It’s becoming like buses. For ages the websites remain dormant, then suddenly another bursts into life. The normally tranquil pages of the NI Economic advisory group carry a new report, “Impact of Reduced Corporation Tax,” with yet more forecasts. You’d almost think a campaign was running.
Employment is anticipated to be 58,000 higher by 2030, representing a6.7% increase from the baseline. This represents an average of over 4,500 additional jobs per year in the longer-term, throughout the economy, peaking at almost 5,800 per annum by 2030.
Foreign Direct Investment is forecast to comprise 42% of the net additional jobs.
This reduction in the block grant cost peaks in 2016 at £242m (or £275m in current prices) or approximately 2.7% of the block grant.
However, it is recognised that the impact of any reductions in the block grant can be managed in a variety of ways. For example, the Northern Ireland Executive, within the last budget period, was able to manage some very significant public expenditure pressures without any apparent adverse impact on overall public sector employment.
More public sector cuts? A diplomatic silence on revenue raising before 2030?
The model indicates that the net corporation tax receipts are expected to remain negative throughout the forecast period (up to 2030). However, when other tax yields (from sources such as income tax and national insurance contributions) are included then the policy is expected to break-even by 2021 on an Exchequer basis.
In the light of the above, it is important that with the introduction of a reduced corporation tax rate in Northern Ireland, the Executive / Assembly is also able to retain the yields from other related taxes (e.g. income tax and national insurance contributions). These yields would be important as they would offset the reduction in the block grant after an initial period and could also aid in the rebalancing of the economy. Moreover, the positive impacts of this measure should not be diluted by the introduction of additional business costs (such as increasing business rates) that might be used to offset the short-term impact of the reduced block grant.
A difficult negotiation with the Treasury?
And no magic bullet, the report adds. Yet litttle hope of retoring living standards to their 2008 level without it.