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Economy Watch: view from Dublin

By Tom Healy

Published 25/08/2015

Economically, Northern Ireland lost out on many of the benefits of post-World War Two growth. A long-term decline in shipbuilding and associated industries, together with textiles, was not matched by a huge surge in other areas of economic activity. The public sector grew, especially in the 1970s, in line with the Troubles as well as other factors.

The north did not share the success of the south in attracting large-scale multinationals producing high value-added products and services. While large-scale UK enterprises and some successful local enterprises continue to play an important role in manufacturing and business services, Northern Ireland's economy remains under-developed.

Typically two reactions to this plight are common: one motivated by an agenda encompassing a political, and not just economic, united Ireland.

It's argued Northern Ireland is a failed political entity; has no meaningful political autonomy and is suffering from the lack of synergies that would flow from a fully integrated all-island economy and politic.

The other reaction is very different and is entirely focused on the role of the private sector as a generator of growth. This latter view sees the large public sector as a barrier to growth and the key to a flourishing and dynamic NI economy is an ever lower corporate tax regime to stimulate foreign (or intra-UK) investment. The subject of a lower tax rate for businesses had become a fad among many commentators, almost all politicians and not a few leading economists.

Both reactions - the unitary state proposal and, separately, what I would term the 'race-to-the-bottom' one pony solution involving a super tax-competitive jurisdiction - raise significant questions and problems.

The idea of a united Ireland soon is unrealistic even if Brexit, Scottish independence and other events were to come to pass. Apart from any other consideration it is not clear southern citizens would be content to have a united Ireland.

The low corporate tax policy has come to grief for at least three reasons:

  • There is shocking little evidence that a further cut in corporate tax would 'pay for itself' and not cause continuing damage to an already fragile level of public services.
  • The prospect of a lower tax rate has been frozen as a result of a continuing local political row about how UK 'Welfare Reform' should be implemented.
  • The UK Government has accelerated the cut to corporation tax for the UK as a whole by announcing in the July budget an 18% headline rate for 2020. It will be hard to keep up with that level of ambition.

Missing from the public debate in Northern Ireland is a consideration of how a long-term strategy of investment, local enterprise development, innovative commercial state activity and raising of skill levels could help transform the economy over a long period.

Tom Healy is director of the Nevin Economic Research Institute (NERI), a trade union-funded research institute committed to producing policy analysis

Belfast Telegraph

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