Northern Ireland should consider introducing Robin Hood taxes and reintroducing local savings bonds to raise revenues and counter the impact of impending public spending cuts, a new bank report advises today.
Writing in First Trust Bank’s quarterly economic outlook and business review, University of Ulster economist Mike Smyth said local politicians must turn their attention to achieving greater autonomy in economic policy to properly tackle the challenges facing the province.
The report was released a day ahead of Alistair Darling’s Budget, which is expected to focus on measures to reduce Government debt. Mr Smyth noted Northern Ireland’s fiscal position has deteriorated recently, with cuts to the block grant in excess of £650m likely to follow the £370m of spending cuts already announced for 2010-2011. “In the context of a much less benign national public finance environment there is now the need for a serious debate about the options for revenue raising in Northern Ireland,” he said.
“For many years Northern Ireland has had one of highest regional personal savings ratios in the UK and yet very little of these savings are retained in the local financial system or are available for investment in the local economy. There is a strong case for the establishment of a Savings Task Force to evaluate various mechanisms including the reintroduction of a local savings bond similar to Ulster Savings Certificates.”
The report also said there is scope for the introduction of what have been termed ‘Robin Hood taxes’.
For example, a tax could be levied on mobile phone masts, putting a small additional charge on text messages and phone calls; this could generate revenues for Northern Ireland in a relatively painless way, said Mr Smyth. “A more overt measure would be a levy of £200 per annum on public sector car parking.
“Alternatively if the MOT test fee was increased to £100, this might generate up to £50m extra revenue. Similarly domestic and non-domestic rates could be unfrozen to help offset the effects of expenditure cuts,” he said.
Another suggestion made which is aimed at easing pressure on the public capital programme is the creation of an Infrastructure Bank in association with a pension fund or other large investment house that takes a longer term investment perspective.
Mr Smyth said if large amounts of private capital were levered in to support investment in the province, |appropriate revenues would have to be raised to service these investment borrowings.
The report’s forecasts are in line with other recent economic analyses in predicting the Northern Ireland economy will remain weak until the middle of 2010, facing severe fiscal retrenchment and little prospect of additional Treasury or UK taxpayer support.
First Trust says it believes labour market conditions will worsen even as the recovery kicks in, with the number of unemployed rising above 60,000. However, the report also predicts the service sector will recover some ground this year and there are signs that consumer confidence has steadied and the housing market has begun a fragile recovery.