Cutting corporation tax would create up to 90,000 jobs in Northern Ireland and be worth £1bn over the next two decades, economic experts have predicted.
In the opening hearing of the Northern Ireland affairs committee inquiry into corporation tax in London yesterday, MPs were told the Republic led the way when it altered its rate, which played a key part in fuelling the Celtic tiger years.
Eamonn Donaghy, from KPMG, claimed slashing the 28% levy to 12.5%, which would bring it into line with the Republic, would be a “game changer” in attracting foreign investment.
MPs were also told that just a few big investors could make a dramatic change to the local jobs market.
But taxation specialists warned slashing the rate was not the “panacea” many people are claiming, insisting they “remain unconvinced” about the move.
Victor Hewitt, representing the Northern Ireland Economic Reform Group, pointed out that American multi-nationals did |not decide to invest in the Republic based on the size of the market, as it is actually relatively small, but made the choice based on the perks. “The potential benefits are large,” the reform group added in a statement.
“Analysis suggests that employment in Northern Ireland could increase by 90,000 jobs over 20 years.
“Since the majority of these jobs can be expected to be in high value-added firms, there would be a substantial impact on average productivity and wages.”
It estimates that while tax |revenues would dip initially, over the long-term it would raise around £1bn over 20 years, though much of that would go to the London Exchequer rather than the Assembly.
Mr Donaghy, however, told MPs: “In return, what we will have is a significantly greater section of the population in well paid jobs. If the Treasury also happens to win, then that can't be a bad thing.”
Under European law, changes to the tax rate can only be done in a region that has power over that area.
That would mean devolving |responsibility over corporation tax to Stormont, but the knock-on of that means the Assembly would have to take a hit financially, so part of the block grant would be top-sliced.
That could be made up in other areas, particularly if there is a big increase in highly-paid skilled jobs, but Martin Fleetwood from PricewaterhouseCoopers warned: “It would be a brave decision.”
He joined other taxation experts in warning that corporation tax was only one aspect in attracting foreign investment because companies and other countries were now smart to the technique used in the Republic.
Mr Fleetwood urged MPs to look at other measures, such as research and development tax relief, but Ian Paisley jnr told him: “It would hardly have the same ‘va va voom’, it's not the same bang for your buck.”