed in any case irrespective of the constitutional question.

If at the time we have a border poll those gaps are not addressed, the planning process must concentrate and we must have the answers before people go to the polls as to what we will do in these areas, over what time period, how do we expect productivity will adjust and how do we expect the subvention will adjust, and work that out so that people know how their lives will change and what are the costs and benefits of reunification. That requires tools, such as the use of macroeconomic tools and micro-simulation tools. We need to know what the demographics will look like. That is a labour-intensive process. It needs to be fact checked and that cannot be done individually. That needs to be commissioned by Government at a central level with the necessary oversight. Unfortunately, until that happens, we will be back here repeatedly running over these same issues.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I agree entirely with Professor McGuinness. That is the key point that if you are going, from a preparatory perspective, for a referendum on unity, if you have not worked it all out and if it is not clear to everybody the black and white of what will happen, it will not work anyway and people will not embrace it because there is not certainty and there is not progress. There has to be a benefit for everybody regardless of whether they are orange, green or whatever. This is beneficial.

We will move on. I do not know if the SDLP are here. There is an election on. I would say we will say the same for the Alliance, who are always here. Dr. Farry is not here today. He must be canvassing for whatever reason. I do not know. So we are back to the Sinn Féin MP, Ms Gildernew.

Ms Michelle Gildernew:

I should be canvassing as well but this has been a very useful and informative discussion.

I want to come back to Professor McGuinness's last point but I was going to ask him a question before he made it. The Northern economy is not in a strong position now. The economy in the South is in a better position. What measures need to be taken to ensure that both economies are strong enough to transition to a united Ireland economy? Will a united Ireland economy be strong enough to absorb the loss of the financial subvention from Britain?

Coming back to the point Professor McGuinness finished on, that macroeconomic deep-dive and forensic look at the economy in Ireland, I do not want to second-guess him or put words in his mouth but should the Dublin Government now be commissioning that work to make sure that we are in a position whereby we are not coming back to this same conversation in a year or two's time? What needs to happen now to help that transition?

I thank Professor McGuinness for his contribution today. Unfortunately, it will not get the kind of saturation the IIEA report got when it came out, but this has been extremely useful. I thank all of witnesses for being here today.

Professor Seamus McGuinness:

There are a couple of points there in terms of what are the risks of not planning. Not planning for reunification causes a major risk to the economy of the Republic of Ireland as well because if you do not plan properly and you transition without a plan, you are likely to incur higher costs and reap fewer benefits. There is a necessity, from an Irish Government perspective, to be aware that you cannot predict when a border poll will take place. It is just something that we do not know. It may be next year. It could be in ten years' time. The Government should be aware of the risks to the Irish State of not preparing properly for a border poll and having that planning system in place. As our director has stated frequently, you do not have to believe in a border poll, you do not need to want a border poll, but it needs to recognise that the risk is there and plan appropriately for a border poll.

That planning process needs to begin immediately, in my view, because of the unpredictability of the border poll question in terms of the timing and also because of the huge amount of effort that will be required in order to plan properly for a border poll. This is an unprecedented situation. As we said, we cannot look at the East German situation, which was something that happened overnight. We cannot look at the Scottish situation because that, too, is a different scenario. That is an entity breaking away from another entity. The planning has to be done on a uniquely Irish basis and it needs to make use of the full capacity of the State in terms of the tools that we have in terms of economic planning, such as macroeconomic models and micro-simulation models, and the expertise that we have within the system. It needs to be democratically mandated in the sense that we have to cost out what will happen to health and education services following reunification. That needs to be mandated properly through the use of citizens' assemblies, etc., in our view. The task ahead is phenomenal if we are to achieve a successful transition to unity in the event of a border poll ratifying reunification. There is no time to waste, in terms of initiating the process, and it needs to be done at governmental level.

In terms of what will happen afterwards, this is the point of the planning process. We would say we have identified the problems in terms of the gaps in productivity in Northern Ireland. The modelling process might ask what will happen if we increase educational FE provision in Northern Ireland over a five-year period, what would the impact of that be on productivity and subvention, and, similarly, in terms of FDI. You would work out and model those likely scenarios going forward.

Ultimately, the Northern Ireland economy is underperforming significantly. Its output per capita is approximately the same as the Border and midlands region of the Republic but, obviously, those regions do not have three universities, airports, ports and an infrastructural link that connects them directly to Dublin. The potential of the Northern Ireland economy is vast but it requires rapid policy change.

The question of focusing on the subvention somewhat misses the point. The structural gaps that exist will be costly to plug. It will be costly to improve FE provision and increase that by, say, 20%. It will be costly to invest in infrastructure. However, we also need to recognise that those decisions would probably take place post reunification and there should be a role for external actors, such as the EU, the US and, potentially, a new UK Administration. All of those knowns and unknowns need to be factored into a planning process and mapped out so that people know or have a good idea how the world will change in the period after a border poll - not the morning after a border poll because that is subvention-type analysis which is static - and what the dynamics of the reunification process will look like, over what period, and what the costs and benefits are likely to be.

Ms Michelle Gildernew:

I refer to the concerns we have had with the block grant coming from Westminster in terms of developing higher and further education, of which I am a massive fan. We have got a great college network as well as our universities. Unfortunately, we have not had the funding or resources to develop that to the extent that has been done in the South. It would obviously be better if we were in charge of our own economic affairs.

I would also like Professor McGuinness to touch on the potential growth and prosperity of unification. That is something on which we can work better together on the island of Ireland to bring savings to what we do and have the ability to drive the funding model that will help to improve our economy.

I also would like to point out not only the uncertainty around a border poll, but the fact that the British Government could call it at any time. The Irish Government is a victim of that and it really should be preparing and planning now.

Professor John Doyle:

Maybe I will add to what Professor McGuinness said. I agree with him. The one thing we know for certain from our own experience of referendums is that the day a referendum is called the capacity to do research on a neutral basis ends because everybody is in campaigning mode. That is the mentality. We know that from Brexit. If the analysis is not done long before a border poll is called, it will never happen during the referendum.

In terms of the potential to improve things either before or regardless of a border poll, Professor McGuinness and Dr. Bergin identified key things that in theory could happen without any constitutional change.

The UK Government has relatively low taxes on high earners and on wealth. By international standards, it is more akin to the United States than western Europe. Northern Ireland is not unique in that respect. Wales has very similar economic issues. Sunderland and the north-east of England have very similar issues. It is a question for us of what is the prospect for any government in Westminster over the next while taking a radically different view on what money is available for regional development. One would have to be a little pessimistic.

On educational skills, so obviously that is the 11-plus. The Executive could, in theory, end the 11-plus. Attempts were made in the past but it became very party political. In a power-sharing Executive it is a very hard decision to make. The academic evidence is almost consensual and I know from previous discussions with Professor John FitzGerald, he is equally strong on this issue.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Absolutely.

Professor John Doyle:

Politically, it is very challenging in a power-sharing structure where effectively all-party agreement is needed.

There is the industrial policy piece in terms of addressing FDI. That is fundamentally linked to political and market stability and those are challenging. The UK Government sets corporation tax, the regulatory framework and negotiations with the EU. These could be resolved without constitutional change but they are very challenging and. therefore, the planning needs to assume a range of scenarios from closing convergence, which would be the ideal, but also the possibility that it could look very similar to today, at the moment, for a border poll.

Dr. Adele Bergin:

So far we have discussed some of the similarities and differences, say, in terms of education. If we were talking about constitutional change there is a whole spectrum of outcomes that one would want to consider, which start with maintaining existing services in health and education. One may want to merge elements of both systems. One might need to align with the best system if research decides, North or South, whichever system is best or one might want to do everything new. So much of the discussion tends to focus on the presumption that we will keep education, health, etc. more or less the same, and make some changes here and there but there is a whole spectrum of opportunities. When we think about it, we are trying to think about the principles that we would want to apply in any kind of planning process. That is the range of outcomes for each area so it gets more and more complex as we go along.

Members have asked about the benefits or costs. One needs to know what one is going to say for all of these things. Various numbers have been thrown around. We can increase or decrease all of them. Until we knows what it is we are planning for, it can be quite challenging to state a benefit, cost or place some of those numbers around that.

As I have mentioned before, and it is worth mentioning again, the timeframe and transition period is absolutely crucial because big reforms might cost a lot of money and take time to implement. If one is ambitious in those reforms, say, for example, in the North and investment happens then over time the Northern economy will grow quite strongly and all the rest, therefore, reducing the need for subvention in the future. We have got to take all those dynamics into account and the timeframe will matter quite a lot in terms of estimates and a range of figures.

Professor Seamus McGuinness:

On the question of why will this not happen under the current political arrangements in the North, the structural gaps in the Northern Ireland economy were there. They were there in 1968 and 1969 because when we look at the data the region was at the bottom of per capita GDP and obviously the period of the Troubles made that worse. By 1998, huge structural gaps existed. When we compare the North with British regions, again, it is the worst performer in education, and health services in respect of health outcomes. The funding arrangements in the block grant has never addressed those structural deficits. Even if there are good policies, if there is not the means to fund them then what we get, at best, is stagnation in terms of performance or gaps opening up, and we are seeing gaps opening up now. I do not believe that the current funding arrangements provide an opportunity to deliver the necessary structural reforms in those key areas, particularly around educational skills, health because healthy workers are needed to have a healthy economy, and infrastructure. It is going to be very difficult to generate the changes that would unleash the North's economy under the current structures.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I want to ask about Brexit, and the advantage for Northern Ireland's economy to develop a new energy as it could significantly change things and bring new investment. It would be of huge economic benefit if that were to happen or if it were driven by the Executive or whatever because the North is the only place where one can export to the UK from the EU without tariffs. Is that correct?

Professor John Doyle:

Yes. Notwithstanding the political tensions, there is broad agreement that the current deal is better than no deal but it is worse than being a member of the European Union because it does not include services, which is by far the fastest growing part of the economy. It, therefore, excludes Northern Ireland being a base for service provision into the European Union. It is better than the alternative but it has gaps.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

That is an important point. I call Senator O'Hara.

Mal O'Hara (Green Party)
Link to this: Individually | In context | Oireachtas source

I thank the Chairman and committee members for their warm welcome. I also thank the witnesses for their presentations. I am excited to be a member of the committee

Today, we are talking about economic analysis in advance of a potential united Ireland. My first question concerns the research by Professor McGuinness and Dr. Bergin, in particular in respect of early school leavers and educational underachievement. I am thinking about intergenerational trauma and how we have failed to deal with legacy, how we have the poorest mental health in the UK in the North, wee have underspent on mental health services, how we have a high rate of suicide, how we have the biggest drug debts for men of a certain population outside of Scotland in western Europe, and those health inequalities. I want to tease out the issues around intergenerational trauma and that idea of a traumatised society. How do the witnesses think that has impacted on productivity, disposable income, poverty and living standards, educational underachievement and early school leavers?

Dr. Adele Bergin:

The Senator's question is very wide-ranging.

Professor Seamus McGuinness:

We are doing some work on the North-South differences and inactivity as part of our research programme with IBEC. A lot of these differences and traumatic effects really impact not necessarily on higher levels of sickness and inactivity in the North but on the composition of it. When we compare inactivity rates between the North and the South, which comprises people who are not actively seeking work and excluding students, we have found that the levels of inactivity are only a little bit higher in the North compared with the Republic but the composition is very different. In the Republic, inactivity is more due to people looking after the home, which is really the constraint that females are experiencing because of the high costs of childcare. In the North, the inactivity is much more predominantly around people who are sick and disabled, and mental health issues are part of that. Again, as economists it is difficult for us but certainly that is somewhere where we see gaps and a clear reason for that is the legacy of the North.

On generational impacts, when there are factors that lead to joblessness in a household, there tends to be an intergenerational impact. If a child is in a jobless household, he or she is much more likely to subsequently be welfare dependent later in life and will tend to have a lower educational outcome.

That is what we know from the research. It is certainly there. We would like to do more work on it. Dr. Bergin and I, and our colleague Anne Devlin, have made proposals on potentially getting this work funded through the shared island unit. It is something we are interested in but we have not had a good grasp on it yet.

Dr. Adele Bergin:

As Professor McGuinness said, we do not have a great grasp on all this. One of the things we mentioned in our opening statement is that overall life expectancy in the South is two years higher than in the North. We cannot say exactly what is driving that. We know it is a whole range of factors combined, from income to access to the health service, equality of the health service and access to education. That shows more the outcome, that there is this gap here, part of which goes back, potentially to what the Senator is talking about.

Mal O'Hara (Green Party)
Link to this: Individually | In context | Oireachtas source

The witnesses are being clear about some policy solutions, and we have talked quite clearly about the consensus around the 11-plus. We are still in a bit of a mess. We are in an interim. We have not replaced it. We have a series of different systems in the education sector, and I do not know if we will ever get political consensus on that in the North, unfortunately. What are the other policy levers that could make the difference and are currently available to the Executive? It is currently sitting. Let us hope it sits for a while without more instability or lack of governance. What are the key policy levers that the witnesses think could close that gap?

Dr. Adele Bergin:

Investment in the further education and training sector in Northern Ireland. Professor McGuinness has talked about how we have much higher levels of young people with those skills in the South than in the North. That seems to be one of the other areas where there is a deficit and that would require investment in FE in the North.

Professor Seamus McGuinness:

But it is not good enough just producing young people with skills. An industrial policy is needed that creates the jobs that have sufficient income and value added in them to absorb those. It is a threefold strategy. The other strand would be improving infrastructural links. I got a train in Newry this morning. It was the only train that would get me into Dublin before 9 a.m. and I had to sit on it for two hours. That is just not good enough. It is ridiculous. There are issues around infrastructure. Those would be the three key aspects: a combination of changes to industrial policy, human capital provision, focusing particularly on vocational skills and infrastructural development. They will come with a significant price tag.

Mal O'Hara (Green Party)
Link to this: Individually | In context | Oireachtas source

Those levers are available to the Northern Executive and have been for 26 years.

Professor Seamus McGuinness:

The constraint is the block grant. That is the issue. To match FE outputs in the Republic, vocational education's provision in the North will probably have to travel because 10% of people out of Northern Ireland have vocational qualifications compared with 30% in Ireland. The questions then are how many new FE colleges are needed, what the expansion is, where to put them and how much that costs. As regards the development of an infrastructural network in terms of the real network, we are looking at some change coming through over the next ten years. As regards infrastructure policy, as Professor Doyle pointed out, the main barrier is probably political instability and uncertainty, and there are lots of intangibles there. That is not something that cannot be addressed by economists but it would have to be addressed to get the industrial policy side of the equation right as well, so it is-----

Professor John Doyle:

That is the tension between a sovereign government and a regional government in any part of western Europe. Realistically, the only fiscal levers available to the Executive in Northern Ireland are not likely to raise that much money and they tend to be flat taxes such as rates and water, where some allowance can be made in the benefits system but wealthy people and people on low incomes pay more or less the same amount, so they have an inequality impact. With no control over the taxation and benefits system, it is very hard to counteract that. I have my sympathies for the Executive. The evidence is clear: education needs investment. If, however, the only alternative is to raid the health budget, I would not blame any politician for being reluctant in the current circumstances to go around telling the public, "Yes, we need education for the future but, by the way, we have just taken a couple of hundred million pounds out of the health budget to make it happen, and you will not see the benefits for five years." That is an almost impossible situation when you do not control the taxation system or the wider political and regulatory context. What needs to be done is clear, but the political route to get there when you do not control the taxation system is challenging. We can see the same situation in Wales, where I have done some work recently.

Mal O'Hara (Green Party)
Link to this: Individually | In context | Oireachtas source

I will go back to the question on childcare. We do not have childcare as such. I know the Executive is making moves on that. Professor McGuinness said there was not a differential impact in terms of the North and the South. Will he elaborate on that?

Professor Seamus McGuinness:

Our childcare costs are among the highest in the EU, so it is not surprising to see that we have more people inactive on home duties. They tend to be more predominantly female because they are the ones who have to make those choices. What we do find is that, in terms of inactivity, the elasticity of labour supply is broadly similar, so if there is growth in wage rates in the Republic, it pays more people to work and they will tend to come out of inactivity and into employment. What we see is that the sensitivity of inactivity to changes in wage rates is the same in both regions. We had expected it to be less sensitive in the North. One of the solutions to those intergenerational issues that lead to more inactive people being on disability or sick is wage growth. We tested it and we found that if there is wage growth in the North's economy, people who are inactive, sick or disabled are very sensitive to that and more likely to come back into the labour market. If there is wage growth, if there are opportunities to generate good incomes, that is a partial solution. We will not get everyone back - many people cannot come back - but at least some of the workers who are inactive will come back into the labour market. That is pretty much what our forthcoming analysis shows.

Mal O'Hara (Green Party)
Link to this: Individually | In context | Oireachtas source

It is really interesting that Professor Doyle has said that the economies were at a similar place in 1998. Obviously, the Republic has transformed and the North really has not over that period. The promise of the Good Friday Agreement was peace, prosperity, reconciliation and equality. We have the absence of violence, broadly, but those other things have not really happened to the scale that I think we all expected. I imagine that if Stephen Farry were here, he would talk about the duplication of services. Is there any analysis of that in terms of segregation that may impact economic growth in the North?

Professor John Doyle:

It is not the biggest issue. It is a relatively costly issue, given the context of the limited resources available to the Northern Ireland Executive. The focus tends to be on two school systems: Catholic and Protestant, by and large, with a small integrated sector. Socially, I can see that in some ways is a more important discussion to have, and if I had to pick between social progress and economic progress, I would probably pick social progress. It disguises the fact, however, that, actually, there are four school systems, not two, because each Catholic and Protestant school system is divided into grammar schools and secondary. From a purely economic point of view, the biggest negative impact on the economy is actually the division between grammar and secondary. The bigger social one might be the division between Catholic and Protestant but, from an economic point of view, it is the fact that children in the secondary school system are highly unlikely to advance to further and higher education, so there is a cost to having four schools in the same town. It is in the hundreds of millions of pounds rather than billions, but progress would be nonetheless welcome. It is the longer term. It is the fact that we are failing those children in the schooling system.

Individuals can escape from a statistical pattern, but we know that with that age cohort as a group the chances of them ending up in further or higher education and in well-paid secure jobs is remarkably low. Their situation is radically different from that of their neighbours in the grammar schools. That is the biggest long-term issue. That lack of income, apart from the social consequences of low income, also means there are less resources for future governments to spend in reinvesting in education. These are the economic consequences. There is a cash cost today but the long-term economic consequences are far more severe.

Mal O'Hara (Green Party)
Link to this: Individually | In context | Oireachtas source

My final question is both timely and a strong riposte to the other report. There is cognisance of some difficulties in protecting some of the figures of the subvention. Is there an opportunity to get clearer data from the UK Government around that?

Professor John Doyle:

I have spent about three years at it since we first published. I believe it is clear to a certain extent. I know we say that we throw a billion here or there, and in a parliament it is all big money, but in the greater scheme of things it is not a huge proportion of it. It is almost impossible to disentangle and the data simply is not there. The rest of it is there, however, and one only ends up with £10 billion if nuclear weapons are kept, if the UK voluntarily pays its own debt and if we assume the UK abandons its pensioners. Those are things we can get our heads around. If we do not assume that, then the underlying structural deficit will be about £1.5 billion - that is, if we assume that the UK would meet its pension responsibilities and that the debt issue was not there. In the worst-case scenario, it would be up around the £5 billion mark. Mostly, the outcome would be about £1.5 billion and then the other considerations relate to policy decisions.

Going back to Dr. Bergin's point, one of the values of the political system that the Houses of the Oireachtas could bring - and Members are probably the only people who could do it - would be to in some way narrow the range of things that might be considered. If there was an all-party Green Paper which was broadly consensual and which stated that, in broad terms, wages would converge over 15 years, this would take one option off the table and it would not need to be costed. Perhaps such a paper could also outline the kind of health system that people want in a united Ireland. We could allow for negotiations in that regard, particularly with unionist parties. This most likely would not take place until after the referendum but we could state that what I have just outlined is our opening bid. The political system could narrow down what we as academics need to give answers to. At the moment, we have to find answers to everything. The Oireachtas could indicate that while politically we do not agree on everything, here are the sorts of things on which we could seek consensus. Only the Houses of the Parliament can really do that. Governments can like the use of citizens' assemblies or not, but an all-party committee in the Houses of the Oireachtas would have the authority to go beyond one cycle of a government and narrow the range. Of course, there would not be consensus on everything. However, it would narrow down what we need to give answers to around what X costs compared with Y. This would be a really useful contribution in addition to the research that clearly needs to be done.

Frances Black (Independent)
Link to this: Individually | In context | Oireachtas source

I thank our witnesses for coming in. We have been doing this work for the past few months. It was really fascinating to listen to their statements earlier. I welcome Senator O'Hara to the Joint Committee on the Implementation of the Good Friday Agreement.

My head is swirling around because I have so many questions I want to ask. I want to follow up with Professor Doyle about what he said about a committee. I know, in a way, that is what we are trying to do here. From our perspective, after we do the work we are now doing around the constitutional change does Professor Doyle believe that it would be an idea to tighten it up? Could Professor Doyle say a little more about that? It is very interesting. We are doing work on the economy, health, women, and the Constitution but can Professor Doyle say a little more about how he would like to see our work tightened up so he can continue to do the work the is doing?

Professor John Doyle:

We have done a great deal of work over the past three years between the universities and the ESRI. We are in a very different place than we were after Brexit when, in reality, we could not have answered any of these questions for the committee at all. Much progress has been made. As Professor McGuinness said, while the experience in Scotland was different, the authorities there did publish a 650-page document that was available to the public. It was actually about 1,000 pages if we take all the reports into consideration. The biggest single criticism, and possibly the reason they lost the referendum, was that there was not enough information available. They did not answer the currency question, they did not answer the pensions questions and they did not deal with a few basic things. Rather than people telling us they were overwhelmed with information, they said that it was all very welcome. This meant that there were issues and that the public just wanted someone to think about it. Agricultural policy probably did not feature in the debate to even half of 1%, but had nobody indicated what they were going to do. If they had, it might have been all over the papers. There was a sense that the public just wanted the assurance that somebody had talked about all those sorts of things, and then the public debate could focus on the narrower range. I am aware there are political sensitivities and interparty differences in terms of the timing of it but a Green Paper or some government equivalent from an Oireachtas committee narrows the range and allows people to take part in a discussion that is not based on a blue-sky reading of what to talk about. It would be a case of presenting a list and then focusing the one range. An Oireachtas committee or a Government Green Paper does that service to the community. It puts it out there and outlines the range.

It is also clear from focus groups in particular that the public do not want to be handed a model today. They do not want some civil servant group to go off, do a technical operation and say that it is a case of deciding either "Yes" or "No". The public would say that no thought had been given to gender equality, that biodiversity had not been considered, etc. People do want a draft and a Green Paper or Oireachtas committee report. In some aspects, it is the classic way for a government or parliament to outline what the political system thinks in broad terms and then ask what the public, lobby groups, academics and others think. In some ways, we have gone as far as we can with the informal debate. We now need a different scale, with something like a formal report by means of which we seek to put it all together. It would move the conversation on in a very different way.

Frances Black (Independent)
Link to this: Individually | In context | Oireachtas source

That might be something the committee could include as a recommendation in its report. That will be very important going forward.

We have had loads of different meetings on this issue. Professor John FitzGerald and Professor Edgar Morgenroth were before the committee in the past few weeks. Their paper looked at the economy following any border poll in which the people opted for reunification. They said it is likely to be at least two decades before the productivity gap could be substantially narrowed. Does Professor McGuinness know of any modelling evidence which supports that? What is his assessment in that regard? Is it a realistic appraisal?

Professor Seamus McGuinness:

I was quite alarmed when I read that statement. I do not know the basis for it, to be honest. When we look at productivity levels between the North and the South, we can see that they have only started to diverge out over the past 20 years. We have done a modelling exercise, so we know the policy levers that need to be addressed. We have spoken at length on some of those. The assumption is like the scenario of taking a patient into the hospital and saying that they are sick, that we will not bother wondering what is causing that sickness and that we will just leave them in the corner for the next 20 years. It just does not make sense in terms of how policy works. We know what needs to be done to address the growth trajectories.

Given the constraints on policy making in the North, the budgetary constraints and the way the political system has been set up in that we do not have an integrated approach to policymaking, then constitutional change does provide an opportunity to a new approach to policymaking. It potentially allows for investments to address the structural deficits and, in particular, a role for external actors - if they are considered post reunification - such as the United States of America, which could contribute financially. The EU and the UK could also have a role. We believe that productivity can be altered with the right policy framework post reunification. We do not agree that it would take 20 years.

On Professor Doyle's point, one does not need complete convergence in order to eradicate subvention costs. It only needs to be partial. This would be a basic expectation of the planning process. To achieve that is the bottom line. Dr. Bergin can talk on this as she does more modelling on the impacts of the Irish macro economy over the years and how it has transformed since the late 1990s. Again, this goes back the point that there is so much potential growth within the Northern Ireland economy. It is underperforming, but I do not agree with the two-decade projection at all.

Again, that is a matter that needs to be run through the models as part of the planning process. We need to identify the levers that will generate growth in terms of the most effective way and, hopefully, the most cost-efficient way.

Dr. Adele Bergin:

Professor McGuinness has disagreed with that but I would say we cannot really answer that at all. It would take time and how much time depends on what policies we are talking about, how ambitious they are and in what timeframe they are going to be implemented. Do we need supporting policies to get that education policy through? Until we answer that, it is very hard to put any kind of time on it. To say that this could happen, as in the IIEA papers, in 20 years might seem like a very long timeframe but it also depends on what we are talking about. There needs to be a bit more before we can get into some of the costs. We need to be a bit more specific on the policies and then we can see. There may be some low-hanging fruit in some cases, something that can be implemented quickly. There may be other policies that might actually take years to implement but may be worth doing, not just for economic but also for social reasons. All of these things have to be put together into the mix.

Professor John Doyle:

My understanding of the IIEA report is that there was no economic modelling done for a figure. I know from Professor John Fitzgerald's previous public talks that he has talked about the length of time it took from the introduction of free secondary education to the sort of economic growth in the 1990s and that is where the 20-odd years came from. However, lots of other things happened in the middle as well. Obviously, the European Single Market did not exist until 1992, to start with. Obviously Northern Ireland would rejoin the Single Market as soon as it joined a united Ireland. That has been agreed with the European Council. The biggest single difference today is that of the students from Northern Ireland who go to study in England, Scotland or Wales, two thirds do not come home. Those who are there for a long time might be well settled and will not come home but those who are only there for a couple of years might return. The experience in Ireland when we had periods of economic boom was that lots of recent migrants came home if there were good jobs available. The call of home was strong and I suspect it would also be thus in Northern Ireland. That means creating a link between investing in education and industrial policy, as Professor McGuinness and Dr. Bergin said. Probably the biggest single thing a future US administration might do is not so much write a cheque - although nobody would hand it back - but to persuade some international companies that might consider investing in Northern Ireland, with a nudge factor from the White House, to do so, with the assurance that while graduates might not be available right here and now, there are people who could be persuaded back home if the right sorts of jobs were there with the right sorts of wages. There are lots of levers we could model out that do not involve changing the education system, starting with kindergarten, which will take 20-odd years to get the graduates. There are much faster policy levers that would lead to a different outcome.

Frances Black (Independent)
Link to this: Individually | In context | Oireachtas source

What I am hearing, which is something that I have also been singing from the rooftops, is that it all comes down to planning and preparing. We all know that at any time, the Secretary of State could call a border poll. We do not know what the criteria for that are so we could be in trouble if we are not ready. We do not know what the thinking is around any of that. If the witnesses were to give advice to the Irish Government, what are the three top priorities they would suggest the Government should start working on? How do we get the message out to the public? If we are to look at constitutional change on the island and if we are to have a united or a new Ireland, how do we explain it? People seem to be fearful of it, both North and South. When I talk to people they say it will cost €20 billion, that people will not get their pensions, that the health service will be affected and so on. How do we get the message out that they do not have to be as frightened of it as they think? What three priorities would the witnesses ask the Government to start working on? Am I focusing in too much on that? How do we get the message out to the public that it is not as scary as they think?

Professor John Doyle:

We have some information already in terms of public attitudes. I was involved in a set of opinion polls done with the ARINS project through the Royal Irish Academy and the University of Notre Dame in the United States, of which The Irish Times published a good bit. We did focus groups as part of that, which in some ways do not lend themselves to the same sort of publicity. It is clear that there is a massive desire for more information. There is also a massive desire for expert advice and to take part in debates. There is a low level of information on a cross-Border basis and a lack of knowledge about the other. That is equally the case North and South. People have no idea what the health system is like on the other side of the Border.

In relation to really basis things, people are making assumptions. People were worried that they would lose their pensions because they had not paid contributions in the South, for example, but whatever the economic circumstances, governments are not going to leave pensioners without a payment at the end of the week or the month. They asked if they would be joining the European Union. There was no awareness, among a certain cohort, of something that has already been legally agreed by the European Council. People in political and academic circles were aware of it but not the ordinary public. The health system is a big concern for voters in Northern Ireland. There is the principle of a publicly paid-for, free at the point of access health system but it is clear from surveys that people think that everybody pays in the South, regardless of whether they have a high or low income. There is a caricature of the southern health system. Southerners have no idea there is a queue to see a GP in the North. There is a real lack of information. People are clear that they want certainty in regard to information. That is the first priority. That is similar to previous European referendums. It was probably a lack of information rather than substance that led to the defeat of the Lisbon and Nice referendums. They were subsequently passed when more information was made available.

The other two issues are the economy and health. There was a little more concern about peace and security in the South. Remarkably, voters in the North are not as worried about that. It is not that there is no worry but people do not see a return to violence in the North. They think that whatever else is happening, that is not where people's heads are whereas in the South, there is a bit more worry about a return to violence. The economy and health are very strong.

If I were to give three priorities, I would say that the Government should provide some certainty by starting a process towards some sort of Green Paper or parliamentary report; provide much more information and research on the likely economic trajectories; and make a plan in terms of health. There are some information gaps there. It is almost impossible to compare the two health systems, North and South. Senator O'Hara talked about the mental health services but one cannot compare cancer outcomes, North and South, or orthopaedic services, for example. Who has the better model? Which is cheaper? Which is better? We cannot answer those questions because the systems are so different that it is impossible to compare them. If I was to prioritise, it would be the process, the economy and the health system. If the Government could answer those questions, it would probably meet 70% or 80% of people's desire for more information.

Professor Seamus McGuinness:

I agree we need to start off with an overall Green Paper that sets the parameters of what needs to be addressed. What are the key information areas that people need certainty around? Health and education are the big issues, as well as the economy. Social welfare is another big issue. There are also issues around political structures and policing that would need to be addressed. The Green Paper would be there to set out the parameters but, ultimately, such is the scale and nature of the planning challenge that there needs to be a Government Department established that takes responsibility for the planning process. It needs to have a cross-departmental remit. It needs to oversee and commission the research that needs to be done and to be responsible, at the end of the day, for collating that information in a way that is fully understandable to voters. That is what we want to get to at the end of the day. We want people walking into voting booths on the morning of a border poll who have certainty around the implications of that vote in terms of how services are going to change, the likely costs and likely benefits. Those are the minimum requirements moving forward.

Dr. Adele Bergin:

Professors Doyle and McGuinness have identified the key areas in any potential Green Paper, including how the delivery of key services would change. I would add that there would need to be a timeframe put on it. Are we talking about the short, medium or long term?

The Senator touched on people being scared of the costs involved. That is in large part because we are starting at the wrong side before presenting what the picture will be or will potentially be, or the range of possible outcomes. That needs to be defined first before you can talk about the costs and-or benefits. In some areas, there will be a cost. In others, there could be benefits. The whole thing needs to be mapped out first and then you can start with what people are talking about at the moment. In some senses, it would be nice if we flipped the whole thing on its head, started at the beginning and dealt with some of the questions around costs and benefits towards the end.

Pauline Tully (Cavan-Monaghan, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I found the discussion really interesting and informative. It has brought home the need to plan for the future. There have been important discussions in this committee about looking at an all Ireland health or social protection system. The shared island unit does important work but it has only been tinkering around the edges. There was a suggestion of a Department and a Green Paper to take this forward. As Senator Black and Ms Gildernew said, if a Border poll was called in the morning, the Government here is not prepared at all for that. The poll would be lost. It is really important that we start to plan.

Based on what the witnesses have shared so far, is it not true to state that, as the IIEA report indicates, Irish unity would result in an immediate major reduction in living standards in the South? The IIEA report states:

Even though Ireland has a much higher national income, funding the needs of the people of Northern Ireland in a united Ireland would put huge financial pressure on the people of Ireland, resulting in an immediate major reduction in their living standards.

Will the witnesses comment on that?

Professor John Doyle:

There is no basis for that statement. If the Exchequer in the South had to come up with €20 billion next Monday then of course that would be very challenging, to say the least, and it would have major inflationary impacts in Northern Ireland. Where would people spend €20 billion if it was suddenly landed into the middle of an economy without planning or a sense of what you would spend it on, with most of it put in as a straight transfer? It is just not real in terms of that impact. My figures suggest a year one estimate, if it happened now, allowing for a modest investment of around €1 billion a year of additional expenditure and inheriting bits of subvention that would transfer, would be about €2.5 billion. That is three quarters of 1% of GNI in a context in which Ireland's debt to GDP ratio would fall because if there is no deal on pensions, we would not inherit debt. We already have good GDP. We can borrow relatively cheaply on the international markets at the moment. It would make little or no impact on the economy in the south to borrow at the level of three quarters of 1% to fund the short-term deficit. We must then look at the political decisions Dr. Bergin talked about, including what you want to do in years two, three and four. That is where the Green Paper comes in. That would allow you to say that we want a university in Derry of a particular size, that we want the further education sector to be larger and that we want free GP coverage for everybody or for 90% of the population available more quickly than 16 days, which, I think, is the latest average across the UK. Then, you can put prices on those sorts of things which go beyond the deficit. The notion that it is €20 billion before you make a single decision and that would therefore collapse the economy in the South has no basis.

Professor Seamus McGuinness:

On the financial debate, we have not touched on this in a while but our initial estimates of subvention, depending on how negotiations go, in our work in the Cambridge Journal of Economics, estimated that between 39% and 74% of the subvention costs could come across to the Irish State, depending on what happens with the pensions bill. Professor Doyle has done a more forensic deep dive on that. Based on our Cambridge Journal of Economics paper, we estimate a bottom threshold of €3.6 billion in core subvention starting to an upper level of €6.8 billion starting, which translates to a lower estimate in our published work of €4 billion up to €7.2 billion. That lower threshold is what Government spending would typically increase by in a year, particularly before the Covid crisis. It would not result in any particular reduction in living standards for the Irish population in our view but we point to the fact of the matter that those are the costs if you take the North over as is, do nothing and leave it in a state of low productivity growth.

Pauline Tully (Cavan-Monaghan, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

In its submission, the ESRI stated that productivity in both economies, North and South, is on a par in 2000. Over the past 20 years or so, it increased here and decreased there. As a result, the gap got wider. Dr. Bergin said some things could be done immediately like low-hanging fruit to address that. She said it is to do with educational attainment and a lack of investment. Both need to be done together to address the issue. Will she provide examples of the low-hanging fruit?

Dr. Adele Bergin:

I think I said if there was low-hanging fruit. We already talked quite a lot about education and the areas of the education sector we might want to look at. On industrial policy, it is about reorienting FDI policy in the North towards higher value, higher quality jobs and higher value-added sectors. At the moment in Northern Ireland there is higher FDI intensity in areas like construction and distribution, whereas in the South there is a higher FDI concentration in financial services and that kind of thing, which also tend to be better quality, higher-paying jobs. I do not know how long it takes to reorient policy but to the extent that one can have an FDI policy focusing on certain niche sectors, perhaps that could be done quickly.

Pauline Tully (Cavan-Monaghan, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

It is a bit of a chicken-and-egg situation. Many graduates in the North go to other jurisdictions to take up work or for education and do not return. To get investment in the North, you need graduates and people with high educational attainment. Which comes first to attract graduates back?

Professor John Doyle:

In the work of Professor McGuinness and Dr. Bergin, we can see that statistical pattern but it is impossible from the statistical pattern to know if A causes B or if B causes A. That is just the logic of that sort of analysis. It cannot be unpicked. That is why the next step is to ask decision-makers what their view is. Those decision-makers could be right or wrong on the trade-offs. This might provide an explanation as to why in the model, the South is like a textbook. If one increases the number of graduates by 1%, the economy grows by 1%. It is almost a straight line. It is what you teach first-years in an economics course, namely that the economy in the South does what you expect it to do. The Northern Ireland economy does not do so, for whatever reason. I think it is because of reputational issues. It is hard to be certain but I think that is why. The chicken-and-egg situation is hard to disentangle. Graduates will not come home unless there are well-paid jobs for them. There are better opportunities in England, Scotland and Wales close to the universities where they studied, and they settle after a while. My sense is that no company in San Diego carried out an analysis of the Northern Ireland labour market, looked at the graduate levels and thought that it would not go to Belfast because the graduates are not there. They never even got to that point. There is a reputational issue to the effect that Northern Ireland is too unstable, regardless of whether it is in the Single Market or whether there is power-sharing. The proposition never even got to the table as an offering.

The graduate issue is a problem but I am not sure it is the biggest short-term barrier because the companies never got that far. It is the broader notion of having an offering, which in some ways requires investment as well as reputational issues. In the short term, it will require an increase in public expenditure and increased subvention from the UK. The scale of what will be required will not be raised by water charges in Northern Ireland. Whatever about the politics, it just would not raise enough money to make the biggest difference. It is the reputational investment first, getting those graduates home and starting reinvestment in the schooling system and the further education system in particular, which will take a bit longer, to keep going.

Professor Seamus McGuinness:

I think there is enough capacity, even within the graduate labour market as it stands, to facilitate FDI locating there and people going into it. Approximately 40% to 50% of graduates in the North, when they leave universities, go into jobs that do not require a university degree. They are overeducated and underutilised. There is capacity in the human capital in the North to facilitate a more pragmatic and more domestic approach to FDI. That is the first policy lever we need to address in the sense that if we can persuade companies to relocate here, that is not a hugely costly structural adjustment, as opposed to ramping up that FE side of the equation and the vocational skills, which is likely to be more costly and take more time. There is underutilisation within the Northern Ireland labour market and there is a lot of access capacity. On the graduate side of the equation, when we look at the proportions of young people getting third level qualifications, they are broadly similar in both regions. The system is producing enough people to accommodate better industrial policy.

Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Of course, excess capacity could be used for human capital on an all-island basis as well, which would benefit the South in a huge way. To be clear, our taxation policy on PAYE is such that it will be the portion above €140,000 that we will ask people to pay as a solidarity tax, and that will bring in €386 million that can be spent on all the issues we are talking about here. That is just to remove any doubt.

Professor John Doyle:

I accept the Deputy's point, but I assure her the CEOs her party was talking to are all earning well over €140,000.

Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Yes, but obviously, in terms of investment in housing, health and everything else, CEOs need to be able to make the decisions relating to location-----

Professor John Doyle:

Yes, and to be fair to them, they were not overly exercised about it.

Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I just wanted to put on record that it will relate to just the portion above €140,000, for better distribution.

John McGahon (Fine Gael)
Link to this: Individually | In context | Oireachtas source

The witnesses have effectively taken apart the presentation of two weeks ago from Professor John FitzGerald with their six points, and that is what is good about these debates, where people appear before the committee and present one view, and a week or two later, someone else comes in and is able, quite systematically, to put an alternative view, based on facts, so I appreciate that. Professor Doyle stated:

For these reasons, the figure of €20 billion over 20 years is not a worst case scenario. It is a totally inaccurate and unreasonable starting point ...

They have outlined the six reasons in detail, but aside from that, how did the contributors at the meeting two weeks ago get it so wrong?

Professor John Doyle:

I do not know; that is the only straight answer. I do not want to attribute a motive to them, but the document that was published does not have any source material that is different from what I have engaged with. It is something I have worked on intensively for the past four years myself. In the longer document I made available to the committee, there is a footnote and document about the UK and Irish Governments’ standing to document everything I have claimed. I cannot attribute a motive to the committee's previous witnesses but I am standing over my own figures and my critique of theirs, which are not substantiated in the same way.

John McGahon (Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank Professor McGuinness. On the final page of the document, he stated, “In this case, the level of transition costs can be covered by the Irish State through a modest increase in borrowing or taxation.” We were talking two weeks ago about, for example, the concept of a solidarity tax that would be paid on top of income tax for a certain number of years. In his view, what would be a modest increase in taxation and how long would it be for?

Professor John Doyle:

If there were a medium growth trajectory, that is, if we were not among the high performers in central Europe in terms of when they joined the European Union but in the middle range, meaning a growth of about 2% above historical norms, we would need to borrow €2.5 billion in year 1, and in year 10, we would have a surplus. It would drop pretty evenly. Obviously, this would be subject to political decisions about issues that cost money. In year 1, it would be a borrowing requirement of about 0.75% and that would drop consistently over a decade. That, in some ways, would not require any taxation increase at all. The State could readily borrow that money and repay it over 40 years, with a negligible increase in taxation. We would also assume that the Northern economy would be growing and people would be earning more and paying more taxes, which is fundamentally why the subvention would disappear, that is, not because we would be cutting public expenditure but because we would be raising taxes.

Turning to another option that has been discussed, in the most recent opinion poll we carried out as part of the ARINS project, we asked people what their appetite was for putting away some of the current surpluses into a sovereign wealth fund. It has been done for climate and other issues, but this related to parking some of it for the cost of a united Ireland. We would be talking about saving at a cost of, say, €10 million or €20 million from now until whenever a border poll is held, and if a border poll did not happen after 20-odd years, we could spend it on something else. That would not be a huge sum if we were saving it in the context of the surpluses we are currently generating, and I suspect the Department of Finance would prefer us to do that than spend our money in a way that would be hard to curtail if the economy goes in the other direction, because it is better to put it away when there is a surplus. A majority of those who had an opinion were in favour of that sort of measure.

It is very hard to carry out opinion polls on increasing taxation because, no matter what the topic is, nobody thinks they should personally pay more tax. There is always someone else in the country who is unfairly paying too little. Even on development aid, almost nobody in Ireland is against increasing development aid spending. I have looked at this in the past. If we survey them to see whether they would pay more tax to increase development aid, they say "No" because they think the taxation system is personally unfair and that somebody else should pay it. It is just not a tool we have at our disposal. Nobody has come up with a good way to ask that question, but the sovereign fund was a little less personal and, on that question, there was an appetite to put public money away to pay for future costs.

John McGahon (Fine Gael)
Link to this: Individually | In context | Oireachtas source

This issue was discussed two weeks ago and is in line with Senator Black's point of view. Two weeks ago, we dealt with one report, which was quite substantial in what the authors were saying, whereas now we are dealing with a report that is much more moderate in its outlook. It is incumbent on either the Government or whoever else to come to somewhere in the middle and take some points from one of the reports and other points from the other one, or whatever it may be, but the danger is that, as we said two weeks ago, there is a high probability that a proportion of people within the Republic would not vote for a united Ireland, based on it presenting too great a cost to them. I am happy to vote for a united Ireland regardless of the financial cost, but a chunk of people will make a decision based on that, and that is why it is important that the research of the witnesses, and the points they are putting across today, receive proper consideration because when this debate kicks off, the reality is going to get lost somewhere in the middle. One person might say it is going to cost €20 billion and another might say it will cost €10 billion, and some voters might then say they are not interested in voting for it whatsoever. That is the danger.

Professor Doyle stated Irish unity would be unlikely to lead to any debt transfer from Britain. What would that mean for the key economic metric of debt to GDP or GNI? Gross debt is currently 72% of GNI.

Professor John Doyle:

If we assume either that there will be no deal on pensions, in which case the issue of debt will not arise, or that whatever deal is done will not involve a debt transfer, given the UK might have other issues it brings to the table, we will inherit the North's GDP. I am struggling to recall what the proportion is. I think it is 20-something per cent, so there would be a reduction of something like 20% of 72% in the debt-to-GDP ratio. It would make our borrowing a little cheaper, although it is cheap at the moment and there is a limit on how great an advantage there would be. Certainly, the National Treasury Management Agency would find it easier to go to the markets if we were heading somewhere closer to 50% as a debt-to-GNI ratio.

John McGahon (Fine Gael)
Link to this: Individually | In context | Oireachtas source

Following on from that, is it the case our debt position would substantially improve in a united Ireland?

Professor John Doyle:

Yes, and that means borrowing something of the scale or €2.5 billion. Even if there were no deal on pensions, it is a possibility the UK would just walk away, although I do not think that is likely, and we would then be talking about borrowing something of the scale of €6 billion. Even then, however, it would not be an insurmountable level in a transition if we assume we would be investing in an economy for it to grow and not just leaving it to fester.

John McGahon (Fine Gael)
Link to this: Individually | In context | Oireachtas source

I spoke to Deputy Conway-Walsh earlier about this. From her calculations, she predicts that if Irish unity were to happen today, our debt-to-GNI ratio could go from 72% to 60%. That, again, is something that, when the debate comes around, would be another really good debate point or selling point to the Irish public in respect of how it would look.

Professor John Doyle:

Some things are certain. One thing that is certain is that no future Irish diplomat will leave the room agreeing to pay for both pensions and debt. There is zero likelihood of this. What we cannot predict is whether the British Government will completely renege on pensions. I think it is unlikely but it could. We would not agree to pay debt if that happened. If negotiations are tough, we might say we would take on €1 billion a year of debt allowing for asset transfers if the UK did the pensions. One of the reasons the UK would agree to do pensions is not only that it is a reputational issue, as it would be very damaging for it to walk away, but inevitably pensions decline every year if they are based on a historical legacy. People pass on. If it were only paying on the basis of the number of years a person may have contributed to a UK pension, it would be £3.8 billion in year one and 40 years later, it would be zero as sure as night follows day. However, if it agreed to contribute £4 billion a year as a legacy peace and reconciliation contribution, as any civil servant in the Department of Finance would say, it is very hard to get that £4 billion out of the budget. It would look terrible to abandon it the year before. I imagine Treasury officials would be very reluctant to commit an amount of money over which they have no political control in future. However, agreeing to pay pensions means it would disappear after a while. It would be much more palatable to Treasury officials.

Fergus O'Dowd (Louth, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank the witnesses for their contributions. It has been a very worthwhile discussion. They have given us a lot of food for thought and pointed a way for constructive proposals to put before the people by an Oireachtas committee when the time comes. I would like to have further clarity on the issues with Professor FitzGerald, not in a personal way but to try to tease out a constructive outcome from both proposals. This has been very helpful and I look forward to seeing the witnesses again.