We're Playing Roulette With Vital Public Funds

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15 June 2011

Calls by the business lobby to slash corporation tax are understandable.  But the Executive should resist being railroaded into becoming cheerleaders for the cut, says Brian Campfield.

 

THE debate on whether Northern Ireland would benefit from a reduction in the rate of corporation tax has been one-sided.

The virtual monopoly in the media for the proponents of a reduction in corporation tax raises questions about the objectivity and neutrality of the media in Northern Ireland and whether the public are well-served by what can only be described as a partisan approach in favour of the influential pro-business lobby.

The case against a reduction in corporation tax is well articulated but effectively sidelined.

The main critical analysis of the issue is contained in the publication Pot of Gold or Fools Gold, Richard Murphy’s report for the Irish Congress of Trade Unions.

More recently the Wilberforce Society – a body with no particular axe to grind – has publicised a report concurring with Murphy.

There has been no intellectual challenge from the pro-business lobby to these critical voices – except that the case for a reduction in this tax on business profits is now being nuanced to suggest that, while it may not now be characterised as a silver bullet for our economic ills, it is very much a necessary central plank in the ‘strategy’ to invigorate our local economy.

The main arguments against the pro-business case are worth highlighting.

Firstly, claims that the low rate of corporation tax in the Republic of Ireland produced the Celtic Tiger economy do not stand up. Debunking this myth hasn’t prevented the pro-business lobby continuing to peddle this falsehood.

Secondly, it has been clearly demonstrated that, even if the rate of corporation tax here was reduced to the same level as the Republic of Ireland’s 12.5%, there are a number of reasons why Northern Ireland still could not compete with the Republic.

The tax regime in the Republic provides a range of other fiscal arrangements, which mean that businesses can end up paying a lot less than the headline rate of 12.5%.

Other factors, such as the role of the International Financial Services Centre in Dublin, the availability of corporate secrecy, the Irish legislators’ willingness to turn a blind eye, rules on the taxation of dividends and of subsidiary companies, as well as membership of the Eurozone, provide greater clues to why international corporations prefer the Republic’s tax regime.

Thirdly, there is no guarantee that existing businesses will not just pocket the refund as extra profit, rather than invest in additional jobs. It is questionable whether new Foreign Direct Investment (FDI) will flow into Northern Ireland as a result, given the array of additional tax benefits available south of the border.

Fourthly, consultant PriceWaterhouseCoopers, in its analysis, highlights the result of a survey of businesses which places the rate of corporation tax as 17th in the list of drivers for attracting FDI.

While this evidence may conflict, to some extent, with the preference of transnational corporations for low-tax jurisdictions, it does raise a serious question which the pro-business lobby have failed to address.

The fifth point is that it is estimated that Northern Ireland will lose around £300m from its public expenditure to compensate for the lower tax on profit.

The former Chairperson of the CBI in Northern Ireland, when questioned by Lady Sylvia Hermon at the NI affairs committee, admitted that there were no guarantees that a reduction in corporation tax would create jobs.

We are playing roulette with public funds and hoping for a win.

The consensus among the main political parties in favour of a reduction in corporation tax is difficult to comprehend.  Sinn Fein – part of the Left Group in the European Parliament, which includes the Greek Communist Party – doesn’t seem prone to any embarrassment because of this contradiction.

The political logic of its policy on corporation tax would find them supporting a united Ireland at any cost; monarchist, neo liberal, anti-working people.

The harmonisation of corporation tax between the two jurisdictions may be regarded by Sinn Fein and the SDLP as a step on the road to a united Ireland, but it is hardly a step on the road to either social democracy or socialism.

Within unionism, the battle seems to have been won by those elements favouring a reduction in business tax. The scepticism expressed by the Finance Minister Sammy Wilson seems to have been eclipsed by the unashamed enthusiasm of Peter Robinson.  John Taylor (Lord Kilclooney) – one of the few business leaders to oppose the cut – has been publicly disowned by Mike Nesbitt of the Ulster Unionists. Only Lady Sylvia has publicly cautioned against the tax reduction.

If the UK Government does devolve tax reducing powers to the Assembly, then there must be a balanced debate about the real pros and cons, with critical analyses and examination taking precedence over the simplistic optimism of the main parties.

The calls by the business lobby for lowering the rate is understandable. Business prefers low taxes and light regulation and a market approach to the provision of public services.

But our politicians shouldn’t allow themselves to become cheerleaders for this lobby.


Brian Campfield is General Secretary of NIPSA.

 

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