Corporation Tax and Northern Ireland’s (Economic) Walking Dead

Northern Ireland is a funny, self-obsessed place. And the arguments in favour or against the idea of a reduced corporation tax rate tend to be somewhat navel-gazing. Today people were picking fights with me on twitter because I’d suggested that reduced corporation tax here would make Northern Ireland more attractive for business. But, as some suggested to me on Twitter, a reduction would do nothing for the least privileged in society. Jeez. Alex Kane, the political journalist, suggested that lowered corporation tax wasn’t a priority and that “no groundwork had been done”.  I’m not sure what groundwork is needed for reduced tax.

My point is this. Tax removes money from businesses and consumers and gives the money to the government. Implicitly there’s an argument within this arrangement that governments are better at spending money than the people from whom they take it.  When governments take money from businesses they take money away from entrepreneurs, from shareholders and from (potential) employees.  Businesses are taxed on their profit – profit that originates only from the business-owners’ willingness to take risk, invest, trade. So in many respects corporation tax is one of the worst forms of taxation because it takes money away from the people who create wealth. With more money to invest they’d create more wealth, more employment, and more income tax yield.

Countries with high corporation tax rates include Suriname, Pakistan, Togo, Benin, Republic of Congo, Cameroon, Chad, Libya, and Vietnam.  Enough said.

So why should Northern Ireland have a lower corporation tax rate? Simple. We share a land-border with the Republic of Ireland and it has a substantially lower corporation tax than here.  As a result, the Republic of Ireland is much, much better at attracting investment. Most of the major technology companies chose Ireland because it has a low corporation tax rate while we don’t.  Many of these firms pay relatively little corporate tax but they pay substantial salary bills and employees pay income tax.  Ireland – and its exchequer – is the winner.

Professors Young Lee (Hanyang University) and Rodger Gordon (UC, San Diego) have computed that a 10% reduction in corporation tax results in an increase in annual growth rate of about 1.2%.  Given that Northern Ireland’s growth is pretty lacklustre and our private sector is puny that would be a pretty handy result.

But here’s the problem.  The Treasury requires a trade-off: a reduction in corporation tax has to be balanced by a reduction in block grant roughly equal to the reduction in tax-take.  It’s highly unlikely that any of our block-grant maximising local political parties would countenance that. They’ll rarely trade-off short term pain for long-term gain – and none of them has any incentive to reduce the block grant. They have zero skin in the game.

My suggestion is that we grasp the nettle sharpish. There would be a double whammy effect. We’d massively increase our attractiveness to investors at the same time as reducing our dependence on public debt. And our dependence needs reduced.  And it’s not just about our playing our part in reducing the UK deficit – I can see that there are many, locally, who couldn’t care less about that. But, more importantly, it’s about transplanting public sector dependent chunks of our economy that are the economic equivalent of the walking dead.

  • barnshee

    It has taken 70 or so years to create this mess -it needs a lot more than tickling with corporation tax to cure it.
    The treasury is laughling all the way to the bank

  • Belfast Barman(ager)

    Is there anything to be said for the following:
    Lowering corporation tax helps those who are currently profitable and making money, keep more money than they would if it hadn’t been lowered.
    Lowering rates helps every business, the profitable keep more money than if it hadn’t been lowered, the not so profitable…the borderline…the just about staying afloat, or even the businesses on the slide who are shored up by owners investing more of their own capital to pay the bills.
    As simplistic as this sounds…all tax goes to the same pot ultimately, so why not reduce council tax, help everyone.

  • Cue Bono

    Because reducing council tax won’t create more jobs. Lower corporation tax attracts outside industry to an area with a highly educated workforce. That workforce can then earn wages which they can spend in Belfast bars being regaled with gibberish from pro Sinn Fein unionist barman(agers).

  • Superfluous

    Attracting big business needs to start somewhere – I’m currently working on the Isle of Man for a tech firm (mostly focused towards Asia) but was in Dublin earlier this week for an interview with a big international tech company. To put into context the difference between Dublin and Belfast – to live in Dublin it’s going to cost me about €2k rent a month for a family home – I currently own a nice property just outside Belfast which costs me about £400 a month in mortgage. After taking this and the higher cost of living into consideration it’s still more attractive for me to live in Dublin – for career ambition, lifestyle and the amount of disposable cash I’ll be left at the end of the month…

    If a person from Belfast doesn’t want to live there under the current environment (despite significant savings on the likes of property) what chance international companies or employees will want to move there? There needs to be an incentive to get the ball rolling – and corporation tax is a good start.

  • Superfluous

    In a competitive market all tax goes onto prices paid by the consumer – when a company can reduce costs through lower taxation it can charge the consumer less and be more competitive than other companies in the marketplace – this gives companies a huge incentive to move to lower tax jurisdictions. As these companies compete for staff, wages start rising and the exchequer gets a bigger return in income tax (not to mention the higher disposable income leads to more VAT receipts).

    As more and more high level companies and employees are based in a location that location becomes more attractive for other firms, either engaging in business-to-business relationships, or seeking to poach their employees. Trust me – one of the single biggest problems with the Isle of Man is attracting good experienced staff – it’s one of the reasons companies willfully pay higher taxes in the likes of Dublin. Having low tax and a highly skilled workforce is a double whammy positive for a firm – and Belfast could fill that niche very well.

  • Brian O’Neill

    If you have not done so it is worth reading our two previous
    posts on corporation tax:

    http://sluggerotoole.com/2014/11/03/why-lowering-the-corporation-tax-rate-might-be-the-biggest-mistake-stormont-ever-makes/

    http://sluggerotoole.com/2014/11/11/the-attraction-of-ireland-to-us-multinationals-is-it-the-weather/

    In my view Jeff’s assessment is complete Wishonomics.

    The effective corporation tax in the Republic is around is around 2.5% so even
    lowering it 10-12% we still could not compete.

    To paraphrase his own argument:

    Countries with ZERO corporation tax rates include Bahamas, Bahrain, Estonia,
    Chile and Malta. Enough said. http://en.wikipedia.org/wiki/List_of_countries_by_tax_rates

    How exactly do we compete with zero? We start giving subsides?

    At March 2013, businesses with total employment of less than 50 accounted for
    approximately 98% of all VAT and/or PAYE registered businesses in Northern
    Ireland. All this will do is give the self employed a massive tax cut.

    The flaw in the plan is the assumption that reducing the tax
    level will lead to more jobs and growth. This is not the case. Businesses only
    employ the staff they need: no more, no less. Give them more money and yes,
    some will be reinvested. But more likely that money is going on a holiday, new
    car or being put into an ISA or pension

    As a businessman myself my own tax bill will be halved but I am against the
    rate cut. I am against it for the very selfish reasons. If I am unlucky to have
    a heart attack I quite like the idea of an ambulance and a doctor being there
    to treat me. I like the idea of teachers being around to teach my kids. I like
    the idea of being able to drive down a road without hitting 100 potholes. All
    this has to be paid for it is completely bizarre that someone stacking shelves
    in ASDA will have a higher Tax rate than me. Even now I only pay tax at 20% far
    less than any of you reading this. Not all business people are the stereotypical sociopathic greed merchants. They are your hairdresser, your mechanic, your local café owner – all are quite willing to play their part in society and give their fair
    share.

    I am completely pro-business, and yes we do need to
    encourage more private enterprise but this race to the bottom is defiantly not
    the way to go about it.

  • Ah, but there are the exceptions. It seems that this will be a selective Corporation Tax cut based on what our great leaders decide are the ‘winners’. What with their enormous successful business careers there is nothing that could possibly go wrong.

  • Given many of the large ‘consultant’ businesses in NI, relying on our good Government and so on, would PWC and the like have any interest in reducing Corp tax. Just asking.

  • Comrade Stalin

    Jeff,

    I’m sympathetic to your argument but you are missing a few details here.

    Countries with high corporation tax rates include Suriname, Pakistan, Togo, Benin, Republic of Congo, Cameroon, Chad, Libya, and Vietnam. Enough said.

    You left the USA off the list. Tax is 15-35% there. It’s 25-25% in Pakistan, 35% in Cameroon. I didn’t check any of the rest as I assumed they’d all be around the same.

    And while we’re on the reductio ad absurdum thing, there are a number of economic basket case countries that have corporation tax rates in or around 0%. We don’t even have to look that far – the Isle of Man is one of them. Yet, strangely, the Isle of Man does not resemble Hong Kong.

    This neatly illustrates the point that tax policy can’t be your only economic policy. Lower corporation tax certainly makes a country more attractive to business, but it doesn’t make it attractive full stop.

    And we haven’t addressed some of the glaringly obvious questions. As you have said, there is a penalty in the form of the block grant. If corporation tax results in the creation of jobs I’d agree that this is a penalty that may be worth paying. The problem is that there is no guarantee that companies taking advantage of the tax cuts will employ anyone. I’ve yet to hear anyone explain exactly how we address the problem of large tax-paying corporations such as Barclays or BT setting up a brass plaque office in Lanyon Place and funnelling their group income through that office. EU state aid rules almost certainly will prevent any kind of attempt to tie tax rates to headcount or locally booked revenue. You do not have to be a socialist to see that it is silly to throw away public money and get nothing in return.

  • NMS

    Fear an Tí I would respectfully suggest that cutting VAT is much more effective than any other form of tax adjustment.

    Firstly, it reduces the final price to the customer, secondly as a business owner it reduces the cashflow issues created by writing your VAT remittance to HMRC or the Irish Revenue Commissioners. Finally the reduction in consumer prices can give a once off kick to an economy. It flows through by way of the different transactions finally ending up with the consumer.

    Had for example the Irish Government reduced the standard rate of VAT from 23% to say 18%, the kickstart it would have given the Irish economy would have been far more effective than the tinkering around that took place. It would have also given the UKNI economy a serious kick in the mouth by reducing Irish prices just as the comparative UK prices were being pushed up by the temporary strength in sterling.

  • Comrade Stalin

    This is not the case. Businesses only employ the staff they need: no more, no less.

    Brian, I thought we dealt with that already.

    It should be pretty clear that anyone who cannot think of a good way to spend the extra cash made available through a tax cut is a pretty poor businessman.

    If you are in a competitive marketplace, money that is not being taken out of your pocket is money that can be spent upgrading equipment, or hiring more engineers or staff to get your product out the door faster and therefore increase your profits and market share.

  • Comrade Stalin

    All this has to be paid for it is completely bizarre that someone stacking shelves in ASDA will have a higher Tax rate than me.

    Sorry for the multiple postings here, but for someone who claims to be a businessman, and as a person commenting on the pros and cons of taxation, you seem to have a missing some rudimentary knowledge about how the tax system actually works.

    The clue is in the name – “corporation tax”. It is a tax on corporations, ie limited liability companies, not on individual incomes. In the simplest case*, if you set up a small limited company and then set yourself up as an employee/director of that company, profits earned by the company will be taxed. The taxable profit of the company is after any wages have been paid to employees (ie you). On your personal income you must pay national insurance and income tax, just like the Asda employee.

    If the corporation tax cuts go ahead, the tax payable by your company will be reduced. However, it’s very unlikely that a company with a handful of employees will see any benefit, especially if the firm is breaking even. If you’re expanding and employing a lot of people, that changes things.

    *by “simplest case” I am excluding the effects of IR35

  • Comrade Stalin

    I currently own a nice property just outside Belfast which costs me about £400 a month in mortgage.

    £400 a month on a mortgage is nothing. Assuming you are talking about a 25-year repayment mortgage, with a 25% deposit you are talking about a house worth £100,000. Where can I find a nice house for that price ?

  • NMS

    Brian, I fully agree with you. While CT rates are generally falling throughout the world, there is no relationship between low CT rates and high rates of economic growth, indeed the opposite is true. Here is a KPMG table of world rates, http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/corporate-tax-rates-table.aspx

    The pressure to reduce effective rates is more related to declining rates of profit and business growth while at the same time the measurement of most stock exchange listed businesses is the EPS (earnings per share). If gross profit is static, net earnings can be increased by reducing the tax take.

    The headline rate in Malta is in fact 35%, but that is before the magic happens.

    High standards of education, great infrastructure and joined up thinking at an administrative and political level are the keys to economic development, not low/no rates of CT. By the way, the main “tax” paid in most continental European countries is National Insurance/PRSI. The “normal” rates are around double the Irish or UK rates.

    Taxation is not so much the issue, rather continuous long-term planned investment strategies.

  • Comrade Stalin

    Lowering corporation tax helps those who are currently profitable and making money, keep more money than they would if it hadn’t been lowered.

    Not necessarily. It depends on the strategy of the business.

    If a large company is investing in expansion, eg by hiring more staff or purchasing more equipment, clearly having more cash available to it to spend on that expansion will allow it to grow faster.

    If a large company is trying to return maximum profits to shareholders, which is the objective of many FTSE100 firms, it is clear that lopping £0.5bn off their annual tax bill will allow them to increase their dividend. They may therefore decide to move jobs and premises to Belfast for this reason.

    The theory behind cutting corporation tax is sound. I do fear, though, that people see it as a magic bullet, which it certainly is not. Low corporation tax is one out of several weapons in the economic arsenal of the RoI.

    It’s also interesting to me how a lot of people are saying that a tax cut would just go straight into somebody’s pocket. It shows me how un-entrepreneurial people in NI are. They take their career or business to a certain point, and then stop. As long as we limit our ambitions and our beliefs in what is possible, no amount of corporation tax cuts or any other measures will help.

  • Brian O’Neill

    As you may know many people with a Ltd company takes a minimal salary that incurs no tax or national insurance payments. They then take money out as drawings giving an effective tax rate of 20%. This is pretty standard for small businesses and all perfectly legal.

  • Brian O’Neill

    Say I am a small business who makes a profit of 50k. The current tax on this is 10k. If the rate half’s then I pay 5k in tax. This gives me 5k to play with, not a lot to encourage you to hire someone new etc

  • Comrade Stalin

    I am not an accountant but I’m pretty sure it is not perfectly legal – you are aware of IR35 ?

  • Comrade Stalin

    If you’re a software developer, that’s enough to buy a new server, some decent storage and an upgraded internet link. Onwards and upwards ..

    And what if you’re making £250K ? Now you’ve got another £50,000. Easily enough to hire a couple of junior developers on short term contracts, or one middle developer as a full time employee.

  • OneNI

    The idea that we shouldnt cut Corpor tax because some companies in the Republic pay 2.5% is a bit misleading. Only a select band of companies could ever avail of it but it is now effectively being closed down

  • Brian O’Neill

    And the countries with zero corporation tax?

  • Brian O’Neill

    The paste function is not working on disqus on my phone but if you google directors salary you will see how it works. It’s all above board. That is why so many self employed set up as Ltd companies it is extremely tax efficient. When they lower the rates there will be a flood of new Ltd companies as more self employed people take advantage of it.

  • Brian O’Neill

    I am a software developer and i ain’t hiring no one. The model a lot of us use is we outsource work to others. You assume all businesses want to grow bigger and bigger. Most are content to stay small that is why over 90% of companies in NI employ less than 5 people.

  • Ian James Parsley

    I don’t agree that businesses only employ those people they need and no more and no less (I’ve read that before).

    Honestly, I would take a risk on employing more if I had more money to play with (which I would have if Corporation Tax were lower). I’d be more likely to invest generally. So would others.

    (That doesn’t make me against your substantive points, see my broader post in direct response to Jeff’s piece).

  • Ian James Parsley

    The only way for Northern Ireland uniquely to cut VAT legally is to declare independence from the UK.

  • Ian James Parsley

    Just posted this on Facebook but it may as well go here too:

    I have drafted a blog piece for Thursday on saving £600 million annually *within the bounds of political feasibility* and, of course, those bounds are restrictive (but realistically have to be met). Even to do that, I am introducing two types of charges to the public which, to my knowledge, have never even been suggested at Assembly level…

    That £600 million is already a necessary saving due to budget pressures and increasing strain on services, so to find another £300 million *within the bounds of political feasibility* may (may, not necessarily will) prove impossible. We have to be prepared for that.

    I personally take a completely contrary view from most people and believe that everything that has just been devolved to Scotland should be devolved to Northern Ireland. If the electorate continues to elect idiots to most offices, then the electorate will be punished. I say “good”. Most people don’t agree with me!

    For all that, I am not convinced (i.e. could be convinced by am not yet) that Corporation Tax should be devolved to either in the current context (as opposed to five years ago, when it would definitely have been only to Northern Ireland and budget cutbacks were not yet biting). I do not in any case particularly like the crude “race to the bottom”, and I do not like the notion of the “silver bullet”. Northern Ireland has to invest in skills (which it is doing), has to align its education system to the modern workplace, has to reform (and, frankly, greatly reduce) its public sector, and has to focus on export-based wealth creation (and specifically not giveaways to retail and hospitality, which do not create wealth). Each and every one of those, alongside basic political stability, is more important that any reduction in Corporation Tax (or anything else, for that matter).

    That said, if Corporation Tax is devolved, then my instinct would be to consider the cost of a *targeted* reduction (which may be much less than £300 million); it should be possible to offer such a reduction only to Enterprise Zones, or only to certain industrial sectors, or even conceivably only to companies paying the Living Wage (i.e. higher-end, more likely wealth-creating businesses). It is essential, as per my point in the previous paragraph, that if we are to take more money out of public services that money is *targeted*, and not just handed to Tesco or HSBC to shuffle the nameplate of their HQ nominally to Belfast.

  • Old Mortality

    Brian

    ‘All this will do is give the self employed a massive tax cut.’

    The self-employed are, by definition, not incorporated. They are liable for income tax, not corporation tax. As you claim to be a businessman, I am surprised that you could make such a fundamental error.

  • Kevin Breslin

    Let’s realise we do not have the financial circumstances that the Republic had to allow it to cut its corporation tax and get the foreign direct investment in before the bust. We also have twenty years of catching up on that. I don’t believe Northern Ireland can do what the Republic did, and certainly it would be a lot more labour intensive than merely a corporation tax cut.

    We are cutting our Department of Learning to rebalance the books, we will see further cuts to that if corporation tax is reduced wholesale. This is keeping our students from precision mathematical skills, broad awareness of fast changing chemistry, physics, biological paradigms, new engineering processes and the latest technological breakthroughs. We are also getting nothing from our private sector in skills development.

    As a graduate in a natural science subject, being told my mathematical skills were needed in the software industry, I asked several recruitment agents and local businesses, (short of putting money back into another degree) where would I have to go to upskill to learn coding skills. They said there were conversion courses and training facilities … but to be honest, they said these things in blind faith.

    I do not trust those who complain about skills shortages here when they cannot even tell the supply chains, or even care where, they are supposed to get their skills from?

    It was the combination of that educational investment and the low corporation tax that attracted companies to invest in the Republic, and Small to Medium entrepreneurs to develop within it. This is why Botswana’s equivalent low corporation tax rate is not providing the sort of stimulus seen in the Republic of Ireland.

    Indeed let’s consider that most of Eastern Europe has an equivalent corporation tax rate to the Republic of Ireland, we still have the dogma of Eastern European immigrants trying to go over to get jobs in Northern Ireland when tax competitiveness is their only factor considered, their own countries are probably more likely to attract these companies anyway.

    Unfortunately the UK is being wooed by UKIP who seem prefer to stop migration which keeps money in more than to stop UK companies outsourcing labour, which usually keeps investment out.

  • Comrade Stalin

    But this mustn’t be true, otherwise nobody would pay tax at the upper rate. The government clamped down on all that with IR35.

    I know this because recently I was looking into becoming an IT contractor and setting up a limited company. You can no longer do this. The Inland Revenue via IR35 says that if you are doing a job as a contractor that looks similar to a normal full time job, you will be taxed as an employee. You cannot simply pay the money into the company and then have it pay out as a dividend.

    FYI my own employer (100 odd employees, £7m turnover, owned by the directors) pay themselves a large salary (>£100K) and do not take income from their company as dividends.

  • Comrade Stalin

    You’re not the target of the plans to cut corporation tax.

    I don’t assume that businesses want to grow bigger. If you read my contribution below I regret the lack of ambition that we have here in this regard. Apparently nobody wants to be a millionaire, or at least nobody wants to take the risks to get there.

  • NMS

    I am sorry, but the ability not to pay CT has not been closed off. You can still use the Double Irish structure via a “real” tax haven for some years. However you can also move it to a suitable Treaty location such as Malta and still use the Double Irish structure.

    Most companies in Ireland pay no tax, because any surplus is taken by the directors as salary, fees or other emoluments. But to give you an idea of the concentration of CT payments, I refer you to a document produced by two economists (apologists) employed by the Irish Revenue.

    http://budget.gov.ie/Budgets/2015/Documents/Corporation_Tax_Context_Concentration_Corporation_Tax_Payments_Revenue.pdf

    If you look at the Table on page 7 of the document you will see that 44% of the CT was paid by multi-nationals in just two units of the Large Cases Division, ICT & Pharma/General Manuf. In fact this figure is an underestimate, but no matter for our purposes. You will also note that there are supposedly over 800 companies, however they are in fact around 80-100 groups. One group may consist of many companies, but only one or two entities are actually trading.

    If you then move on to the Table on page 10 you will see the total CT payments made by the top 10, 20 & 50 companies. On page 11 you will see some figures for the largest groups.

    If you use the figures contained in this report to calculate the proportion of Irish GDP made up by Corporate Profits, you get a figure of 20%, which just shows how hard all those Irish Stakhanovites work for the good of their employers!

  • NMS

    Exactly, but I would propose that Ireland cuts its standard rate to 15% immediately to ruin you all completely!

    Cutting other taxes does not really work because it does not help everyone. If you cut Income Tax, that is no good for those who do not pay Income tax. The same applies to property based taxes or charges.

    The Labour Government’s cut of UK VAT to 15% during the economic crisis worked, ensuring that economic activity kept going.

  • Comrade Stalin

    Link here

  • Comrade Stalin

    Fear an Tí I would respectfully suggest that cutting VAT is much more effective than any other form of tax adjustment.
    We did this five years ago, it was a total failure.

    I’d cut VAT for fairness reasons, but I doubt it would enhance the economy.

  • Comrade Stalin

    The Labour Government’s cut of UK VAT to 15% during the economic crisis worked, ensuring that economic activity kept going.

    No it didn’t.

  • Gingray

    I love this argument, let’s mimic the rest of Ireland but pretend we are doing something different and fail miserably. Reducing corporation tax is only viable as part of a united Ireland when we have a say in the economy. As a handout rump part of the UK our economy will always be reliant on the needs of London and the south east. If northern Ireland continues to be a drain, but sends it’s best and brightest to Britain, it’s their gain and our loss

  • Brian O’Neill

    Yes that is true if you are a contractor with only one client. But if you have several clients the Ltd company way is the way to go.

  • Superfluous

    You can find a nice house for that price in 2004 when I bought it – but that’s not the point, I was saying it would be much cheaper for me to live in that house than in a rented Dublin house, yet Dublin still remains more attractive despite the cost of living handicaps.

  • Brian O’Neill

    Government figures show that:
    -Over
    three quarters of VAT and/or PAYE registered businesses with a main (or
    registered) address in Northern Ireland had total employment of less
    than five.
    -At March 2013, businesses with total employment of
    less than 50 accounted for approximately 98% of all VAT and/or PAYE
    registered businesses in Northern Ireland.
    -Businesses with 50-249 employees accounted for 1.5% of the total.
    -Businesses with 250+ total employment accounted for 0.3%.
    -Businesses with total employment of less than 10 accounted for 89.0% of the Northern Ireland total.

    The vast majority of Ltd companies in NI employ only 1 or 2 people ergo it is a massive tax cut for the self employed.

  • Brian O’Neill

    Here you go https://www.holdenassociates.co.uk/directors-pay-2014-2015/

    Yes big companies do not do this but the vast majority of small companies do.

  • Zig70

    I’m in favour of a corporation tax cut. Having worked in multinationals, fdi’s and startups, I know it is a feature on the decision of where to put a business. It features on the pros and cons slides at early decisions, where the north gets stroked off the list. It’s no silver bullet. We would be better to get away from the obsession with fdi’s. The old ledu mentality still exists. We should give indigenous entrepreneurs far more support than foreigners not far less. My own experience of home grown talent is that they did everything possible to safeguard jobs here.

  • Superfluous

    Malta transformed its economy by giving close to zero percentage tax on online gaming and is pushing further ahead by creating technology enterprise zones such as ‘SmartCity’ (in which there are many ‘close to zero’ tax advantages). I know because I left Northern Ireland to go work there for 5 years. Believe me the standard of education and infrastructure were a lower quality than Northern Ireland (constant power black outs, high ping times with global networks due to remoteness – earthquakes severing undersea cables!). They also have a historical issue with old Leftist policies (such as public housing and a big civil service) dragging the economy down, but they have been quite successful in pushing the economy away from state spending towards private employment in the decade or so since I moved there.

    The truth is, apart from the weather, I was there for the job and the job was there for the tax.

  • Bryan Magee

    I think we need to do a lot of things and corpo tax cuts are essentially “beggar thy neighbour” competition (based on diverting inversment from others) rather than creating new talent and creativity. They may be part of the picture but there is a lot more.

    You need to raise tuition fees (paid only by the well off, hence a progressive measure) and use the money to expand places in local universities, which in turn creates a larger research sector in NI with all the spin-ff benefits that happen with research excellence.

  • Bryan Magee

    There are lots of people in London from all parts of Europe. Its just a great place to make your career.

  • Superfluous

    “beggar thy neighbour” or “race to the bottom” cliches do not get the point – I bet there were a group of executives sitting in Tesco wondering why they are losing market share, completely brushing off the suggestion that maybe they should compete on price with cheaper competitors (who, importantly, were starting to match them for product quality). If you don’t compete on both price and product the citizen and the business will not shop there – it’s very easy to find a better deal elsewhere. The likes of London doesn’t need to compete on price as much because it has a very mature global facing economy and a huge professional class – it has a good premium product and it sells at a premium price. Northern Ireland has an inferior product so it needs to compete on price to get business in – we’ve a LIDL economy with a Tesco pricing structure.

  • Superfluous

    I was working in India for a while with a tech company, and when dining in my hotel they had about 10 waiters surrounding me at all times. I can remember thinking that number of staff was a bit excessive – but then I figured it out it was ‘marginal value’. There is such a high return from me paying Western prices in that hotel, and the staff are so cheap, that they can afford to get even marginal returns from over-doing it with staff.

    If you tax a company highly and they are in a competitive marketplace then they will need to cut costs elsewhere to keep their prices competitive. If they can get 80% of the desired quality with 1 staff, but 100% of the quality with 2 staff they will make a rational decision on their place in the market and whether the cost of the extra staff is worth the increased quality of the product. For those who haven’t read up on economics it’s actually a fairly straight forward concept http://en.wikipedia.org/wiki/Marginal_utility#Marginal_utility

  • Comrade Stalin

    Yeah I heard stories like that. A taxi in India, at least a few years ago, was your personal chauffeur. He’d wait whereever you were, all day if necessary, to pick you up and take you to where you wanted to go next.

  • Comrade Stalin

    I do not disagree much.

    But the infrastructure in Ireland totally and utterly sucked when many of these new companies first moved in during the 1990s.

    When I lived in Dublin 99-2000, there was no Belfast-Dublin motorway (the trip would typically take the best part of half a day, and most of that south of the border), no Port Tunnel, no Luas, and commuter train services outside of the DART corridor were dismal. Traffic conditions were routinely awful – this is still the case, although now public transport has at least improved. The train to Arklow at 6PM in the evening still had 1960s carriages which were heated by steam. Infrastructure outside of Dublin was woeful.

    I think education and access to the eurozone are Ireland’s biggest assets. Corporation tax is relevant, too. That’s why Haughey’s IFSC took off.

  • Comrade Stalin

    I will take an uninformed guess and say that this arrangement may work if you are a director, but not if you are also working full time at the company you are a director of due to IR35.

  • Comrade Stalin

    Obviously, as an individual, it is difficult to have multiple clients at the same time if you are working on a time and materials basis. Certainly doing any IT work on a T&M basis would be difficult if I had to deal with three or four different projects on a weekly basis.

    On the other hand, fixed-price work sounds like it would not fall foul of IR35. I think a lot of the web design end of the trade is done fixed-price, so you’re not turning up at the guy’s office every morning and asking him what he wants done today.

    It’s disappointing to me personally, as I had designs on setting up a small company, using the company’s expense account to obtain training and certification, and starting a consultancy business from there, which could eventually employ a few people. IR35 makes this more expensive and complicated to do in a tax-efficient manner.

  • chrisjones2

    …becasue they are lifestyle businesses

  • chrisjones2

    That was stopped years ago.Sorry you are out of date

  • Comrade Stalin

    Brian, the idea is to change the economy. Not accomodate the economy in its current state.

  • chrisjones2

    It doesn’t work at all now – its been illegal for about 10 years

  • Bryan Magee

    There are different ways to compete, and we do have traditions in certain areas that could be a foundation stone.

  • Zeno3

    “Most of the major technology companies chose Ireland because it has a low corporation tax rate while we don’t. ”

    I don’t think they do, since as you say they pay little corporation tax anyway. The Irish Government turns a blind eye to the tax dodging activities of these companies in exchange for jobs. We can’t do that. You must have heard of the Double Irish?

  • barnshee

    “They then take money out as drawings giving an effective tax rate of 20%.”

    Nope “drawings” will be treated as income– they might take” “dividends” Taxable at their marginal tax rate (20%,40% etc) what they do dodge are NICS contributions,
    (No more free tax advice)

  • Comrade Stalin

    Dividends are not quite taxed in the same way. The highest rate of dividend tax is 37.5% which is obviously lower than the 40% or 45% upper rates. And obviously as you said you will continue to dodge employer and employee NICs which is fairly significant.

  • Owen Smyth

    So you’re assuming that healthcare, education and infrastructure are better now than they would be in the private sector? Imagine the government ran supermarkets (because food is obviously as important as healthcare) do you think we would have the huge selection available now, and costs being squeezed to increase competitiveness? The record of history shows that private sector industries innovate to compete, while govt run monopolies stagnate.