The potential for varying corporation tax…

Talking to IJP, or Councillor Ian Parsley last Friday he made an interesting point. That there is always a problem with assemblies and councils that are not in some way responsible for tax raising or at the very least tax varying powers. It causes friction between the component parts within the system. Yet the Varney report appears to knock back the possibility of a differential rate of Corporation Tax. Tom however has seen a chink of light, in that Varney concedes that previous arguments that it was impossible are not valid. Conall thinks this will run and run for most of next year. But if we are talking about a cut in tax, who is likely to take the hit (a tidy £2.2 billion over ten years) in expenditure: UK or NI?

  • Belfast Gonzo

    Why not take it out of that so-called £50 billion package promised by Brown over 10 years? Simple.

  • Mark McGregor

    Is there no party elected to the northern administration that thinks business should have to pay its way through taxation? I don’t see any efforts to reduce the tax burden on the worker or more particularly the poorest, in fact most are working to raise tax on workers through the water tax. Hold on, they are capping the rates burden on the richest too.

    Isn’t it wonderful having a socialist party in power (two of them if you believe some in the SDLP). *sniggers*

  • liberachi

    IJP’s right.

    There something infantilising abour delegating authority for allocating expenditure without the reposnsibility for raising the money spent. It’s a recipe for whining about the inability to raise more money or the unfairness of the ration.

    NI needs fiscal independence from the UK.

    If that’s at the expense of surrendering our immense influence at Westminster so be it.

    Bring on joint authority and Crown Dependency status. Let’s join our fellow UK satellites; the Isle of Man and the Channel Isles.

  • The Dubliner

    It may be all academic within the next two years if the EU gets its way on tax base harmonisation, removing tax sovereignty from member states and relegating national government to the role of a local council within the Socialist Superstate of Europe:

    [i]”KPMG polled more than 400 companies, including some of the largest businesses, from all 27 EU countries and Switzerland. Seventy eight percent backed the introduction of common rules on what share of businesses’ profits should be shared.

    National specialists are working on a proposal for an optional tax base model that would boost cross-border business and simplify tax rules. The European Commission plans to present the proposal to member states next year.

    The survey showed that tax professionals in the Czech Republic, Denmark and Spain were 100% in favour, with more than 90% support in Italy, Greece, Luxembourg, Poland, Romania, Slovenia and Sweden.

    German firms also featured among the strongest advocates of the plan (84%), followed by Austria, Finland, Hungary and Portugal – all 80%, according to the report.

    On the other hand, big companies in the UK were more sceptical – 62% were in favour and 32% against. Only Ireland and Slovakia registered majorities against the proposal.”[/i]

    In which case, of course, the corporation tax differential between north and south will be eliminated due to European harmonisation. The Republic will control of its tax policy and will lose its competitive advantage over less competitive and less efficient EU members states, having a disastrous effect on the Irish economy as financial service companies desert our International Financial Services Centre and manufacturing industry deserts our shores when we are forced to dramatically increase out corporation tax from 12.5% to whatever rate the EU imposes.

  • The Dubliner

    The Republic will [b]lose[/b]control….

  • George

    The Dubliner,
    Ireland has a veto over tax harmonisation so it is for us to give away our competitive edge and allow this move rather than have this harmonisation imposed on us.

  • IJP

    Thanks Mick.

    I should add that I also, basically, made Mark‘s point that this is much more general.

    The issue is not corporation tax per se. The issue is, as stated above by liberachi, having power for allocating expenditure without having power for raising the money spent – at all.

    This issue applies not just to UK devolution, but also to NI local government. The one debate missing completely from the Review of Public Administration is how we’re to fund the “Super Councils” once we set them up. It’s pretty fundamental stuff, yet it’s hardly been mentioned.

    I’m still waiting to see SF and the SDLP square vast reductions in business profit tax with “socialism”. I’m quite happy to square it with liberalism, but only as part of a broad package which also includes tax breaks for low-earning workers and a fundamental recognition that, as Varney indicates, there is much, much more to it that just lowering taxes.

  • Bob Wilson

    George ‘Ireland has a veto over tax harmonisation’ technically that might be true George but in reality the one big blocker of tax harmonisation is the UK – and long may it continue.

  • liberachi

    In reality the one big blocker of tax harmonisation is the UK

    Isn’t the bigger blocker the complexity of introducing such a measure at all? It isn’t just a matter of picking a corporation tax rate; corporate contributions to a national exchequer are a combination of corporation tax, employers’ medical and social insurance contributions, property taxes, licenses, writing down allowances, value added tax (which is afterall the difference between trading income and expenses) and a range of other related factors which would all be affected by a single corporation tax rate.

    Would the EU be prepared or or even able to legislate for all of these?

    It hasn’t attempted to do so for the tax it invented – VAT.

  • Bob Wilson

    Have to say that I think the whole campaign for lower corporation taxation campaign has been a fundamentally dishonest. It asks the UK Govt – which already bails us out heavily – to essentially hand over more money to NI.
    Given that Blair, Brown, Hain et al had all signalled through the increase in the regional rate, introduction of water charges etc that they were willing to help But only if NI showed a wllingness to fact hard financial facts. To demand that we have special treatment – over other parts of the UK that have equally weak economies was madness.
    We might have got a hearing if we had asked for powers to vary taxes – ie we would have to lower our spending to cut taxes but no we asked the Labour government that has spent the last ten years raising and raising taxes for a one sided leg up.
    Finally when Blair/Brown gave use a £100m ‘bung’ for a Innovation Fund what did NI Executive do? Used the vast bulk (£70m) to defer water charges for a year!
    In addition given Labour’s electoral position it wasnt just Scottish Labour that Brown had to worry about it was most of his MPs!

    There is only one way to lower taxes in NI see
    http://www.conservativesni.com for details.

  • George

    Bob,
    while I accept that if the UK falters the Irish position will be substantially weakenened, it doesn’t change the reality that Ireland has a tax veto of its own, independent of anything Britain does.

    That said, the panic and demands for clarification that emanated from the Irish Dept of Finance a few years back when Jack Straw appeared to wobble on the issue is indicative of how important Ireland views the UK on this.

    But sometimes you have to go alone if it is “in the national interest”.

    While joining the euro was a bridge too far for the UK, at the moment accepting the Common Consolidated Corporate Tax Base or any other Trojan horse is the Irish equivalent.

    As things stand, Ireland will use its veto on this.

    If it does come to pass that Ireland buckles, there is always the silver lining that it might cure us of our current lazy attitude that all we have to do is offer businesses 12.5% and they will come. You need more than an attractive tax rate to attract business.

    On the argument for lower Corporate tax in NI, the people in positions of power north of the border should ask themselves why when the UK, even with the current rates, is one of the top Foreign Direct Investment locations in the world that little or none of it is coming to NI.

    There was a 165 billion dollar inflow of FDI into the UK in 2005. How much of it crossed the Irish Sea to NI?

  • IJP

    Bob

    Not necessarily.

    You of all people should know that reducing tax in the Republic increased tax revenues. If it could be shown that reducing corporation tax in NI would have a similar outcome, the case would be clear-cut. That’s not a ‘bail out’ – on the contrary, it’s a means of reflecting on NI’s unique position as bordering the Republic (with a common banking system) and maximizing revenue accordingly.

    That case has, however, not been coherently made by the Executive (nor, reading Varney, by ERINI). Worse still, the Executive has presented corporation tax as the be-all and end-all, the logical extention of which is that NI is not worth investing in with current tax rates. That’s incredibly bad politics.

  • IJP I’m all for cutting corpor tax – and not just on companies with profits over £300,000 – as you will know Labour is shoving the tax rate on small companies up from 19 to 22%
    Yes I do appreciate that cutting tax rates can boost revenues – the Thatcher Govt and the Irish Govts of the 90s proved it.
    However:
    1. In both instances they were cutting punitatvely high rates of tax that were clearly bonkers
    2. In the case of NI the cost and complexities of policing such a scheme would be huge. We example if I employ 100 people in London and 1 in Belfast can you prove that the service provided by the one person in Belfast was NOT worth £10m pounds while that provided by London was only worth £100,000. The UK Treasury already has this problem in relation to Dublin and in recent years (Finance Act 2000 amongst others) has been forced to change its treatment of UK companies with subsidiaries in the Republic. It would in my opinion be virtually impossible in a UK context.
    3. As a unionist – as opposed to a DUP supporter – I do not want to seek benefits that will largely be to the economic and political detriment of the UK. Economic detriment because you will simply get huge ‘displacement’from other parts of the UK (note how Dr Paisley doesnt care about them – remember its the ‘British’ Govt who are the problem!) and political because this would simply multiple all the Barnett formula and West Lothian questions.
    Remember NI does very well out of the UK – not just in crude subvention term by in wider economic, social and cultural terms – but that’s another topic

  • DK

    “NI’s unique position as bordering the Republic (with a common banking system)”

    NI doesn’t have a common banking system with the Republic. There may be banks that operate in both NI and RoI but common banking system there is not (in fact RoI will have more in common with other Euro countries within the next few years)

  • Comrade Stalin

    Mark:

    Is there no party elected to the northern administration that thinks business should have to pay its way through taxation?

    It’s not about sitting down and looking at who should pay their way. If you subscribe to the argument, it’s about pulling the right levers in order to deliver a net economic benefit, which then empowers you to take whichever measures you like to improve social justice or whatever else.

    The conventional wisdom at the moment is that reducing the tax burden on business delivers a net economic benefit, and the RoI is used as a case in point.

    I don’t see any efforts to reduce the tax burden on the worker or more particularly the poorest,

    We don’t have the power to do so, but either way, it’s deemed at the moment to be better to shift the tax burden over to individuals and away from business activity. Bear in mind that shareholders and directors also need to pay increased levels of income tax to support this. In the RoI, everyone pays more tax through VAT (not that VAT is fair).

    in fact most are working to raise tax on workers through the water tax. Hold on, they are capping the rates burden on the richest too.

    I personally think there is no need for these increases, but something has to give. If you’re not going to cut things, you need to increase taxes.

    Isn’t it wonderful having a socialist party in power (two of them if you believe some in the SDLP). *sniggers*

    Still can’t figure out what “socialism” actually is. Is it Stalin, or is it John Hume ? Both called themselves socialists.

  • gram

    George:On the argument for lower Corporate tax in NI, the people in positions of power north of the border should ask themselves why when the UK, even with the current rates, is one of the top Foreign Direct Investment locations in the world that little or none of it is coming to NI.<< Easy one that - Geography. (See also thread on BBC expenditure on flights to the UK)

  • “flights to the UK”

    *blink*

  • The Dubliner

    “Ireland has a veto over tax harmonisation so it is for us to give away our competitive edge and allow this move rather than have this harmonisation imposed on us.” – George

    Ireland’s position on the CCCTB is not in dispute: we are opposed to it.

    “We do not favour it for reasons of principle and practicality. The proposal cuts across national sovereignty and subsidiarity. We believe that choices on taxation and expenditure are matters for each Member State. It is for each Member State to decide on the structure of its own tax system reflecting its historical traditions and social and economic priorities.” – Department of Finance

    http://www.finance.gov.ie/viewdoc.asp?DocID=4543

    However, being opposed to something and being able to resist it are two separate issues, so despite theoretical arguments opposing it, it is unlikely that it will be practical or acceptable to depart from it completely. The reality is that we will be bounced into accepting it against our will. There will be a loss of control by government of taxation issues, of tax sovereignty, which is fundamentally undemocratic. If taxes rise, what happens to our low public spending of 34% of GDP compared to an average of over 50% for less efficient member states? You guessed it: we become less efficient with taxpayers money and no longer the standard for other members states to aim for – we become as inefficient as the tax-and-spend socialists who are promoting their socialist utopia via the logic of the common market (which is make all member states a common market by making them a common country).

    In addition, I will be voting against the Lisbon Treaty. It is the de facto constitution for a new Superstate which is whose sovereignty is being pilfered from members stated by degrees and by stealth where we will be no longer citizens of nations but citizens of Europe, having one currency, one flag, one government, one army, one foreign policy, one final world war, etc, and where we will have pissed away our sovereignty, independence and right to self-determination without even realising it until it is too late.

  • The Dubliner

    Give it 20 years, George, and you’ll see where the Lisbon Treaty leads: to one Superstate!

  • Mick Fealty

    Ian,

    Reducing tax to up the overall take worked in the relatively small economy of the Republic. It’s not certain the same outcome is guaranteed in the UK where the volumes are much larger and the cut is likely to impose a much larger initial cost.

  • liberachi

    What taxes does Ireland impose on employers with respect to PRSI and social insurance?

    If taxes on profits rise could Ireland remove taxes on labour costs to compensate?

    What about property taxes?

  • gram

    George:Give it 20 years, George, and you’ll see where the Lisbon Treaty leads: to one Superstate!<< It'll never happen. The EU has been a continuous battle between the integrationists (France, Germany) and the expansionists (UK). With the introduction of Poland, Romania, Bulgaria and eventually Turkey you can see who's winning the argument.

  • jonny

    Dubliner,
    i’ll be voting against lisbon too. i think europe is great and all the rest, but this is taking things too far too quickly. for the first time in my life i actually agreed with Kevin Myers in his article yesterday. that was a shock i can tell you.

  • mnob

    George & gram – in 2006 Belfast attracted the 2nd most FDI of any UK city (London was 1st).

  • Mick you ask who will plug the £2.2bn hole the Varney claims a cut would cost. Answer if South of Ireland experience is anything to go by is that there will be no hole, in fact a cut will make the exchequer money. In the RoI corporation tax take doubled after they cut the rate! So the state was richer by taking less because it stimulated so much new investment.

  • There’s nothing more cheering to these liberal capitalist ears than the sound of socialists and social democrats propounding the virtues of the Laffer Curve!

  • kensei

    Sammy

    “There’s nothing more cheering to these liberal capitalist ears than the sound of socialists and social democrats propounding the virtues of the Laffer Curve!”

    Current reliance on private sector is over 70% of GDP. If a Social democrat really believes in the mixed economy, the only honest course of action is to cut the public sector. I suspect we’d disagree on at what point the Laffer curve turns and what percentage of GDP should be public expenditure.

  • IJP

    DK

    You know what I meant.

    Mick

    I know.

    I’m simply saying the assumption the lower taxes automatically reduced the tax take is false, as Conall notes.

    My specific point at the very start was not whether taxes should rise or fall, but rather that they should be set at the level at which the decisions are taken. As usual we’ve moved away from that argument onto our obsession with corporation tax, which I never actually mentioned other than in response to others.

  • sammaguire

    Still can’t figure out what “socialism” actually is. Is it Stalin, or is it John Hume ? Both called themselves socialists.

    Posted by Comrade Stalin on Dec 20, 2007 @ 09:36 AM

    You forgot about Bertie!

    If Socialism is about sticking up for the underdog then I’m a Socialist.

    However given a choice between living in Fidel’s one party State (or any of the other Socialist dictatorships in the recent past) or living in democratic Manhattan or San Francisco most sane people would opt for the latter.

    Joe O’Connor (sister of the even more famous Sinead; he’ll love me for that!)wrote a nice piece once on students protesting against US policy on Nicaragua (or was it against withdrawal of student madical cards?) in the ’80s. When threatened with arrest and conviction (and loss of the chance to obtain a student J1 visa to work in the US) these leftie students all of a sudden threw their principles down the toilet and packed in their protest!

    Somehow I couldn’t see this scenario in reverse (right wing students abandoning their protest against the Soviet invasion of Afghanistan for fear of losing visas to work for the summer in the USSR!).

  • Quagmire

    I have an idea, lets end the union with Britain and re-unite Ireland. At this point we would have more of a say over how we run our own affairs and indeed decide upon our own levels of taxation. Then we wouldn’t need this Varney report to tell us what we can and can’t do. Simple really!
    NO!!! to the Lisbon Treaty!

  • sportsman

    Dubliner. VETO. Look it up.

  • The Dubliner

    Sportsman. COMMON. Look it up.

    Don’t bother: I’ll explain it. It’s another word for harmonisation which is another word for lack of competition. States can’t be allowed to compete with each other on tax policy within Europe because competition promotes efficiency and efficiency promotes lower public spending, which is the opposite of socialist philosophy wherein the state is king.

    What is stopping high taxes from being imposed on corporations within Europe? It is competition on tax policy between member states. If one state raises its corporation tax rate to a point where the differential between the average of member states becomes to large, then a corporation will simply migrate from that state to a member state which offers more competitive tax rates. Ergo, the state is prevented from imposing a high corporation tax rate by expediency. In order to raise corporate tax rates, you have to first eliminate competition on tax policy between member states. That way, the EU can impose … err, suggest… a common tax rate and the corporations can’t relocate to another member state to avoid the rate because the tax rate is “harmonised” between all member states. They simply have to pay it if they want to do business within the EU. The agenda is to tax the captive corporations instead of the citizens, raising taxes from industry and easing the burden on the citizens. Of course, the citizens won’t object to that socialist agenda (until their jobs start to vanish and prices rise); and the multinational corporations won’t notice the game plan because the CCCTB will be sold to them as streamlining tax accountancy. They will, however, notice it when the game plan comes into operation and corporation taxes between to go upward in gradual (but ever-increasing) implements.

    “With the base harmonised, it will be easy to propose a common uniform EU tax rate.” – Irish Department of Finance

    The veto is meaningless because, as I said opposing something and being able to resist it are two separate things. The Department of Finance admits that, by harmonising the way corporation tax liabilities are calculated within Europe, Ireland’s rate of corporation tax will end up becoming higher. In effect, our tax sovereignty vanishes while we can do no more than swat flies with our veto. Ireland will also lose a great amount of its tax revenue from multinationals based in Ireland because the mechanism to share tax revenues between states, by applying tax where the business transaction takes place, not where the business is based, means that a company selling goods to Europe, based in Ireland, would pay part of its tax in the state to which the goods were being sold.

    IBEC, the Irish Business and Employers Confederation, is also opposed to it for exactly the reasons I have outlined: it is a Trojan horse for a uniform tax policy between members states, stripping us of our tax sovereignty, veto or not:

    “There is staunch opposition from a number of Member States, including Ireland and the UK, to the idea of harmonising the corporate tax base. In line with the Commission’s trademark, ‘step-by-step’, method of promoting integration between Member States, many people believe that a harmonised tax base would generate pressures which would inevitably lead to the harmonisation of corporate tax rates across the EU.

    Although, the Communication reiterated that the Commission opposes extending the CCCTB to harmonisation of corporate taxation rates. It is difficult to see how harmonisation of tax bases can exist without harmonisation of tax rates.” – IBEC

    Your veto, child, is no more than a comfort blanket.

  • The Dubliner

    Typo: “…corporation taxes between member states to go upward in gradual (but ever-increasing) increments.”