It’s economic unification stupid…

David McWilliams reckons there’s a decent quid pro quo in economic unification of the northern and southern polities, and that the Republic should begin including Northern Ireland’s overall higher quality of infrastructure and consequent general living standards in its pitch, and petition for Westminster to allow Northern Ireland to have it’s own Corporation Tax concessions to encourage inward investment. Northern Ireland for its part would have to face a stringent sliming regime for it’s over nourished and largely inward looking public sector.

  • Unfortunately David McWilliams undermines his argument by not providing the sources for his figures.. and, even more so, by misrepresenting the figures relating to public sector employment in NI.

    In the article he claims – “Finally, because the public service accounts for almost half of all employees in the North, as opposed to 18 per cent here, there is less dynamism and innovation in the workforce, and arguably a lack of risk-taking, which itself affects the overall feeling of economic sterility.”

    Interesting that he doesn’t give an actual percentage for those public sector employees in NI.. because the rough calculations I did, here on Slugger recently, gave a figure of 27.5% – Some employment statistics – far below his claim of “almost half of all employees”

    Another source records the figure at 30% – which is still well short of his claim – and, rather than comparing it to the 18% in the Republic, provides a, likely, better comparison in the figures for Scotland, 24%, or Wales, 23%.

    Ah well.. at least he got a plug for his book.

  • mnob

    … and having our own lower rate of corporation tax would mean an indirect subsidy, as well as introducing a taxation scheme seperate to the rest of the UKs and the ROIs meaning *more* public sector employees to administer it and greater complexity for the private sector.

  • Fraggle

    This article goes some way to dispelling the, “the republic can’t afford us” argument against unity. We are exactly what the republic needs at the moment. The affordability argument is based on the absurd notion that northern ireland would remain as useless and costly as it presently is in a united ireland.

    Sure, people can pick at the figures but we all know that the public sector here is bloated.

    mnob, a tax break is not necessarily a subsidy. Tax breaks can induce economic growth, leading to increases in employment and an increase in the amount of tax paid IN REAL TERMS.

    “greater complexity for the private sector”

    lol. yeah, I can see some business owner saying,”no no, I’ll not halve my tax bill because it’s too much hassle to sort out the tax rates”.

    Cmon, heads out of the sand please.

  • Crataegus

    Peteb

    I imagine that David McWilliams was adding those in the private sector who supply services and goods to the public sector, though if so he should compare like with like.

    I think your figures give a clearer comparison. There are not the masses of jobs in the public sector to cut that many seem to believe, but if we were able to move say 5% from public to private employment the difference this would make to the outlook would be considerable.

    If we can grow our economy we will suck in ever increasing numbers of immigrants, which I would welcome, but we would need to plan for the likely housing and infra structure requirements now. If more land is not released for housing and if we do not increase development density in the heart of urban areas we will have a housing shortage and spiralling house prices. Eventually high property prices will act as a brake in the Southern Economy as it is inflationary. We could also learn from the South and try to ensure a more even development across the 6 counties, but to do that would need a radical, tax, planning, and development structure and a united will to succeed. I don’t see any sign of any of these at present.

    I would like to see an administration here able to set tax levels that are competitive and let’s face it there is nothing particularly clever about the South’s economic growth, and in that context we may be better as part of the UK economy that sucks in employment from the over developed South East of England than thinking solely of this island. A buoyant economy here would in the long run reduce subsidy from the UK.

    Another factor not mentioned in the article has been the Euro and the lower interest rates in the Euro zone. Sterling has set businesses here at a distinct disadvantage. It is an overhead we don’t need.

  • mnob

    Fraggle,

    In this instance the break is exactly that, a subsidy to induce industry to set up in NI. I cant see how you can argue against that.

    If lower corporation tax was really an engine for growth, then why haven’t Germany, France and the UK tried it ? The answer is that it is a good method for attracting industry that would locate elsewhere in Europe. The main reason for introducing it in NI would be to level the playing field with the Republic. For example a well known North American computer manufacturer makes a loss in its NAmerican susiduary but a huge profit in its screwdriver outfit in Dublin, and as a result pays (lower) taxes in Ireland but not in North America. In the grand scheme of things this is tax theft not generation. The reason the rest of Europe tolerates it in the Republic , is because the alternative would be direct subsidy.

    Also, I never said Industry wouldnt go for it – but it would make it less efficient by becoming experts in moving tax liability from Coventry to Belfast and not in making widgets or whatever else its core business is.

    Crataegus, there is plently of development land all over Northern Ireland within the existing developed areas. The reason this hasnt been exploited and why we have the least dense cities in Europe is precisely because too *much* green field land has been released.

  • mnob

    Crataegus,

    I would say the opposite. The ROIs economy is overheated and needs to be cooled. It cant because Germany & France are in recession and their economies need to be heated, and because they are tied to the Euro and Euro interest rates.

    The pound allows the UK economy to be more precisely controlled and helps the UK economy. Just look at the relative strengths of the European economies and you will see that.

  • Brian Boru

    But peteb, the 30% is misleading and does not take into account the wider economic impact of the public-sector – which is larger than the public-sector itself. The Northern economy is dependent on the public-sector in the sense that most economic activity either comes from the public-sector directly, or indirectly through companies that are ancillary to the public-sector. At the end of the day then the Northern economy has limited growth because it is based on Northerners buying and selling from each other. Like the Republic, the North will have to change focus and concentrate on massive foreign markets if it is to experience the growth rates the South has in recent years. As recently pointed out on an episode of the RTE series “A Nation Once Again”, the idea of multinational investment in the North is the opening of a supermarket, whereas in the South it is the opening of a factory. A reduction in the size of the public-sector was a necessary prelude to economic growth in the South and it is also in the North in the long term. We should increase cross-border trade for a start. But on the question of the UK govt granting the North equivalent Corporation-tax rates to the South, I don’t see it happening because those English/Scottish/Welsh politicians would have a hard job explaining to their constituents why they are giving NI an advantage in attracting multinationals compared to England/Scotland/Wales. I guess while partition continues the North is doomed to be at a disadvantage economically to the South, especially in terms of wages which are far lower than in the South.

  • Brian Boru

    Mnob, your perspective on corporation-tax is one I find quite bizarre. The other EU states do not have the power to force us in the Republic to do away with our preferential tax-rates so it is not a question of them “tolerating” it.

    “Also, I never said Industry wouldnt go for it – but it would make it less efficient by becoming experts in moving tax liability from Coventry to Belfast and not in making widgets or whatever else its core business is.”

    I find that argument quite strange too. Are you saying higher taxes are better for business? That is indeed a very peculiar point of view I think I can safely surmise.

    “I would say the opposite. The ROIs economy is overheated and needs to be cooled. It cant because Germany & France are in recession and their economies need to be heated, and because they are tied to the Euro and Euro interest rates.

    The pound allows the UK economy to be more precisely controlled and helps the UK economy. Just look at the relative strengths of the European economies and you will see that.”

    First of all, recession is defined as 2 consecutive quarters of negative growth. That hasn’t happened in France or Germany for a good while. I also reject your assertion that our economy is overheating. Inflation is 2.3%, unemployment is 4.3%, and interest rates are around 2.75%. The Bank of England’s inflation target is 2.5% so if we are lower than that I’d hardly say we are overheating.

    And the Irish economy is not alone is performing strongly within the Eurozone. So too are Luxembourg (unemployment 4.9%) and Austria (5%). The problems in the German and French economy have nothing to do with the Eurozone – I recall John Major as PM ranting about the higher unemployment in Germany and France when he was PM – 2 years before the advent of the Euro. The problems are based on internal structural problems, including:

    A: Incredibly generous social-welfare systems (you get 75% of what you earned when in previous employment) which act as a powerful disincentive to work.

    B: High taxes which were higher before the Eurozone.

    C: Rigid labour laws that make it very difficult to fire, and thus act as a disincentive for businesses to increase their workforce.

    D: Militant trade-unions in France.

    None of the above have anything to do with the Euro and with all due respect I think you are just being Europhobic and Southernphobic.

  • mnob

    It is a case of the EU states tolerating it. To compete they could lower their corporation taxes as well. They choose not to.

    I didnt say higher taxes were better for business – I said that introducing even more complexity into the taxation systems is not good for business.

    As for the relative strengths of the Eurozone, I still reserve the right to disagree 🙂

    I apologise if I come across as Southernphobic. I perceive the context for these discussions to be ‘the Souths economy is great, the Norths is a basket case therefore there should be unification’ – I should try not to pitch in with an equal and opposite reaction (especially to a perceived action).

  • smcgiff

    mnob,

    ‘It is a case of the EU states tolerating it.’

    How could they not but tolerate it seeing as it’s got nothing to do with them. Of course you lose all credibility by making a remark such as… ‘To compete they could lower their corporation taxes as well.‘ Not that I’d have thought that I’d need to point this out, but that’s a gross oversimplification of the economic forces in Europe. One could also say, that the EU could raise taxes to 100% so as to ruin the EU economy and give the African countries a better chance to compete.

    Admit it, your comment is the punch line to some joke you’ve forgotten.

  • Crataegus

    Mnob

    I agree in part with what you say about the low corporation tax and how the southern boom is in part fuelled by tax manoeuvring by large corporations, but it is only part of the picture.

    The argument about economies being out of sync is fallacious. Are the regions in the UK in sync with the SE of England. It all depends where you draw the line. If we follow the logic of your argument we would have a local currency for North and West Belfast, the Shankill Mark and the Falls Doubloon.

    There are other ways to take the heat out of an economy other than playing around with interest rates, but that requires a government to govern. It could increase tax and pay off debt or put money aside for investment. Tax is better than interest rates as it hits those able to pay whereas interest rates hit those most heavily in debt or those borrowing to invest.

    With regards there being too much land already for development and that that has resulted in low density I would disagree. The picture is more complex as land ownership and political instability are contributing factors. Another reason for the low density is the restraints placed on the development by the planning service. No zero parking developments in the town centre here. No planning at aid public transport, instead what we have are endless out of town developments with oceans of carparking, housing with requirements for 4 plus parking places per dwelling etc etc. It is up to the planning service to decide its criteria and set minimum development densities.

    The anomalies created by the political situation have created over priced South Belfast, Castlereagh and North Down compared to all those inner city locations that no one wants to invest in. Shankill, York Road, Crumlin Road, Albertbridge Road. The Housing densities (mostly NIHE) in inner parts of Belfast are a disgrace. We need a few decades of very high density inner city developments with multi storey (not surface) car parking to redress the imbalance.

    In a way I would agree with you regarding making better use of the land currently available, the silly corners left over after a road development etc. but this will not radically increase the number homes suitable for families. It would also surprise you how much of the undeveloped urban land is owned by government agencies.

    It would be advantageous for the government to employ someone, with development skills, to look at all the land it owns and start a policy of selling it off and I don’t mean the large government offices but the silly parcels that are unused. Have a look at the Dunbar Link and the corners left after the road was built and you will see what I mean. Multiply this up over NI and it is worth billions.

  • mnob

    Crataegus, the DRD did a survey 5 years ago which showed that there is enough development land within the existing urban areas to provide adequate housing growth for the next 25 years.

    I stand by my comments about corporation tax in the South. How can I lose credibility by saying that other EU states could lower their corporation tax ? – remember the whole thesis of the starting point of this discussion was that NI should unify its economy with ROI and the resultant reduction in corporation tax would fuel growth. I ask again – if this fuels real growth and is not simply a way of accessing taxes which would have gone elsewhere, then why havent the other EU states tried it ?

    Thats the central question I asked which has not been answered in the snowstorm response.

    In the real world if your competitor reduces their prices and this starts affecting your sales you reduce yours. Why havent the other EU states done this ? It could be that alittle growth for the ROI is tiny in comparison to the main EU economies.

    I aslo never said that most of the EU has deliberately higher corporation taxes than ROI just that the ROI has deliberatley lower corporation taxes than most of the rest of the EU.

    The reason that the UK doesnt have regional currencies is that it has been united economically for hundreds of years. The EU economies are being forced into sync in a lot less time than that.

    This boils down to us having a different perception on the reasons for economic growth in the south. The argument has to be simple because its a blog – my arguments are no less simplified than the arguments of those who say that reducing the corporation tax in NI would reduce our reliance on the public purse.

  • Ringo

    MNOB

    I ask again – if this fuels real growth and is not simply a way of accessing taxes which would have gone elsewhere, then why havent the other EU states tried it ?

    A bit like asking why BA don’t adopt a low cost carrier model. Because the like of France and Germany etc can’t afford to cut their corporation taxes to the level that is sustainable in Ireland. Would you use the same logic to suggest that there has been no growth in the airline industry since the arrival of low cost carriers? Or that the Chinese manufacturers are merely making the exact same amount of stuff that would have been manufactured in higher labour cost countries?

    I don’t have a political angle on this – it doesn’t really bother me what the tax rate in the north is – but I can’t help thinking that the a much more dynamic economy in NI would benefit us down here, how ever it is achieved. As long as the Google’s and Microsoft’s of this world set up their biggest operation outside the US and the European headquarters respectively, it is clear that the attractiveness of the Republic as a base for high end business is not as a damp version of the Cayman’s. The scale of the operations in terms of infrastructural investment and personnel make a mockery of that.

    Another indicator of the reality of the strength of the economy is the outward investment. Investment of Irish companies in the US in 2004 totalled over $20bn. (Put in perspective, the total inward investment in NI is about 10% of this). 90,000 people are employed by US firms in Ireland, 55,000 Americans are employed by Irish firms in the US. Hardly what you’d expect to see if it was as simple case of tax theft.

    I apologise if I come across as Southernphobic. I perceive the context for these discussions to be ‘the Souths economy is great, the Norths is a basket case therefore there should be unification’

    A more coherent argument would be ‘the Souths economy is great and the Norths is even better, therefore there should be unification’.

  • Crataegus

    Mnob

    I don’t disagree with you about corporation tax if other major countries reduced to equivalent levels the amount of new business start ups in the south would rapidly reduce. But that was not the only reason for the economic upturn.

    I speak as someone in business and we have had almost 20 years with higher tax rates, higher interest rates, and costs of currency exchange compared to southern competitors. Sterling is a direct cost to my business, it is not an asset. Over 20 years these costs combine to make a massive difference. In addition there seems to be a culture here hell bent on increasing business costs, I mention the recent changes in the rating system as an example and if there is a social problem here we off load it onto business if we can. I am sure you would agree our structures have become uncompetitive.

    However I do not necessarily believe that the way forward is to slavishly run around trying to compete with Latvia for inward international investment, but we do need to address the competitive disadvantage. Why would anyone invest here?

    With regards the DRD survey I say they are wrong, simply look at how land values are rising. A lot depends on ownership and availability and there are large areas of Belfast where no one in their right mind would invest until (mainly protestant) criminal elements are properly addressed. We are heading for a serious housing shortage.

    By the way there is a cogent argument that the boom in the south was started by loose planning constraints. Building sites and development land generated billions into the economy and that this pre dated and kick started economic growth.

  • smcgiff

    Who’ll be the first to suggest that the Republic’s high productivity rate facilitates the theft of US jobs?

    Any takers?

  • mnob

    So you are saying that France and Germany cant afford to adopt the ‘low cost’ model, but NI can despite the fact that the starting point for this discussion was that NI was too reliant on public funds.

    Crataegus, if there really was a shortage of development land then people would live anywhere. The ‘cost’ of housing (i.e servicing an average mortgage with an average income) is a quarter what it was 25 years ago. (Not a quarter more – but a quarter).

    One of the residents groups I am involved with did a survey in East Belfast asking people who were moving out why they were moving. They mainly answered that it was a lack of availability of suitable housing in their area and not a desire to move away. (Sorry dont have the exact figures to hand)

  • Ringo

    So you are saying that France and Germany cant afford to adopt the ‘low cost’ model, but NI can despite the fact that the starting point for this discussion was that NI was too reliant on public funds.

    I didn’t say anything about NI being able or not being able to have a low lost model for anything. I would actually prefer if NI adopted a different strategy from the Republic to maximise the benefit to both states, by attracting different but complementary investment to both economies – but it would seem a lot less risky to just adopt some of the features that have quite evidently worked in the closest ‘foreign’ economy in social, economic and geographic terms.

    The cost to the UK exchequer from dropping the corporation tax levels in NI, relative to the cost of cutting corporation tax in across the board in the worlds biggest exporting economy is miniscule. I don’t see it happening because bigger regions in the Britain would also demand a tailor-made tax regime – and that would be very hard to manage.

  • Crataegus

    The cost of servicing mortgages is based on historically low interest rates not the actual cost of purchase. We are living in a fools paradise if we are relying on low interest rates to provide affordable homes.

    I don’t accept your premise that if there is land shortage people will live anywhere what they do is bid up the price in areas they prefer. Look at the difference in house prices between say the Village or Shankill and other parts. The difference is several hundred percent!!!!

    I agree in part that there is a lack of suitable housing in many of these areas but this is due to lack of willingness to risk investment. Ever had direct involvement with building in say the Shankill??? I have and I am not repeating the mistake. With regards housing shortage we need to be planning 10-20 years out and I am off the opinion we have problems.

    Anyway way off the subject of the thread.

  • mnob

    I never said the prices were based on sense !

    We have historically low interest rates so people can afford to pay more for housing, hence the healdine prices go up. You suggested that price rises suggested a lack of supply, I’m saying that actually what people pay is falling suggesting an excess of supply.

    Part of your difficulty on the Shankhill may have been caused by the policy you propose. The last time credible brown land development took place, large swathes of the green fields in the suburbs were released for development, dropping prices all round and ruining a few business plans. It also accelerated the ‘white flight’ to the suburbs leaving the inner city to those who couldnt or wouldnt leave and increasing deprivation and its associated problems.

    A lot of (Dublin based I believe) businessmen have actually made a killing buying houses in sh*tty areas on the grounds that the prices couldn’t drop any lower ! I will agree, its not for the faint hearted though and I’m sure those areas have interesting difficulties.

    Yes there are differences in prices between houses in Belfast but *every* city has its sh*tty parts and its posh bits.

    Anyway I dont mind the change of topic, it takes the heat of everyone else vs me on the relative merits of the Irish economy(ies ?)

    🙂

  • Crataegus

    Mnob

    “Part of your difficulty on the Shankhill may have been caused by the policy you propose.”

    Wasn’t exactly the Shankill but very similar. Guys with guns looking for protection money has nothing to do with any policy of mine. Anyway was an existing building so simply stopped work and bricked the place up. You couldn’t expect anyone to work in that sort of condition. Makes nonsense of Health and Safety legislation. This type of incident doesn’t happen in say Nationalist Ardoyne and I am not from that community!!

    There is money to be made in Loyalist areas, but it is not a place to invest money you can’t afford to loose. I would love to see these areas vibrant again. It is necessary for the long term vitality of Belfast but you can’t run a business in an area controlled by paramilitary organisations.

    The change of topic beats being patronised and enduring lectures of how wonderful a united Irish economy would be. I don’t believe that we necessarily have to follow an identical path to the South, but there are lessons to learn and we really do need to be shrewder and set up structures that make us more efficient and competitive. We also have to accept reality, we are different from Birmingham and unlike the rest of Britain we have a land border with the Euro Zone and are in direct competition with a neighbour who has a competitive advantage. That said we have good infra structure, and other advantages which could benefit efficiency, but what you have to ask is why are people not investing here?

  • Brian Boru

    Crataegus, while you are right about what needs to be done, the Unionists are more concerned with avoiding any – including commercial – links with the South than their economic-wellbeing. It is a form of economic isolationism and while everyone else can see how silly it is, they are just set in their ways and will only start to change them when the Brits cut the subsidy exposing the true state of the Northern private-sector. Meanwhile incomes will continue to fall behind the South. I am glad in the South we don’t have these kinds of hangups with wanting to avoid links to other countries despite our economic interests. Had we, then we would not be where we are now.

  • Crataegus

    Brian B0ru

    Anyone who ignores reality is a fool. You can accept the South is there, and co-operate to mutual advantage without coupling.

    I think the Unionist problem is they actually need to assert themselves and set a positive, self confident, outward looking agenda. They don’t need to be apologetic to anyone. Better leadership would help.

  • mnob

    I have to agree with the last three comments. Perhaps if the argument was framed in terms of the fact that we have the opportunity to shape our own destiny and think about how taxation, public authorities and even the way business is structured rather than slavishly follow the south then the responses might be more positive.

    I dont deny we have things to learn from the ROI.

    We unionists are attached to Northern Ireland, and feel responsiblity for it. The starting point for the most recent discussions seem to be either smug southerners telling us how well they are doing so we should fall in line, or republicans who tell us how badly we have done running our affairs so resistance is futile and we may as well accept a united Ireland.

    Starting with an (even perceived) insult doesn help the discussion.

    Remember, the south took over 70 years to get its act together. We have had a relatively short period of time of peace and stability.

    At this stage the fact that NIs economy even functions is a miracle.

  • Crataegus

    Mnob

    “At this stage the fact that NIs economy even functions is a miracle.”

    I agree imagine London or Dublin had suffered 30years of bombing. What state would their economy be in?

    Generally I agree with you. I think what we are witnessing is a kind of Nationalist OVER enthusiasm which is understandable, but perhaps unintentionally comes across as a form of triumphalism. I don’t think they realise quiet how patronising it can seem, and there are a lot of assumptions that could be a sounder if a bit more self critical. It’s counter productive for they alienate and what worries me is Unionist withdrawal. This place is never going to move forward unless Unionists are fully on board.

  • Biffo

    mnob & crataegus

    What’s happening here is that people down south are sounding smug and feeling superior when comparing themselves to us notherners.

    It’s ironic because this is exactly how unionists have sounded for most of past 84 years since 1921 in relation to the former banana republic down south.

    It would have been inconcievable to Unionists even just 10 years ago that the south could be more prosperous than the north.

    I used to think that a mis-placed sense of superiority was a particularly unionist trait. I might have been wrong. It might just be human nature when you perceive yourself to be better off than your neighbours.

    These southerners may be genuinely smug. Either that or they are indulging in a bit of verbal revenge for years of similar unionist bullshit.

    “At this stage the fact that NIs economy even functions is a miracle.”

    That’s a bit preposterous and sounds like you’re making excuses, like we just survived armageddon.

    Don’t forget that violence in Northern Ireland had a neagtive impact on the rest of Ireland in foreign perception

    Northern Ireland’s economy was shit before the troubles began, but it was a bit better than that in the south, it continued to be marginally better than the south during the troubles. And never mind the bombs, infrastructure put in place in the North during the troubles was way ahead of the south.

    There have been a couple of good editorials in the Irish Times since the new year warning people down south not to be complacent about the economy and not to think that they are invincible.

    The jist is that current economic activity down south is over-concentrated on construction and property which isn’t sustainable in the long-term, while other sectors are becoming increasingly uncompetitive.

    I think the lesson is – quit being smug (even while you are ahead), as unionist formerly were and southerners now are, it makes you sound like an asshole.

  • Crataegus

    Biffo

    Fully agree with what you say about smugness, Unionists and all that, and pride comes before fall. I also agree on the point regarding the property bubble in the south. Japan is only now recovering from a deep recession caused by its own peculiar mix that included spiralling investment in property. Property bubbles and consequential re mortgaging based and securing loans on inflated values is extremely dangerous.

    With regards endless violence and the economy here we will agree to differ on that one. Yes the economy here in the 60s wasn’t brilliant, but it will take years to undo the damage of the last 30 years Take a drive around Tigers Bay and just count the number of derelict buildings. Years of work to put it right, then remember years of under investment in sewerage treatment, water provision etc. Then there were the millions squandered trying to attract all sorts of dodgy inward investment. Even if the drag factor was only 2% per annum over 30 years that really mounts up.

    If only we could all put our differences to the side and get on with building this place up there would be great opportunities for everyone.