Northern Ireland fiscal deficit

Northern Ireland fiscal deficit from 1999 to 2018

Northern Ireland fiscal deficit (also known as a subvention^[1] or subsidy^[2]) is the portion of public expenditure in Northern Ireland not covered by local tax revenue, which is around £10 billion annually, more than one third of its budget. It is an obstacle to the proposed reunification of Ireland.

History

Until the Great Depression in the 1930s, Northern Ireland ran a surplus and was a net contributor to the UK exchequer. It has run a deficit every year since 1966; that year the deficit was £52 million (£973 million in 2014 pounds). In absolute terms the subsidy peaked in the 2009–10 fiscal year, when it stood at £11.5 billion in 2014 pounds.^[3]

Subsidy

Net fiscal balance by UK nation and region per capita, 2017–18

Nine of the twelve UK statistical regions (the exceptions are London, South East England and East of England) carry a deficit. At nearly £5,000 per capita, Northern Ireland's is the highest, followed by a £4,300 per capita fiscal deficit in Wales and £4,100 in North East England. Although the absolute size of Northern Ireland's deficit has fallen slightly from £9.7 billion in 2016–17 to £9.4 billion in 2018–19, proportional to the size of the economy, the deficit was higher during the 2018–19 fiscal year than any year from 1970 to 2000.^[4] The subsidy paid to Northern Ireland is larger than the £8.9 billion net each year that the United Kingdom paid to the European Union before Brexit.^[5][2] Liam Ó Ruairc described Northern Ireland as "dependent upon British financial subsidies".^[6]

In 2017, public spending on services was higher in Northern Ireland than any other country of the United Kingdom.^[7] In the 2020s, Northern Ireland's government will receive additional funding from the UK exchequer as part of the New Decade, New Approach agreement.^[4]

Opinion polls

According to the 2018 Future of England Survey, when asked about whether taxpayer money raised in England should be spent on services in Northern Ireland, 62% of the 666 respondents disagreed.^[8][2] In an editorial in the Irish Times, Paul Gillespie suggested that "Post-Brexit Britain may not want to pay for Northern Ireland".^[2]

Implications

Because of its smaller tax base, some experts from the Republic of Ireland say that the country could not make up the subsidy in the event of reunification of Ireland.^[9] A 2019 report by John Fitzgerald and Edgar Morgenroth, academics of the Trinity College Dublin, found that withdrawal of the subsidy would cause "calamitous unemployment and emigration".^[10] According to their analysis, if the Republic covered the subsidy it would lead to a five to 10 per cent decrease in the standard of living. They recommended reforms in Northern Ireland's economy to reduce the need for subsidy and preserve the possibility of reunification.^[10] Dublin economist David McWilliams disagreed; his finding was that reunification would only cost 4% of the Republic's GDP and "in pure budgetary terms, there is little doubt that the Republic’s economy could absorb the north".^[10] According to The Economist, covering half of the subsidy would cost 3% of the RoI GDP.^[11]

Ulster Unionist politician and economist Esmond Birnie suggested that the fiscal transfer creates moral hazard by relaxing constraints on spending and masking the effects of chronically low productivity and competitiveness.^[4] The Alliance Party of Northern Ireland also favours "Modernising and Re-balancing Our Economy" in order to reduce dependence on the subvention.^[3]

Some Irish nationalists claim that the deficit is "artificially inflated by statistical trickery", according to a 2020 article in The Economist.^[11]

References

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