Don’t cut Northern Ireland’s tax rate

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The Belfast Telegraph has covered my new report for the TUC and Irish Congress of Trade Unions “Pot of Gold or Fool’s Gold” which questions proposals to cut the corporation tax rate in Northern Ireland to 12.5%.

As they report:

Cutting corporation tax in Northern Ireland would not create jobs but a loophole for businesses to exploit, a trade union said today.

A new TUC report dismisses the argument that bringing down the rate to the same 12.5% as the Republic could encourage the conditions which promoted the Republic's successful Celtic Tiger economy of the 1990s.

Instead, the report Pot of Gold or Fool's Gold from the TUC and the Irish Congress of Trade Unions' Northern Ireland committee (ICTUNI) argues that cutting corporation tax would reduce government revenues.

It also claims that membership of the euro contributed more to the Republic's economic growth than its low tax rate.

TUC general secretary Brendan Barber said: "Our economy needs greater tax revenues to reduce the deficit, more investment to create jobs and growth, and a move away from the speculative boom that caused a global financial crash - and complete meltdown in Ireland's economy. Yet turning Northern Ireland into a tax haven would do exactly the opposite. The Government must stamp out this idea before it gains any more momentum."

The Northern Ireland Select Committee is considering the case for a cut in corporation tax following a pre-election promise by Secretary of State Owen Paterson.

ICTU deputy general secretary Peter Bunting said the report should "lay to rest" the argument in favour of lowering corporation tax. "It is now time for the business community, in partnership with Invest Northern Ireland, to agree that public finance in the form of aid to economic growth in the private sector should be premised upon growth in jobs and exports, the development of innovative products, and investment in research and development.

The unions also said a cut in tax would encourage 'brass plate' investment where companies registered in the province without actually moving staff here.

The Labour government rejected a plan to cut corporation tax after the 2007 Varney Review found it would lead to Northern Ireland losing £300m of subsidies and would displace companies from other parts of the UK.

The simple fact is that the Republic does not just compete on tax rate — it does in effect offer many companies a zero tax base so they pay nothing at all in the Republic. Which is a major reason for their current economic malaise. And unless Northern Ireland want to go the same way they’d be most unwise to follow.

Those promoting the alternative idea — that the rate be cut — include the Taxpayer’s Alliance, KPMG and local big business  - are of course either indifferent to government itself or are acting out of self interest for a particular section of society — the owners of capital. But this factional view is an inappropriate basis for determining tax policy — which has to be based on the interest of the community as a whole. And as experience in the Republic has convincingly proved, when the state recedes — as it would have to if this proposal were adopted — the private sector does not rush in to fill the void. It flees in the face of falling demand. As a result you might get smakller government — the Taxpayer’s Alliance’s sole interest — but you also get an impoverished society.

And that’s why their ideas lack any merit at all.

That, and the fact that there’s not a hope that they can be made to comply with EU law.