Where is the corporation tax debate?

 The corporation tax debate in Northern Ireland is unusual within the pattern of development for UK devolution. In our case, it’s the UK minister who is pushing and prodding the local administration fearful of permanent cuts to the block grant to bid for taxation powers, rather than the other way round as in Scotland and Wales. Three months to consult is practically nothing bearing in mind that the period straddles the May election, when any thinking  will be at a premium.  I say “debate” but I should ask “what debate?” The policy has strong opponents. Where do the economists and business people figure in this? They’d better get a move on. Bald campaign statements made months or even years ago are not enough. The Commons NI select committee looking into differential corporation tax should report quickly to avoid being blindsided. That would be a pity, as the GB and UK wide interests represented can present a more rounded picture than purely local lobbies.  Jim Fitzpatrick, soon to be BBCNI’s Business and Economics Editor may be right when he says:

“We can predict, with relative confidence, that the Executive will ask for the power and that a mechanism will be found to grant it.”

This is more questionable:

But if the Executive can get that formula right, and the mechanism to police it right, the potential benefits are huge and any loss of block grant will be more than offset by increases in employment and consumer spending.

A sharply contrary view of the supposed benefits comes from the influential pro-Keynesian Will Hutton in his Observer column, noting the Chancellor’s’ pledge to cut UK wide CT from 28% to 23% in five years . No capital cuts and higher spending on education and training are his priorities. A better use of the block grant rather than a £270m-£300m cut and taking a gamble on business? 

There is an enormous literature on the drivers of economic growth. Multinationals’ choice of tax jurisdiction barely figures. Indeed, the most magisterial survey by the University of California’s Professor Peter Lindert shows the opposite – that growth is higher in advanced countries with a higher public investment in social, intellectual and physical assets, which tends to be associated with higher rather than lower taxes.

The prioritisation of what matters is scarcely credible. The annualised and ongoing cost of the corporation tax changes by 2015/16 (including the reductions last June) that so pleased Mr Sorrell will be over £5bn a year as the government scrapes together a one-off £100m for extra science investment and a one-off £100m to create 50,000 apprentices

There should be no cuts in capital investment at all; instead, public investment in our physical infrastructure, our knowledge base and our social capital should have been stepped up, both because it is so needed and to boost faltering levels of demand so crucial to the growth process.

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  • Where is it? Well, apart from the demonstrations yesterday, how about Steven Agnew’s statement?

  • It is difficult to ignore this dead rotting diseased elephant in the middle of the room ……. “Thanks to the central bank’s unlimited money printing power, governments can run ever higher budget deficits and pile up ever more debt to finance otherwise impossible wars, hot and cold, abroad and at home, and engage in an endless stream of otherwise unthinkable boondoggles and adventures. Thanks to the central bank, most “monetary experts” and “leading macro-economists” can, by putting them on the payroll, be turned into government propagandists “explaining,” like alchemists, how stones (paper) can be turned into bread (wealth). Thanks to the central bank, interest rates can be artificially lowered all the way down to zero, channeling credit into less and least credit-worthy projects and hands (and crowding out worthy projects and hands), and causing ever greater investment bubble-booms, followed by ever more spectacular busts. And thanks to the central bank, we are confronted with a dramatically increasing threat of an impending hyperinflation when the chicken finally come home to roost and the piper must be paid. ” ……. http://thedailybell.com/1936/Anthony-Wile-with-Dr-Hans-Hermann-Hoppe-on-the-Impracticality-of-One-World-Government-and-Western-style-Democracy.html …… although governments and bankers are hoping that you are stupid enough to pretend it is not there.

  • ItwasSammyMcNally

    Largely on Slugger.

  • ayeYerMa

    some at the Telegraph the other day:
    http://www.telegraph.co.uk/news/uknews/northernireland/8404401/New-tax-deal-for-Ulster-could-break-the-Union.html

    My opinion will be that such a move will have much greater an impact on politics throughout the UK than initially imagined. I’d say that this can only accelerate the development of a fully federal UK.

    For such wide-reaching consequences, I think this debate needs to happen with a much greater urgency, especially in GB where it will probably have a much greater impact than it will in NI!

  • jthree

    The main stated aim of the tax reduction is about stimulating the labour market by drawing in lots of new employers. Unfortunately in the early years at least the benefits will not accrue in this way.

    The big corporation taxpayers – the locally incorporated bits of banks and the utility companies – will get an immediate bottom line benefit without creating one extra job. Short of a special levy there is no way around that.

    Furthermore the comparisons with the Republic are maddeningly one dimensional. The tax benefits in the Republic are not just about the headline rate, it’s about the rules (or lack of them) around capital flows that allow global companies to suck in money from around the world, shake off most of the tax liabilities and then redistribute the cash. Hence the popularity of the IFSC for treasury operations and the use of mechanisms like ‘the double Irish.’

    The fine detail of how brass-plating and transfer pricing will be tackled also needs to be spelled out. There was an inadvertently amusing moment during the NIAC hearings where Eamonn Donaghy (KPMG tax partner and corporation tax campaigner) expressed supreme confidence that the Revenue would be able to tackle such abuses. In reality, if this goes through, companies will be on the phone to people very much like Mr Donaghy trying to find every available loophole to wriggle through.

  • tinman

    This is a hugely risky strategy – giving up a sizeable chunk of the block grant (however negligible Owen Patterson might find it, even £60m will pay a lot of nurses) for something that may or may not bring additional employment and tax revenue.

    I have a number of questions that make me uneasy about this whole thing:

    1. Where is the evidence that it actually works? No point looking to the Republic as it is now officially a basket case and anyone trying to replicate their economic model needs to be taken out and given a good talking to.

    2. Where are the additional savings in public spending going to come from to fund it? I’d have thought we’d have had enough of cuts by now.

    3. How come all the major parties have signed up for it? The UUP I get, it’s standard Tory tax-cutting. The DUP seem to owe so much to the US Republicans it won’t be long before they start shooting moose. Alliance, whatever. The SDLP and Sinn Fein though are supposed to be left of centre, and this is a thoroughly right of centre policy. And how does it sit with Sinn Fein’s anti-cuts, protest party persona on the other part of the island?

    All I can think of is that all the major parties have decided there are no votes in opposing a reduction in corporation tax and that we will therefore never have a proper debate. Shame, that. I like proper debates.

  • Comrade Stalin

    tinman,

    I think you have hit the nail on the head really. This is unknown territory for this region as well as the UK, and I think we’re being used as guinea pigs. It has a secondary function in that it is a backdoor way of weaning us off the high block grant.

    I also agree that lowering the corporation tax rate isn’t a panacea. I would be surprised if the benefits of corporation tax for inward investors were sufficient to outweigh InvestNI grants; and local small business pay relatively insignificant amounts of corporation tax at any rate.

    The SDLP and Sinn Fein though are supposed to be left of centre, and this is a thoroughly right of centre policy.

    You’d be surprised at how conservative the SDLP are.

    Sinn Fein supported raising the corporation tax in the Irish Republic in the election in 2007. They wisely stayed away from it this time, perhaps knowing that the people in the south equate the low corporation tax rate with economic success.

    The people pouring the most cold water on this are the DUP.

  • DC

    Relying on state subsidy is a risky thing as well as our politicians remain impotent in attracting business and reliant on private sector transfers – largely money coming from private companies operating out of England and given to the NI executive to spend on public services because there isn’t a sufficient level of private enterprise here.

    My main concern is that Stormont lacks the maturity to maintain a low rate and to stick with it through thick and thin. Stormont lacks the reputation as a serious player in politics and economics – it is this reputation that big business needs along with a low corporation tac rate, it needs a place that operates proper politics with sensible policies, ones with the market economy in mind – not a politics that falls out over cultural identity.

    Investment potential will need to be matched by political and cultural appeal – the political appeal in the form of serious politicians with good policies that are designed to grow business. The cultural appeal is also important, as for instance Belfast will need to have a good image and reputation as a sound place to live and therefore invest in – could Belfast become a place that business clients respect? Could Belfast become the new legal services specialist?

    The main caveat is that yes a low business tax rate should help in part fuel economic growth and it will be a key policy to have – but there will be other prerequisites to economic growth.

    You know like having politicians that can find agreement on what the region is and where it wants to go and how it should get there; having politicians that are able to co-ordinate actions as an executive to get there quickly – and be able to communicate these actions into a shared vision in order to win investment over other regions that are doing this already!

    That’s the main problem or main drag on any successful implementation of a low business rate. The inability to turn NI into a special place, a place that has changed for the better and deserving of investment because it is the right place to do so.

  • Cynic2

    I think you are only partly right. The Ministers and Civil Servants are fearful of giving Businesses the right to make decisions on what in the end is their own money. Far better to have it go into the general pork barrel from where they can distribute it on a sectarian basis in favour of their chosen causes in return for support and favours. Also if we didn’t have that money how could we support all those civil servants to advise ministers on how to spend it.

  • Cynic2

    “Stormont lacks the reputation as a serious player in politics and economics”

    yes, but the reputation of our neighbour and main competitor has taken a bit of a kicking recently

  • tinman, I think you have hit the nail on the head really. This is unknown territory for this region as well as the UK, and I think we’re being used as guinea pigs. It has a secondary function in that it is a backdoor way of weaning us off the high block grant.” …. Comrade Stalin 27 March 2011 at 8:52 pm

    Quite so, Comrade, guinea pigs indeed, and simple pets whenever you just roll over for a tickle. Who do think has an eye on securing that high block grant for themselves?

    And you can learn a lot more about the future and what is in store and in train for y’all and a heck of a lot more than just this nugget….“So let’s get things straight: the Irish citizen is being asked to take on the debts of the European banks and pay for this by selling our assets for half nothing to the same banks so that we can bail them out. We take on debts without a discount and sell assets without a premium. At the moment these loans that we are being asked to pay are trading at a deep, deep discount because the “assets” they were supposed to back have collapsed in value. Yet we are being asked to pay for these loans at par.” ….. here, although you may have to do some heavy intelligence work to decrypt some of its code and core steganographic text messages. ….. http://heddinout.com/?p=1988

    One doesn’t want to be frightening the horses and natives with information they probably wouldn’t be presently equipped to fully comprehend and accurately analyse, would one? Not whenever they have only just discovered talking to each other is a step they should have taken decades ago. Some folk are just …… well, so slow is a kindness one can afford to them surely, without it being overtly offensive and untrue whenever it is so true and an undeniable and indisputable fact, which would be just too unbelievable for spinning in even a work of fiction, unless it was about a madness.

    Who is playing whom for Prime Ministerial Suckers?

  • Old Mortality

    Tinman
    ‘even £60m will pay a lot of nurses’ and you can never have too many nurses (or pay them too much),can you?

    Comrade Stalin
    “It has a secondary function in that it is a backdoor way of weaning us off the high block grant.”
    That’s enough to make it worthwhile even if doesn’t create any little jobbies.

  • Greenflag

    ‘the Irish citizen is being asked to take on the debts of the European banks’

    Would these be the same banks that make extensive use of tax havens away from the prying eyes of their governments so that they can ‘legally’ avoid taxation . A cursory look at tax avoidance havens being made use which come under ‘British ‘jurisdiction would fill a page -from Jersey to Guernsey to the Isle of Man to the Caymans etc etc . Bank of America having got 49 billion from the taxpayers to stop it from failing -did’nt pay any taxes last year -although it’s executives got huge bonuses as usual .

    The simple truth is that many of the very largest multi national corporations and in particular the financial services sector manage to avoid paying taxes at the same time as benefiting from the ‘infrastructure ‘ around them which the average taxpayer be he or she , Briton or American or Irish built over generations of paying their lawful taxes .

    The whole corporation tax issue is of importance for Ireland in that as an economy -it does not have either the size or power or capability to take on the ‘anarchic ‘ tendency in modern western capitalism which aids and abets the diversion of capital to those parts of the world which can offer the cheapest labor -the least regulation and the smallest or more accurately the kind of governance that doesn’t bother too much about human rights -slave wages rates or environmental disasters .

    Both Goldman Sachs and Bank of America and Citigroup as well as AIG (insurance giant ) could be found guilty of economic treason against the USA – but there isn’t a politician with the balls in either party to take them on.

    Ditto for the UK and Ireland and their Banks .

    We forget that even Iceland the earliest founding home of the mass democratic representative model and a country with an enviable record of social legislation and economic growth etc etc – only had to deregulate it’s three little banks- for their entire economy to be upended .

    How could a small island with a population of 350,000 and a GDP of 13 billion dollars end up with it’s banks lending 100 billion euros for all kinds of property speculation ?

    The answer is of course with the willing blind abetting of British and Dutch bankers in collusion with greedy avaricious Icelandic banksters and their German financial advisers .

    And Ireland ? just a larger version of the same with the extra residential property dimension .

    And the UK? just a larger version of Ireland moderated by the ability of the UK to ‘devalue ‘ sterling .

    And the USA ?just a larger version of the UK plus a similar if not bigger residential property fiasco in some states such as California , Florida , Nevada ,MIchigan etc . And only the dollar’s continuing role as the world’s reserve currency of last resort has saved the USA from becoming another Weimar like Republic of 30% unemployed and tens of millions on the streets .

    And despite all of this the ‘banksters’ everywhere from the USA to the City to Dublin want to return to the status quo of 2006 ?

    And on Slugger hardly a mention of the second biggest popular demonstration in British history some 500,000 people against the cuts of the Cameron Clegg regime ?

    No cuts for the banksters and their offshore financial asylums- which continue unhindered to rob the British of the taxes which would have made many of the ‘cuts ‘ unnecessary .

  • Greenflag

    For those who missed the debate on Slugger 😉 on the 500,000 march in London heres an overview with comment by British columnist from the Independent and Alison Kilkenny from Americas’ Uncut’ movement

    When even Boris Johnson admits that the ‘cuts ‘ will socially cleanse London of 200,000 poor people it’s probably time to pay attention . As for paying taxes Phillip Green -the UK’s 6 th richest person 1.6 billion paid NO taxes – Likewise corporations such as Vodaphone accumulated a 6 billion pounds tax bill which the Tories on coming into office ‘erased’ .

    Quite simply what people in all the western countries are being faced with is RRH governments –

    RRH meaning ‘Reverse Robbin Hoods ‘ taking money from the poor and middle classes in order to subsidise and make the financial losses incurred on their societies by the banksters and gamblers of the financial services industry and associated derivatives and international investment ‘grade ‘ bond markets.

    As Johann Hari puts it

    The financial crisis should be paid for by the the people who caused /created it

    Instead those who created the crisis are richer than ever and the mass of the British /Irish/American people have to pay up simply because our elected politicians and governments are SCARED of the banks ?

    Revolution can’t be far off unless governments in the west recover their ‘balls’ assuming they have any left 🙁

    http://www.democracynow.org/2011/3/28/this_is_economic_treason_500_000

    From 35 mins the debate gets to the focus of the issue !

    As somebody pointed out ‘corporation tax reduction ‘ is not the magic key to unlocking NI’s public sector dependency.

  • Greenflag

    Sit ins have their uses for gaining publicity but in the fianl analysis it’s only actions that affect the ‘pocket’ of these multinationals that have any hope of being sucessful longer term A popular democratic action would be for Britons to boycott Vodaphone or any financial services group or multinational corporation that is ‘parasitic’ on the body politic. Ditto for the Ireland and the USA .

  • Some interesting figures on RTE’s Primetime about corporation tax in the south

    600 US businesses in the South
    employing 100,000 people
    3bn euro in corporate taxation
    19bn euro conributed to the economy

    which is more than a tenth of their GDP

    A very interesting conversation on restructuring, IMF cf ECB, defaulting on debts, withdrawal from euro etc

    Cannot think of any NI programming which would contain such a mature economics conversation (withdrawal from euro was rightly viewed as cloud cuckoo)