Heads in the sand in Northern Ireland

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The Belfast Telegraph has a story today that says:

Another group of Northern Ireland business leaders has waded into the row over the proposed lowering of the corporation tax rate.

The Northern Ireland Economic Reform Group (NIERG) has refuted claims that the Republic of Ireland's low corporation tax regime "yielded very few real net jobs" and that Northern Ireland's adoption of the 12.5% rate would add nothing to the economy here.

The statement came after tax commentator Richard Murphy, who runs the website Tax Research UK, told the Belfast Telegraph that lowering the rate would simply be "a clever marketing tool" and that such a move would turn Northern Ireland into a "tax haven".

The UK rate is currently 28%. The NIERG said that the results of the policy pursued by the Republic of Ireland speak for themselves.

You would have thought that would be enough to end the argument! But they wade on none the less:

"Foreign direct investment has generated more jobs per head of population in the Republic than in any other country," the group said in a statement.

"At a time when global foreign direct investment flows were down 30%, the decline in the Republic was just 4%.

"There are nearly 150,000 jobs currently in the Republic that come from foreign direct investment.

"The evidence from the Republic of Ireland is irrefutable that the ability to adopt a low corporation tax rate would put a powerful new economic tool at Northern Ireland's disposal.

"It is vital that we equip ourselves with a proven means to boost economic growth."

The NIERG produced a report earlier this year which said lowering the tax rate could create up to 90,000 jobs over a 20-year period.

With apologies to the Belfast Telegraph for borrowing quite a lot of their story, but since they in turn quote most and attribute blame to me I hope I will be forgiven.

And the truth is that this logic is quite extraordinary. Ignore for a moment that I have explained why the experience of the Republic cannot be replicated in the North in my report for the TUC and Irish Congress of Trade Unions entitled “Pot of Gold or Fool’s Gold"?” and instead go behind these extraordinary claims.

First there is the assumption that the EU will agree to this change, and there is considerable doubt that it will. I have a track record on being right on such things.

Second, if the tax rate is cut the block grant to Northern Ireland will be cut by up to £300 million. As I’ve written before:

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 smaller government – the Taxpayer’s Alliance’s sole interest – but you also get an impoverished society.

Of course those proposing this change don’t care about that – they’ll make anyway.

Third though, note that all the evidence presented to the House of Commons on this issue was unrelated to jobs. They all said that jobs related boosts for the Northern Ireland economy were based on treating it as a cost centre – but they all said they wanted to make Northern Ireland a profit centre – a conduit for profit irrespective of jobs created in other words. That’s in ordinary language a tax haven and gives complete lie to their real objectives. It takes only a moment to realise how in truth this has hollowed out the economy of the Republic.

But worse, note the extraordinarily limited thinking on display. It is that of the rational economist which assumes that the future is entirely predictable on a probabilistic basis, that the past is a certain guide to the future and that uncertainty does not exist as a result. So, they argue, because for a while (and using selective evidence until 2008) a policy seemed to work in the Republic it is bound to work for Northern Ireland in the future. That, however, is not true. The world now is not what it was. An uncertain event happened. And therefore the past cannot predict what will happen – and most certainly Northern Ireland’s future cannot be predicted on the basis of the Republic's past – although the risk that the Republic’s present might be reproduced is clearly significant.

My conclusion? These are economists and accountants pursuing a policy in pursuit of their own aims based on outdated and inappropriate methodologies for thinking that is bound to be counter to the best interests of Northern Ireland as a whole. Northern Ireland would be very wise to give them a very wide berth.