Can the south afford a tax and spend north?

It seems the Republic is now the second wealthiest nation in the world. Previous urban myths amongst some in Northern Ireland had it that it was all based on hand outs from the EU. Not so. Indeed, as Newton Emerson points out in the Irish News article below, there have been some profound political shifts in the south. The mismatch with Northern Ireland’s spend and hang the consequences attitudes may be the biggest barrier to an eventual united Ireland:By Newton Emerson

The Department of Enterprise says that Northern Ireland’s economy is performing well – but Sinn Fein economy spokesman Mitchel McLaughlin is not impressed.

“The reality is that economic activity is dependent on the public sector,” he says. “Unemployment figures hide the fact that over 220,000 people are on sickness or incapacity benefits.” As a solution, Sinn Fein proposes a 10-year £10 billion ‘Peace Building Strategy’ to eradicate “regional socio and economic disparities.”

The pleasure of hearing a local politician discuss real issues is somewhat spoiled by the fact that Mr McLaughlin is talking out of his hat. Dependence on the public sector cannot be solved by adding another £1 billion a year to public sector spending. Sinn Fein’s ‘Peace Building Strategy’ would increase the NIO’s already-bloated budget by over 10 per cent, making the private sector even more reliant on government business and the unemployed even more reliant on government largesse. A better way to reduce dependence on the public sector would be to cut £1 billion off the NIO budget and return the savings to the public themselves.

In fairness to Mr McLaughlin, he is not alone in confusing this obvious point. There is hardly a politician in Northern Ireland who does not believe that handouts are a solution to economic woes – and there certainly isn’t a politician in Northern Ireland who openly believes that handouts are a cause of economic woes. The NIO is never going to put itself on a diet and far too many of our direct rule ministers are New Labour’s left-wing leftovers.

The present government has presided over an enormous expansion of our public sector, although the last government was no better and the next one may even be worse. After all, Gordon Brown’s idea of helping the poor is the ‘working families tax credit’ – the most expensive means ever devised of giving people back their own money. As a result of our long-standing charity case status, Northern Ireland is a post-Thatcher society with a pre-Thatcher economy. We got the handbag all right, but we never got the purse.

The pity of this is that shaving £1 billion off local public spending would be surprisingly painless. Hours of fun can be had playing fantasy finance minister at the NIO’s ‘Priorities and Budget’ website, where every needless imposition on the taxpayer is itemised in appalling detail.

For example, we could save £1,045 million a year by closing down Invest-NI, abolishing the dead and made-up language agencies, leaving youth and community relations to volunteers, sacking the human rights, equality and children’s commissioners, rationalising the existing number of excess school places, making students pay the full cost of their own Mickey Mouse degrees and halving the number of NIO departmental administrators. T

his would be enough to raise Northern Ireland’s income tax threshold from £4,895 to £12,276 – putting an extra £1,624 a year in every working person’s pocket, taking everyone on minimum wage out of tax altogether and completely eliminating the benefit trap without cutting benefits at all. Alternatively, if we wanted to encourage entrepreneurs more directly, the savings could be used to reduce corporation tax and retain full industrial de-rating.

Of course, such a goal is a complete non-starter in Northern Ireland – precisely because of the dependency to which Mr McLaughlin refers. Sinn Fein actually wants to raise taxes while no other local party can even be bothered to mention them. Britain won’t countenance separate fiscal arrangements within the UK and Europe has an active agenda of encouraging regional subsidies. But there is one place in these islands where the low-tax, small-state model is both healthy and popular. The Irish Republic is booming thanks to a decade of slashing back its public sector. Only the Progressive Democrats flaunt their Thatcherism openly but ruling partner Fianna Fail is happy enough to hide behind them.

Everyone in Dublin is a Tory these days – they merely differ in the extent to which they admit it. Nobody is in any doubt that low corporation tax, presently 12.5 per cent in the south compared to 30 per cent in the north, is the bed-rock of their prosperity. The Republic’s overall tax burden is just 31 per cent of national income compared to 42 per cent in the UK. So perhaps the solution to our public sector dependency is a vigorous dose of right-wing economic policies – and the best way to achieve that is on a cross-border basis. Alas, this isn’t quite the united Ireland that Mitchel McLaughlin has in mind.