Pressing on with the Corporation Tax campaign…

Interesting piece in the Irish Times business section today on George Quigley’s campaign to set a separate corporation tax rate. However, she thinks Northern Ireland’s long game of Peace Processing, may have worn compassion levels very thin (subs needed) where it counts. Still:

The campaign to cut corporation tax has been well marketed locally. The Industrial Task Force’s report, published this week, said that such a cut would mean 180,000 new jobs and £17.5 billion (€30 billion) in revenues – by the year 2030, that is.

Headline figures like these are attractive to politicians wading through the nitty-gritty of the package on offer from Mr Brown – a mixed bag made up mostly of commitments to public spending to 2011 and extending capital investment spending to 2017.

The low tax rate also been proven to work in the Republic. If the campaigners concede that cheap tax was not the only factor behind the economic boom south of the Border, there is still a widespread belief that it was one of the most important.

Besides, the alternative, according to Sir George, is stagnation. “If it [ a tax cut] doesn’t happen, we will simply go on, stuck at 20 per cent below the UK average, heavily dependent on the public purse with everybody telling us we’re not sustainable but not prepared to make us sustainable,” he says.

  • CONGRESS RESPONDS TO CORPORATION TAX REPORT

    Responding to the report on Corporation Tax by the Industrial Task Force, Peter Bunting, Assistant General Secretary of the Irish Congress of Trade Unions said:

    “There is a cosy and deluded consensus in the mantra that reducing corporation tax from 30% to the 12.5% will be the booster the economy of Northern Ireland needs. In fact, most private sector economic activity is carried out by companies that pay the reduced corporation rate of 19%. But still the belief in the magic bullet of slashing corporation tax is sustained by the voodoo chant that a similar stroke was the midwife of the Celtic Tiger. This has replaced the earlier mantra that the South’s economic success was solely due to EU pelf.

    This analysis conveniently ignores 20 years of social partnership agreements, the decades spent upskilling the workforce and the swinging of the Tiger’s tail by 1994 when corporation tax was a whopping 40%. The current 12.5% rate was only introduced three years ago. One eminently qualified witness who stated in 2004 that “you won’t have economic success solely by taxation” was Charlie McCreevy, who elsewhere noted that the Republic’s zero rate on exports between 1956 and 1980 did not generate any conspicuous economic success.

    Politically, it would be impossible for the Scottish Chancellor of the UK Exchequer and the Secretary of State for Northern Ireland and Wales to slash taxes in one part of the Kingdom and not in, say, Scotland and Wales. Further, a recent ruling by the European Court of Justice agreed that Portugal could apply differing rates of tax for economically deprived regions, but could not continue with economic subsidies.

    There are fewer than ten PLCs in NI, compared with over 400 in the Republic and 4,000 in GB. Ten firms account for over 50% of NI exports and the region has the second-lowest level of business formation in the UK. The issue is not that the public sector is too big, as is often and boringly asserted. The issue is that the private sector is too small.

    Instead, the Chancellor should employ tight criteria on the use of the economic package, in collaboration with the NI Executive, which the trade union movement fervently hope will be fully functional by spring 2007. The £18 billion for capital investment is the ideal starting-point. It could use this spending to target parts of the province that have woeful infrastructural deficits, especially in the west and the border region. At present, almost 80% of Foreign Direct Investment (FDI) goes to the greater Belfast region.

    Our low skills base ought to be improved by utilising the EU’s own guidelines on public procurement. One example would be that for each large capital programme, a quota of 50 apprentices with no educational qualifications for every 200 workers should be taken on and trained with skills that they can use for years afterwards.

    Smart grants should be used to encourage firms that are committed to high productivity, increased exports, innovative research and development and job creation, rather than the blunderbuss approach of tax meddling. Further, such grants would be under the control of the Assembly and Executive, rather than the UK Treasury.

    Clusters of SMEs should be encouraged, sharing market intelligence, R&D, Marketing, skills & technology development, sales and distribution, dealing with public agencies.

    We also need more democratic input, especially the return of the institutions of the Belfast Agreement. That £18 billion budget for capital investment from 2005-2017 is in the undemocratic clutches of the Strategic Investment Board.

    Fixing the wounded economy of Northern Ireland will take hard work and hard thinking. Slashing Corporation Tax isn’t even a sticking plaster.”

    ENDS

  • smcgiff

    NI is currently subsidised, effectively, by South England.

    In the short to medium term a reduction in NI’s CT rate by 58% will mean an increase in subsidisation. Further, it could mean an effective increased subsidisation into the long term.

    If NI has a CT advantage over the rest of the UK, it could attract investment from within the other constituent parts of the UK into NI. Effective subsidisation.

    Further, I think the granting of a differing CT rate to NI would greatly speed up the break up of the UK as we know it today.

    I don’t see it happening.

  • Brian Boru

    My bet is that Brown won’t agree to this. It would put mainland Britain at a disadvantage in terms of attracting investment. Shows what happens when you’re 2% in a parliament rather than 20% as it would be in a UI. Oh well. 😉

  • mnob

    Brian – if in the context of a UI, the ‘6 counties’ argued for a lower tax regime than the rest of the island – would the answer be any different (20% or not) ?

    smcgiff – you’re in dangerous territory here – i once argued that the ROI having a lower CT rate than Germany France and the UK meant they were subsidising the ROI – to the wrath of many posters here.

  • mnob

    … and John a predictable statement from a group which would be expected to support a tax and spend (or should I say redistribution of wealth using taxation).

  • inuit_goddess

    Mnob, what’s so wrong with redistributing wealth through taxation?

    We live in a society where 53% of households have a combined household income of under £15,000.

    That is no basis on which to build a sustainable economy for the future. Such stark economic division fatally undermines Social Cohesion, and detracts from the overall Quality of Life of all of us.

    Politics here must be about raising the lot of *everybody* in society, not just the lucky minority who have escaped the day-to-day struggle for survival experienced by over half our people.

  • inuit_goddess

    Also mnob, would you care to respond to any of the specific questions raised by ICTU, rather than just tar them as a bunch of lefties?

    Reducing corporation tax would basically mean taking >£400m away from our schools and hospitals, and giving it to the fat cats who run our low-wage call-centres and provide no-future McJobs.

    ICTU advocate Smart Business Grants to investors who are willing to actually build our economy, and provide decent jobs in economic sectors which have real growth potential.

    Forgive me, but I just don’t see the scary leftie agenda in that!

  • For once, I find myself agreeing (to an extent) with the Trades Union. The problem with business in NI is that it’s always easier to go begging to government for a handout than it is to get off your a*se and work to make your own business profitable.

    Invest NI needs to wake up and stop handing out low-paid jobs to companies who’ll move on to India as soon as NI becomes too expensive and start concentrating on developing local businesses run by local people.

  • JR

    One interesting point on this is that Eire will budget the country’s purse at 54 Billion Euro. The six counties currently cost about 5 Billion STG in subvention. With the year on year expansion of the Republic’s economy that amount is within the grasp economically of Eire being able to ‘afford’ the cost of running NI.

  • Crataegus

    For the NI economy to move forward you need to;

    1 Have access to finance and at rates that are competitive.
    2 Be able to utilise existing resources.
    3 Retain and build indigenous wealth.
    4 Train and develop a skilled workforce particularly in areas that you intend to develop.

    Grants are not the way to go as you require staff to administer and often merely cause distortions in the market. Why should there be grant aid for private landlords to upgrade flats when they can sell them off in 5 years? Why should there be Urban Regeneration Grants when the property sector is booming?

    One place that one may wish to look at for grant aid is in the area of business start ups and guarantees on loans. Many businesses simply don’t get off the ground because the owners do not have the access to the finance they need because they don’t have property to borrow against. Another area is training but in many sectors we simply do not have the trade structures in place to do this effectively. We need self regulating guilds for tradesmen so that you get rid of the untrained plasters etc.

    Also people continually say infrastructure improvement but we could spend and spend on this to no purpose. You need to have a clear objective and spend to achieve that objective. A third University in Enniskillen would do more to creating local employment than any road widening schemes.

    We also really do need to have a look at the likes of the Planning Service and other government agencies and ask are they delivering what we want, can this be done more efficiently, do we need this number of diverse agencies? At the minute we are building an industry around writing fairly meaningless reports. What ever happened to common sense or employing people with sufficient expertise to make decisions and recommendations? The culture of reports is either the culture of passing the buck or lack of knowledge.

    Corporation Tax reduction may encourage relocation to here, personally I would consider being in the Euro zone with its lower interest rates much more important. Both would help but it needs to be in the context of a packet of measures aimed to expand the private sector in NI. We need a competitive economy in particular we need to be competitive in relation to our immediate neighbours.

    Most importantly though business dislikes political instability and the necessary streamlining in the public sector will not happen without a clear political strategy.

  • smcgiff

    ‘smcgiff – you’re in dangerous territory here’

    Not a bit, mnob. The UK and the EU are two different political animals for starters. And the ROI has every right to be as competitive as it can be within the rules of the EU – currently tax is exempt from EU control. The EU is not a State like the UK, so not even moral compunction exists.

    Secondly, different rates for the ROI within the EU facilitates an ROI relationship within the EU, whereas the NI differential to the rest of the UK could have a separation effect on the UK.

    Green Apples & Oranges! 🙂

  • Yokel

    Screw the begging bowl. This place can have have a more dynamic economy if it got up of its arse and worked for it.

    It’s fucking tiresome.

  • kensei

    “Brian – if in the context of a UI, the ‘6 counties’ argued for a lower tax regime than the rest of the island – would the answer be any different (20% or not) ?”

    Well, assuming it isn’t banned by the EU, then having a significant electoral base in a Parliament not known for thumping majorities might have an influence, no?

  • mnob

    OK – Ill bite. The ICTU is saying that government should decide how business is to be helped.

    I cannot think of any organisation less equipped to empathise with or understand the needs of business. You simply have to look at the burden and overheads imposed on business in appling for the current grants to understand this. The current grants situation is stifling innovation and business startups because government cannot be seen to make mistakes or create failures – when new business models demand risk taking.

    As an example of this – they advocate encouraging business to locate outside of greater belfast. Government = supplier, business = customer in this instance – so the ICTU is advocating forcing business to do what they dont want to do. Any supplier igonring the needs and desires of their customer does not flourish.

    So there are 400 plcs in ROI, pop 3.5 million, 4000 in UK pop 60 million – notice something – the ratio is much higher in ROI than UK – could this be because of the progressive tax regime that the ICTU are arguing against ?

    Quite simply we are over governed – thats the problem nobody denies that we have too much vested in the public sector in NI – the ICTU dont seem to want to change this – on the contrary they seem to want to expand the public sector with the ‘peace windfall’.

    As for the arguments about ROI/EU and NI/UK with regards to subsidy – in response to your knee jerk “ah but thats different” can i respond with an equally twee “well you would say that wouldnt you”.

  • mnob

    kensei – the thing that amuses me the most about these types of discussions is that the underlying theme that a United Ireland would be anything but – i.e. there would still have to be a “Northern Ireland” in order for it to have a different tax regime.

  • kensei

    kensei: Well, assuming it isn’t banned by the EU, then having a significant electoral base in a Parliament not known for thumping majorities might have an influence, no?
    Same applies to any other 6 counties, though, doesn’t it? (How cynical do you want to play this one?)

  • Crataegus

    Mnob

    You simply have to look at the burden and overheads imposed on business in appling for the current grants to understand this.

    Good point, I have a theory that when you take all the applications that receive no grant aid and the hurdles you have to go through to get grants that more money and resources are spend on applying and administering than are actually given out. Also the constraints the grants place on you are often to your disadvantage. Setting up a business on the basis of grant aid is utter folly. Scrap the grant culture and concentrate on ways of reducing real obstacles that do exist.

  • inuit_goddess

    Well, I wouldn’t defend the current bureaucratic grants system at all. I do think however that targetting grants/tax relief at the sort of businesses we need to attract makes a lot of sense.

    One of the best ideas I’ve heard is that we set up something like a high-tech business campus – an area reserved for businesses in an attractive economic sector (high tech/IT) which would enjoy lower corporation tax rates – this would be akin to the early days of the IFSC in Dublin, and look how well that worked out for the south.

    The big problem with the “blunderbuss” approach of corp tax reduction for all is that it will just end up padding the bottom line of the fat cats running all our shite-jobs-with-no-future call centres and the like.

    We need to target our tax relief at the sort of companies we really need, who will provide decent paying jobs which will help provide a future for our young people – not least our graduates who are leaving NI in droves.

    Otherwise we’ll just end up stealing £400m a year from schools and hospitals merely to produce fatter fat cats and the same aul shite employment prospects.

  • mnob

    iniut – i wouldnt necessarily be against this it seems like a good idea. The result would still be to reduce burden on companies tho in a targeted way.

    I do have a problem with people thinking that businesses and the people who own them have no right to make money. Whats wrong with rewarding innovation, entrepreneurship and get up and go ?
    If the leaders of today arent rewarded then noone will want to be a leader of tomorrow – and instead opt for a cushy no risks civil service job.

  • inuit_goddess

    mnob – I do agree that good businesses and the people who run them have a right to make money.

    There’s nothing at all wrong with rewarding innovation and ‘get up and go’ – prosperous businesses, particularly SMEs, are at the heart of any socially cohesive society.

    It’s more a question more of what we should choose to reward – i.e. the choice between giving a tax break to a gutsy Belfast start-up training and employing local graduates or giving that same tax break to some American or Chinese billionaire making money off of cattle-farm call-centre businesses.

    I know what choice I’d make! And the NI assembly should get to make that choice – and decide what kinds of businesses we wish to encourage the most.

    But whatever tax break system we hit on it needs to be clearly defined, cost-effective to manage and easily understandable at the business end – i.e. not one which is wrapped up in mountains of bureaucratic obscurantism!

  • smcgiff

    ‘in response to your knee jerk “ah but thats different”‘ can i respond with an equally twee “well you would say that wouldnt you”.’

    Mnob,

    My response was neither knee jerk or twee. And it wasn’t disagreeing for disagreement sake. My argument stands – but I evidently can’t stop you from descending into a ‘I know you are, but what am I’ level of debate.

  • kensei

    “kensei – the thing that amuses me the most about these types of discussions is that the underlying theme that a United Ireland would be anything but – i.e. there would still have to be a “Northern Ireland” in order for it to have a different tax regime.”

    It’s a hypothetical and I think any tax breaks would be target far more locally than that. The point people are trying to get across is that aside from the fact that you would already have a low tax rate, you’d have a much bigger say in your government.

  • kensei

    “Same applies to any other 6 counties, though, doesn’t it? (How cynical do you want to play this one?)”

    Yes. I fail to see your point.

  • Fraggle

    “the thing that amuses me the most about these types of discussions is that the underlying theme that a United Ireland would be anything but – i.e. there would still have to be a “Northern Ireland” in order for it to have a different tax regime.”

    um…. isn’t the call for NI to have the SAME tax rate as in the republic?

    The idea that NI get a lower tax rate than the rest of the island was introduced as a red herring by you mnob.

  • John East Belfast

    This Trade Union response misses a lot of key points and gets others wrong.

    He is right about most companies already paying only 19% but this proposal is not about them. It is about substantial FDI to replace a bloated public sector.

    The bit about the ROI Rate only being its current level relatively recently is also true across the Board but Manuafacturing companies have had it at 10% for years. It was only put across the Board to circumvent the EU ruling.

    The bit about the private sector being too small is also true but with 4.5% unemployment then those new jobs are going to have to come from the Public sector

  • George

    I have a question for the trade union folk:

    To the best of my knowledge in the Irish Republic, companies aren’t required to recognise trade unions in the workplace while in Northern Ireland they are.

    Will you accept this?

    mnob,
    The Republic’s population is now 4.2 million not 3.5. It matters, the 8 million pre-Famine is the goal.

  • Crataegus

    George

    the 8 million pre-Famine is the goal

    Just curious but why?

  • Wee Ulsterman

    My right to organise in a trade union in my line of work is a fundamental human right to me.

    I for one will not accept any dimunition of that right.

    All this talk about a bloated public sector is missing the point – the public sector here is in line with that in the rest of the UK.

    Our challenge is to build up our paltry private sector, not to ‘replace’ the public sector – and for that Northern Ireland needs the skillsbase, needs a third university, needs for the cap on university places to be removed, needs incentives for the right companies to come and invest here.

    Its not just about the FDI – its about the quality of that FDI – good jobs or rubbish jobs, sustainable growth or fly-by-night cheap labour.