NI21 corporation tax warning: Executive needs to shake up 'outdated and inadequate' budget system if change is to take place
The Executive needs to overhaul the way it processes and scrutinises its budget if it is serious about securing devolution of corporation tax-setting powers, a member of the Finance and Personnel (DFP) committee has warned.
NI21's John McCallister said the current system was "outdated and inadequate" and couldn't presently handle the administration involved if Stormont were granted permission from Westminster to set corporation tax in Northern Ireland. The MLA also said there wasn't enough up-to-date economic data available from government for Northern Ireland, a feature which made it difficult to figure out how much corporation tax was raised in the most recent fiscal year. Latest output figures – based on gross value added GVA, a measure similar to gross domestic product – tended to be two-to-three years in arrears. For government takings which don't fluctuate significantly, such as income tax, that doesn't cause a significant problem, but can be a big issue in relation to corporation tax, which tends to be a volatile number from year to year.
Both factors mean Northern Ireland is at risk of settling for a poor deal if the Westminster Treasury were to devolve corporation tax, while there is also a chance the budget processing system would be unable to cope.
"Our economic data has been proven wanting and our budget process has been proven wanting," he told the Belfast Telegraph. "That's a major concern."
Mr McAllister pointed to Scotland, which sets out an annual budget, and called for the same here.
"I strongly advocate an annual budget in Northern Ireland, with a considerably enhanced role of for the Committee for Finance and Personnel. Not to update our budgetary process and devolve corporation tax would be irresponsible.
"Ensuring that the Northern Ireland Executive has the capacity to use devolved fiscal powers and that the public understand the risks of using those powers, is essential to a functional democracy. If the Executive is serious about devolving mores powers it must update its budget process."
Mr McAllister said he and NI21 backed the devolution of corporation tax-setting powers to Stormont, a campaign which aims to help Northern Ireland compete for inward investment with the Republic.
There, corporation tax stands at just 12.5% while in Northern Ireland it is currently 23%, falling to 21% from April 1.
"If you dropped corporation tax in at the minute, there is a huge question mark over whether we could handle it," Mr McAllister said, adding that while there has been discussion around the issue, there has been little action. "The budgetary process of Northern Ireland is outdated and inadequate. This means we have less effective government and only partial scrutiny and accountability.
"The issues surrounding corporation tax are significant.
"Of all the viable taxes which could be devolved it is one of the most volatile, meaning forecasts for tax returns to the Assembly are likely to vary considerably year on year.
"This will intensify fiscal risk, increasing the difficulty to plan government spending – this increases the need for better scrutiny and accountability mechanisms."
Supporters of the campaign to devolve corporation tax-setting powers to Northern Ireland believe such a move will help attract more inward investment and make it easier for indiginous companies to expand. The big business tax stands at 23% across the UK but is being cut to 21% from April 1 this year. If Westminster agrees to devolving tax-setting powers, Stormont will cut the corporation tax rate to 12.5%, as in the Republic.