The Irish Government’s 2011 budget proposal is hailed by many as the most severe in living memory and includes swathing cuts to social spending and the minimum wage, with devastating implications for social services, unemployment benefits, pensions and public employees.
The Republic of Ireland accounts for over 10% of sales by local manufacturing companies and 28.5% of exports. So how will the budget affect the North of Ireland?
New export business in the North (across all sectors) has been contracting continuously since January 2008 and firms have frequently cited lack of demand in the Republic - Northern Ireland's second most important trading partner after Great Britain - as a factor. There are fears that the Irish austerity measures will exacerbate an already serious situation.
Following the publication of the budget in December 2010, politicians in the North expressed concern over the risk of job losses in the banking sector following any consolidation of Irish banks by the Dublin government.
DUP Enterprise Minister Arlene Foster urged that protection for Northern Ireland interests should be written into any loan from the UK to help bail out the Republic of Ireland. The Minister said the decline in the Republic of Ireland economy affected business north of the Border and that Jobs have already been lost among Bank of Ireland staff in Northern Ireland.
Ministerial colleagues have also stressed the importance of not relocating jobs from Northern Ireland while ensuring that Irish-owned banks are encouraged to lend to businesses and consumers in the North.
There are more than 255 Republic of Ireland-based businesses which employ thousands of people in Northern Ireland, and their success both at home and further afield has helped boost the local economy.
Economist and Lecturer Mike Smyth is president of the economic and monetary union section of the EU’s European economic and social committee. He warns that the North is far from immune to the consequences of the “gut- wrenching austerity plan now being put in place in the Republic of Ireland economy”. Smyth recently told the Irish Times that as the North benefited during the years of the Celtic Tiger it will be hit hard by the end of the so-called Celtic Binge. He envisages jobs being lost in cross-Border contract work with lower labour mobility in both economies hitting jobs just as it did in the late 1980s.
Smyth is forthright on the implications of the Republic’s financial crisis for Northern Ireland. He cautions that practically all the recent developments on the policy front have been negative in the North. Consequently, this is a real cause for concern and should not be ignored. He concludes that Northern Ireland desperately needs both a change of direction and a rebalancing of its economy towards private investment and private sector growth.
On a more positive note, a spokesman for the Association of Chartered Certified Accountants advises that Northern Ireland will 'probably' feel positive effects from the austerity budget in Dublin. "Money often ignores boundaries, and as we move into 2011, competition with regard to inward investment by businesses will be an issue, for both the North and the South…An attractive tax regime, coupled with economic stability, will be central to this and, for this reason, Northern Ireland will probably benefit from the South's budget announcements."
While Ireland's Corporation Tax exemption for start-up companies is extended to 2011, a spokesman for ACCA said the tax regime taken as a whole in Northern Ireland was now more favourable than the South's, influencing business and spending decisions.
On 13 January 2011 Stormont Finance Minister Sammy Wilson held discussions with Brian Lenihan, the Irish Republic's Finance Minister, to discuss issues of mutual interest including the financial situation in Ireland and its knock-on effect in the North.
The National Assets Management Agency (NAMA), the organisation set up to manage so-called 'toxic assets', was discussed and Mr Wilson said "Mr Lenihan had previously assured me there would be no 'fire sale' of Northern Ireland-based assets.”
The main focus was on general issues within the banking sector and, speaking after the meeting, Sammy Wilson underlined the relevance of events in Dublin to Northern Ireland's economy and emphasised the impact decisions in Dublin would have in Northern Ireland; in particular, the Irish Government’s efforts to restructure their banking sector. "In this way we can ensure that the restructuring of the Irish economy does not have an immediate, adverse impact on our own."
Cross-Border Mobility – New Emerging Issues
In an 11th Plenary Meeting Communique, the NSMC noted that the Joint Secretariat has identified a number of potential new/emerging cross border mobility issues and that the Joint Secretariat will examine these issues in greater depth, in consultation with relevant Departments, agencies and other relevant bodies. A progress report will be presented to the next NSMC Institutional meeting.