On the conflicting uses of tax varying powers…

Somewhere in our A Long Peace? document we argued that “there should be as close a connection as possible between representation, taxation, and the delivery of services.” It’s one hallmark of strong links between government and its electorate. Interestingly, Jennifer McCann initiated a private members debate on Monday which proposed: “That this Assembly supports the transfer of tax varying powers to the Executive, along with the establishment of an Executive borrowing facility.” One of the most interesting aspects (apart from noting that RRI – the reinvestment and reform Initiative – already offers the Executive a route to cheap public borrowing) was Robinson’s observation that such powers could be used in a number of conflicting ways:

I am not clear what the true intention behind the call for tax-varying powers is, or whether there is any agreement on it. As I see it, broadly speaking, there are four alternatives. The Member for North Down Peter Weir mentioned two of them.

First, if the purpose for having tax-varying powers is to increase tax, Members must recognise that. Increasing direct taxation would further undermine the region’s competitiveness. At a time when we are making economic growth a key priority for the Assembly, it would be wrong to increase the burden on the workforce.

During discussions before I came to the Chamber, I had decided not to mention the details of the Laffer curve, because I was sure that no one would mention it in the Assembly, but it seems to be the centre of our debate. [Laughter.]

However, we must take into account the fact that, in the most narrow terms, if one were to increase the tax on anyone in the workforce in Northern Ireland, the automatic response would be that they would seek an increase in wages to make up for the loss that they have borne in taxation. One needs only to look at the repercussive effects of that, particularly in the public sector, and the reduction there would, therefore, be in spend and resources.

Secondly, however, if the purpose is to reduce taxation, it would almost certainly have to be self-financed by the Executive, if my reading of the recent Azores case is correct. It would also be, at best, unlikely, in circumstances where there is a fiscal deficit of around £7 billion a year, that the UK Government would pay for extra tax cuts for Northern Ireland alone. I regard higher taxes in Northern Ireland than in other parts of the United Kingdom as politically unacceptable, and lower taxes, when we already have a £7 billion fiscal deficit each year, as unrealistic.

Thirdly, we may wish to have tax-varying powers without ever actually deciding to use them. That is not a cost-free option either.

The Administration in Scotland pay approximately £8 million a year to keep the necessary systems in place to allow the option to be used. However, it will cost them about £10 million to activate those systems, and that is money that could be spent on front-line services.

The fourth option is for a local Executive to use the tax-varying powers to replace the regional rate. I suspect that that is the main thrust of the Alliance Party’s argument. However, the impact of increasing income tax and reducing property taxes would be the expectation that those who are in work will pay for those who are not. Although we may not always approve of the details of UK-wide fiscal policy, Northern Ireland benefits enormously from being part of the United Kingdom.

By the end he notes:

We are operating within a complex public expenditure framework, and unfavourable consequences are often associated with what might seem a simplistic policy action. As well as my concerns about the principle behind tax-varying powers, I do not believe that the timing is right. It is prudent to await the outcome of certain exercises, such as the rating review, before considering a motion as complex as this. If the motion is pushed to the vote — and I hope that it will not be — I will oppose it for those reasons. I urge Members to do the same.

  • nmc

    As bedgrudgingly as possible, Peter seems to be one of the very, very few people in Stormont who are doing a reasonable job of looking like a politician.

    Quick question, who among them all, if any is making you cringe the most? After this morning’s Newsline I’m going with Ruane.

  • kensei

    It’s nonsense. There are a number of arguments that could be made with regard to either increasing or decreasing taxation here to have positive consequences. There are also additional options. If tax varying powers extend to allowing variance in each band, then it is possible to rebalance the taxation system to be fairer while remaining broadly revenue neutral.

    What serious government states that actually, it doesn’t need power over taxation? Even from a Conservative viewpoint, one could argue that having a tier of government that spends but does not raise funds is an aberration.

    No. This is simply because the DUP, like the Labour Party in Scotland, won’t support fiscal autonomy because it threatens their Unionist instincts. They should at least be honest about it.

    Also:

    “Although we may not always approve of the details of UK-wide fiscal policy, Northern Ireland benefits enormously from being part of the United Kingdom.”

    Wow, I smell to have caught the whiff of some steaming hypocrisy. This from a man and party currently campaigning to be exempted from the Corporation tax rate.

  • Jeremy

    Brian Taylor who does a pretty good blog on Scottish Politics for the BBC deals with the same problem for Scotland: while the power is there to marginally raise and lower taxes its not regarded as expedient to do. Their lesson would seem to be limited tax powers are pointless.

    http://www.bbc.co.uk/blogs/thereporters/briantaylor/2007/09/taxing_questions.html

  • IJP

    They should at least be honest about it.

    100% correct. One Unionist MLA has been honest about that to me privately (he was honest enough to go further and say the same applied to corporation tax). Why not publicly?

    Although I’ll add that that does put to bed finally the argument that Alliance is “unionist”.

  • Even the Scottish Labour Party has started to move in the direction of more tax-raising powers in the last month or so:

    Ms Alexander said she wanted to “strengthen the financial
    accountability” of politicians, indicating she supported the transfer
    of new financial powers to the Scottish Parliament.

    Asked directly whether she was prepared to consider fiscal autonomy
    for Holyrood, she replied: “Yes. We need to look at how politicians are
    more financially accountable. This has to be a dialogue within the UK.”
    (Scotsman)

  • Comrade Stalin

    Peter says:

    The fourth option is for a local Executive to use the tax-varying powers to replace the regional rate. I suspect that that is the main thrust of the Alliance Party’s argument. However, the impact of increasing income tax and reducing property taxes would be the expectation that those who are in work will pay for those who are not.

    I’ve a couple of problems with the Thatcheresque argument presented here. The first thing is that taxing people who earn more, particularly those who earn considerably more than average, is a generally accepted principal in most of the world. Have you seen the number of fancy sports cars going around Belfast lately ? It’s a sign that the economy is doing well, and a sign that there is a bit of headroom for shifting the tax burden.

    Secondly, people who are in work already pay for those who are not. The unemployed can claim rate relief, so their rates are paid for them. On the other hand, poorer people, who are working and who own their homes, and who happen to live in houses which recently increased significantly in price, within a 3 mile radius of the city for example, will see an increased rates burden. If you look at what Northern Ireland’s rich are doing, you’ll see that they are building big houses, or renovating big farmhouses, out in the country, and driving long distances into work each day in their fancy motors. Because their houses are further out of town the rates revenue from their properties does not scale linearly with their size and luxury level.

  • Mick Fealty

    Let’s be clear about what Robinson is saying here:

    “We are operating within a complex public expenditure framework, and unfavourable consequences are often associated with what might seem a simplistic policy action. As well as my concerns about the principle behind tax-varying powers, I do not believe that the timing is right. It is prudent to await the outcome of certain exercises, such as the rating review, before considering a motion as complex as this. If the motion is pushed to the vote — and I hope that it will not be — I will oppose it for those reasons.”

    Read what you like into the Minister’s motives, but the argument is clear enough. The motion may not be complex, but the territory it covers both complex and in the context of our ‘everyone’s a winner’ Executive, it’s a recipe for a political spaghetti soup. Yum, yum (not).

    Tom’s comments on Scotland are interesting. But I’m not surprised at the timing of Wendy Alexander’s remarks. Labour was always theoretically in favour of tax varying powers but under a Labour Chancellor and cautiously populist FM never had the motive to invoke those powers itself. There is now no risk to her or her party.

    It’s possible to foresee a time in both polities when it could happen. But methinks the political incoherence and disjointedness imposed by d’Hondt is the biggest disincentive for it happening with us.

  • Comrade Stalin

    Mick, I would agree that this is not the right time to be talking about methods to raise more tax (which is essentially what this is all about) – the government’s having enough trouble with credibility as it is – but I found Robinson’s underlying arguments somewhat bothersome.

    It’s possible to foresee a time in both polities when it could happen. But methinks the political incoherence and disjointedness imposed by d’Hondt is the biggest disincentive for it happening with us.

    I’m glad I’m not the only one who feels this way. I didn’t expect miracles from the executive, but I didn’t expect that it would be quite as bad as this. I don’t remember the Trimble executive being quite as indecisive and dwadling as this one, ironic given the strong reputation of the two largest government parties as people who get stuff done on the ground.

  • kensei

    “Read what you like into the Minister’s motives, but the argument is clear enough. The motion may not be complex, but the territory it covers both complex and in the context of our ‘everyone’s a winner’ Executive, it’s a recipe for a political spaghetti soup. Yum, yum (not).”

    It is still complete nonsense Mick. Administrating the NHS is complex. Introducing a smoking ban is complex. Co-ordinating upgrades in public infrastructure is complex. In short, Government is comples. It is a stupifyingly weak argument.

    Taxation is a useful instrument of policy; SF actually made a decent point about the plastic bag tax – it is successful and could be easily emulated if we had the power.

    Moreover, if you want to impose discipline and encourage less of the “everyone wins” mentality, I can’t see a much better way of doing it than forcing people to work out how they pay for it. If timing was the issue, the DUP could have proposed an amendment to that covered as such. They didn’t.

    Nope, this just demonstrates the madness of Unionism. Let our tax rates be based on the needs of an entirely different region.

  • kensei

    I should also add that it encourages an end to patronage politics, something Nationalism is just as guilty of. It removes the British Government as a source of blame, and really, that’s been a strong theme from all sides.

  • Comrade Stalin

    Nope, this just demonstrates the madness of Unionism. Let our tax rates be based on the needs of an entirely different region.

    There’s nothing mad about that that isn’t mad about republicanism. Isn’t it true that the general perception is that the parts of Ireland outside of Dublin generally get a pretty crappy deal ?

  • kensei

    “There’s nothing mad about that that isn’t mad about republicanism. Isn’t it true that the general perception is that the parts of Ireland outside of Dublin generally get a pretty crappy deal ?”

    Sure. Parts of the 6 counties will get short changed by Belfast, but in both those units the underlying economy bears some relation to the overall economy, and they have greater electoral weight.

  • IJP

    But methinks the political incoherence and disjointedness imposed by d’Hondt is the biggest disincentive for it happening with us.

    I would second that, but Comrade‘s already done so. I’ll chime in anyway.

    Eventually if you follow the link re Scotland you arrive at a very interest blog response, which compares Scotland’s evolving constitutional (and fiscal) position to ‘taking a dook in the North Sea’. After a while – but at the outset you can’t be sure when – you make a decision that either “It’s no sae bad, come on in” or “It’s bloody freezing, let’s get out”. I think it’s a superb metaphor for what’s happening in Scotland.

    And we in NI mustn’t be left behind. I think there are plenty of financial arguments, such as the one Kensei rightly raises that no government in its right mind should govern without the ability to have at least some say over how it finances itself, for us having tax-varying powers. But perhaps the most important of all is that, frankly, Scotland has them.

    Scotland’s detachment from the Union may not be one-way and may never happen permanently. But it may. NI should be in a position to react accordingly, not directly tied into a Union which pays no regards to its financial needs and which could, before we know it, simply cease to exist.

    Sectarian politics encourages d’Hondt encourages sectarian politics – but does it actually deliver any vision or any understanding of what’s going on out there in the real world? Not at all.

  • Reader

    Comrade Stalin: The first thing is that taxing people who earn more, particularly those who earn considerably more than average, is a generally accepted principal in most of the world.
    Well said sir. Shifting the burden of tax from Rates (assets) to Income alone will suit me very well indeed. Are you sure you are a real lefty?

  • Comrade Stalin

    Well said sir. Shifting the burden of tax from Rates (assets) to Income alone will suit me very well indeed. Are you sure you are a real lefty?

    The burden of taxation throughout the UK and Ireland is already on income. Income tax is by far the single largest part of the state’s revenue.

    The rates in NI don’t raise remotely the same amount of money that income tax does under the present arrangements. I think they yield something like £220m. Compare this to the NI executive budget of £7bn, and bear in mind that the British subvention is in the order of £4bn. Where do you think the other ~£2.8bn is coming from ? You’ll find that it’s mostly our income tax and VAT.

    So I’m not proposing a shift to the right. In fact I’m a bit leftwards of where we are now. If it were me, I’d increase the current 40% band, and I’d introduce a new 60% rate at around £75,000. I’d also scrap the tax credit system and raise the tax-free earning threshold to £9000. That means that anyone earning minimum wage is not paying any tax.

    If we’re keeping the rates system, we should at least fix the holes in it, so that landlords are incentivized to properly maintain their properties for rental, and that rates are paid in full on properties which are vacant.

  • IJP

    It’s worth being clear, just for clarification, that Scottish tax-varying powers apply only to the basic rate (i.e. the 20% band of tax paid on income), and only by 3p either way. Parties have been unwilling to use it simply because administering it hasn’t really been tried (any differential would apply to “UK residents whose attachment most of the time is to Scotland”, hmmm…)

    What Scotland does not have is the right to move the bands – I actually have a problem with that, because I think the bands are important.

    Unlike Comrade, I would not introduce a further higher rate, and certainly not in NI alone as it would be too easily avoided. I would, however, be strongly in favour of moving the 0% band up to around the figure he suggests, to encourage people into the work place and also give those in families working part-time a neat tax break.

    But with tax-varying powers a la Scotland, this would not be an option open to us. That doesn’t mean it shouldn’t be…!

  • What is the Azores case that he refers to in the fifth paragraph?

  • Ken,

    As I hinted above, I think the people should be as close to taxation powers as possible. The more closely they can read the effects of policy choices the better.

    Expect this budget to be long and drawn out, because Robinson is going to make each minister justify their spending plans right down the last tack.

    At the heel of the hunt, tax varying powers desireable for the reasons quoted above, but only if the government can credibly account for why it is required and what the extra revenues are going to be spent on. Or, indeed, what savings can be made in order to effect a cut.

    So far as I can see all Robinson is saying (apart from point out that half the motion is calling for something that is already available) “It is prudent to await the outcome of certain exercises…” Which makes perfect sense.

    The plastic bag tax is a good green tax in that it has diminished one nasty problem in the Republic, but I suspect it’s next to useless for raising public revenue.

  • kensei

    “So far as I can see all Robinson is saying (apart from point out that half the motion is calling for something that is already available) “It is prudent to await the outcome of certain exercises…” Which makes perfect sense.”

    In which case they could have tagged an amendment and supported the goal of getting those powers in principle. But the opposition goes deeper and it is less based on economic policy and more on the eternal question this place.

    “The plastic bag tax is a good green tax in that it has diminished one nasty problem in the Republic, but I suspect it’s next to useless for raising public revenue.”

    Sure. But my point is that taxation is useful for more than raising revenue.

  • observer

    But my point is that taxation is useful for more than raising revenue.
    Posted by kensei on Sep 14, 2007 @ 06:03 PM

    how about actually letting people keep the money they earn?

  • IJP

    observer

    how about actually letting people keep the money they earn?

    If your Unionists friends weren’t so bloody stupid, we would be on our way to having the power to let them keep at least another 3p/pound.

    They were so busy opposing SF for the sake of it, they forgot about that, didn’t they?

  • observer

    IJP, just because you obviously have no qualms about letting armed Sinn Fein into power, doesnt mean everyone else is the sam.e

  • kensei

    “how about actually letting people keep the money they earn?”

    For a start, reductions have been talked about probably more than increases in this thread.

    Second – plastic bag tax. You keep your money if you bring your own bag. Really, what is your point?

  • Comrade Stalin

    IJP, just because you obviously have no qualms about letting armed Sinn Fein into power, doesnt mean everyone else is the sam.e

    Rubbish. We’re paying extra because the DUP delayed the largest u-turn in Irish political history by three years.

  • observer

    comrade stalin and IJP show me one time when alliance called for SFto be exclueded from government

  • IJP

    observer

    Alliance Party policy would in fact enable SF to be excluded from Government – and indeed any other party.

    But why precisely would SF now be excluded from Government? Links to terrorists? That’s the DUP and UUP out too, then…

  • observer

    IJP, again please give me an instance in the assembly where alliance tabled or supported a motion for SFs exclusion

  • IJP

    observer

    Why so insistent on irrelevance? Why so insistent on mentioning inactive Catholic terrorists but ignoring active Protestant terrorists?

    Here are two relevant questions:

    1. Which of the following parties is not currently in government with Sinn Féin?
    a) DUP
    b) UUP
    c) Alliance

    2. Which of the following terrorist groups is not currently active and has, to the satisfaction of independent observers, decommissioned:
    a) UDA
    b) UVF
    c) IRA

    Hmmm…

  • observer

    so you cant, or wont, answer my question ok.

  • DC

    I watched the debate on BBC Parliament and I feel the display by unionists over tax varying was as much as to do with theatre as with tax.

    Sammy Wilson and Basil McCrea gave out a performance that was linked to a situation consisting of greatly hiked-up taxation with Robinson providing the death-knell in the argument simply stating that the current programme of work is just too much for the DUP to even consider the thought of approaching the exchequer to discuss.

    But the problem with Sinn Fein is that how can a party ask for greater fiscal responsibility on taxation whenever they play no mature role in trying to get a greater understanding of how the monies are delivered across the UK by abstaining from the money machine of the Westminster parliament.

    Sinn Fein didn’t seem to know why they wanted to have tax varying powers other than the insistence that it gave them more power and freedom from Britain while failing to grasp that they are merely tryng to vary a certain style of British governance.

  • kensei

    “Sinn Fein didn’t seem to know why they wanted to have tax varying powers other than the insistence that it gave them more power and freedom from Britain while failing to grasp that they are merely tryng to vary a certain style of British governance.”

    No they are perfectly right – it does give more freedom and independence and your point is barely coherent.

    As for “merely varying British rule” I suggest you look up the concepts “de facto” and “de jure” than apply them to “independence”.

  • DC

    Well fair enough perhaps it does but they couldn’t set out what they intended to use such a freedom for.

    Alex Maskey when winding up spent about 5mins talking about good relations and how everyone is coming round to the idea of getting a fair say in the assembly and how the proposer shouldn’t be taken apart merely for being member of a certain party.

    Which, fair enough, should be mentioned if there was a bit of man-playing but Sinn Fein didn’t explain the raison d’etre for putting it forward thus leaving the DUP to win the argument by stating by implication that Sinn Fein seems to want to tax upwards – not downwards.

    And of course one thing I will agree on is that once taxes are imposed they do usually only go up!

    Hence harking back to my concerns over Westminster abstentionism, Sinn Fein really are left out in the cold if they don’t participate or work with the administration there in order to figure out how much leverage they could obtain by working those channels.

    Otherwise such moves will be left to the DUP and its stranglehold in terms of drum-beating its cause in the very corridors of power Sinn Fein should be in too.

    In light of today’s developments re Bertie Ahern and Fianna Fail setting up; in contrast to Sinn Fein, I believe FF would be in a better position both diplomatically and politically to operate in Northern Ireland given its experience in operating a mature democracy and might actually make a platform for tax varying powers and show Northern Ireland, if ever elected here, what they ACTUALLY intend to do with such controls if they got them!

    I also imagine they are more up-to-speed with the British exchequer than what Sinn Fein are.

    The performance was woeful on Monday and the DUP did put forward a good case for ‘as you were’ while making a scene of it; however, I didn’t witness any underhandedness just a bit of Robinson-politics in action, which ended up unchecked.

  • kensei

    “Which, fair enough, should be mentioned if there was a bit of man-playing but Sinn Fein didn’t explain the raison d’etre for putting it forward thus leaving the DUP to win the argument by stating by implication that Sinn Fein seems to want to tax upwards – not downwards. ”

    Thing is – they probably do want to move them up. That is irrelevant to the desire or not to have tax raising powers. The DUP didn’t win the debate. They said they’d veto and gave a list of reasons that have nothing to do with the real reason they don’t want to do it.

    “Hence harking back to my concerns over Westminster abstentionism, Sinn Fein really are left out in the cold if they don’t participate or work with the administration there in order to figure out how much leverage they could obtain by working those channels.”

    Newsflash: at the moment, Gordon Brown has a comfortable majority and doesn’t give a stuff about any of our politicians, expect possibly in denying demands over Corporation tax so Scotland doesn’t get too uppity. In the event of a tight Parliament next election, SF can be outbid by the DUP, both of whom could be outbid by the Lib Dems. GB won’t touch them anyway. Did you see Thatcher in Downing Street last week? How would the right wing press react? Have some sense of reality, for the love of god.

    And with that said, we have bugger all influence on Westminster anyway. So all that matters is 1) how much money our masters give us 2) If we can consent to get more powers off them. And in terms of “being left out in the cold” here, SF have a veto. It can’t happen.

    I’m sure they knew they couldn’t win the debate because the DUP was opposed, because that is how things work here, but wanted to make them say no anyway. Equally sure it’ll come in handy to attack the DUP later, when they start claiming anything about corporation tax.

  • George

    Comrade Stalin,
    The burden of taxation throughout the UK and Ireland is already on income. Income tax is by far the single largest part of the state’s revenue.

    I don’t know about the UK but that is certainly not the case in Ireland. Income tax accounted for 12.3 billion out of 45.5 billion in 2006. VAT returns were larger, accounting for 13.4 billion.

  • DC

    You’re obviously not a believer in diplomacy.

  • It was Sammy Mc Nally what done it

    In a ( hopefully) post civil war/strife situation all policies will be weighed up by both camps to decide if it advances their own ideological position. SF were sold the idea, presumably by John Hume, that having Irish people running Non Iron affairs is getting the Brits out via the back door. The debate over Stormont control of tax will be conducted using economic statistics with each side defending what has actually become the constitiutional front-line.