Here's hoping for a low tax 2012The executive has a big decision to make on corporation tax, according to Eamonn Donaghy
As 2011 fades into the background and the bleak economic outlook for 2012 and beyond starts to become a reality, is there any prospect that, after a long wait, Northern Ireland may indeed get an economic lever to facilitate the growth of our private sector? It is definitely worth taking stock of where we are on this fiscal odyssey.
In late December, the Treasury published the responses to the consultation document titled Rebalancing the Northern Ireland Economy, which closed in July. The summary indicates that over 700 responses were received and 75% were in favour of the proposed devolution of corporation tax. However, despite this huge vote of support from respondents, no decision has been made on the issue of devolving corporation tax varying powers to the Northern Ireland Assembly.
The summary refers to the joint ministerial working group that has been set up and indicates that a final decision will not be made until summer.
The ministerial working group on rebalancing the Northern Ireland economy is made up of ministers from the UK Government and Northern Ireland Executive and they had their first meeting in mid-December. While not much has been reported on what went on, this group is tasked with looking at the nuts and bolts of making lower corporation tax work as and when devolution of the power to vary corporation tax is passed to Stormont.
The 'real' political issue that haunts the devolution to Stormont comes from the demands of the Scottish Government for the devolution of power to vary corporation tax in Scotland. Despite the current Scotland Bill being focused on devolving income tax varying powers to Scotland, last summer the Scottish government put forward an additional proposal to reduce the corporation tax rate in Scotland to 12.5%.
However, when an annual £2.5bn price tag was attached to this proposal, there was a change in direction to a call for a reduction in the corporation tax rate from 23% to 20%. Such a small rate reduction will still result in a cost to the Scottish block grant. The interesting thing is that the estimate of private sector jobs it will create is less than the public sector job losses for several years into the future. It's hard to see any economic sense in this being a good deal for Scotland in the same way as it would be a good deal for Northern Ireland. Indeed several of the Scottish business organisations have come out against this idea.
The 'red herring' political issue is the current state of flux in the EU. Whilst the crisis is indeed real and will have big implications for Northern Ireland, Great Britain and the Republic of Ireland, what it will not lead to is an increase in the corporation tax rate in Ireland.
Whilst 2012 is likely to see off French President Nicolas Sarkozy and possibly German Chancellor Angela Merkel, the EU Commission will almost certainly remain. The Commission's main tax unification issue is the Common Consolidated Corporate Tax Base and not a unified rate, let alone an attack on any one member state's corporation tax rate.
My pretty confident prediction for 2012 is that the Irish corporation tax rate is here to stay for years to come. So what will 2012 hold for the proposal to reduce corporation tax in Northern Ireland?
The ministerial working group on rebalancing the Northern Ireland economy will hopefully make good progress. There appears to be a strong desire among our elected ministers to facilitate the devolution of corporation tax varying powers to Northern Ireland and this political will is vital to the success of the process. Together with the support of the Secretary of State and the Grow NI umbrella business organisation, there is an overwhelming alliance of support for this issue to succeed.
The Scottish Government will have to make a final decision on whether to push ahead with the call to devolve corporation tax varying powers. This will be in the face of opposition from a considerable body of Scottish business. It would be a very unfair result if the devolution of corporation tax varying powers to Northern Ireland - which will be critical to the growth of our private sector - was to be denied as a result of a call for similar powers from Scotland.
If the political winds blow in Northern Ireland's favour, we might get to the position where an agreement in principle to devolve corporation tax powers could be reached during 2012. An official announcement that the devolution of tax varying powers along with a statement of intent by Stormont that the corporation tax rate will be reduced for at least a decade, would have a profound impact on the foreign direct investment interest into Northern Ireland.
Given that the real prize from a reduced rate of corporation tax is the creation of long term jobs, I think it is only fitting to be optimistic.
Here's to a low tax 2012.
700 responses were received and 75% were in favour of the proposed devolution of corporation tax