Sir, – Newton Emerson (Opinion & Analysis, May 30th), and Prof John Doyle of Dublin City University in his testimony last week to an Oireachtas committee, rightly say that our calculations of the budgetary cost of a united Ireland did not factor in that there would be a tax bounce in the North from paying harmonised higher welfare and public pay rates in Northern Ireland. However, the extra tax from welfare recipients would be modest, suggesting the average tax take would be very much lower than the 40 per cent assumed by Prof Doyle.
Neither did we factor in the deflationary impact on the public finances in the Republic from funding the major transfers involved. The Republic’s tax take would fall. The Department of Public Expenditure and Reform uses a rule of thumb that taxes of €1.3 billion need to be imposed to raise a net €1 billion in tax revenue, because raising taxes has a deflationary impact on the economy.
We expect that this tax loss in the Republic would be higher than any tax bounce in the North, which would add to, rather than lower, our estimates of the budgetary cost of unification.
This highlights one of the key caveats in our Institute of International and European Affairs study, that the wider macroeconomic impact of unification is far more complex than covered by the analysis of the direct budgetary effects. – Yours, etc,
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JOHN FitzGERALD,
Department of Economics,
Trinity College Dublin;
EDGAR MORGENROTH,
Business School,
Dublin City University,
Dublin 16.