Could we get a bite of this job sandwich?
Published 10/08/2012 | 08:00
There is no doubt that when Peter Robinson and Martin McGuinness return later this month they will have more to concern them than the rows over Welcome to Northern Ireland signs that have occupied their stand-ins.
The economic news is so grim that they must steel themselves to pull two of the most powerful economic levers available to them. One is the devolution of corporation tax.
Two years ago the Executive set itself the target of promoting 25,000 new jobs between 2010 and 2015.
Yet the latest PwC report shows an economy that is shrinking and will continue to decline in the coming year. The Northern Bank also downgraded its forecast and yesterday the Bank of England lowered UK growth expectations to more or less zero.
The prospects of increased funding from outside, or a public spending stimulus, are low.
Our private sector wages are already too low and the casualisation of the workforce is already driving many working families into poverty.
The big factors holding back investment are high energy costs and our high business tax rates compared to the Republic. There cutting corporation tax has boosted growth. Low corporation tax, coupled with a US tax avoidance scheme known as the 'double Irish sandwich', is the main reason companies like Google, Facebook, Apple, Microsoft and Pfizer have set up shop in the Republic.
Certainly the Republic is a nice place to live - it has good universities and people speak English - but the same could be said for Northern Ireland or Scotland.
Corporation tax is the killer difference. The 'double Irish sandwich' is why Google manages to pay just 2.4% tax on overseas earnings.
The effect of such incentives could be reduced or nullified some day by a US administration but until they are we need to offer them too.
As Eamonn Donaghy pointed out in this paper yesterday, our existing weapons for attracting investment are being rapidly decommissioned.
The main tool to attract inward investment was Selective Financial Assistance, SFA.
Virtually every job we attracted in the last five years involved SFA, which was cut from 30% to 10% in 2010.
"You will notice that there was a rush of new investment announcements at that time but less since then," Mr Donaghy said.
As if to make the point, PwC reports that 11,000 jobs have been lost in the private sector since the date he mentioned.
There is pressure from the EU to eliminate SFA altogether in Belfast in 2013 and to phase it out over time in less advantaged areas. We may win a reprieve but not for long and even if we retain the 10% rate it lacks the wow factor we need.
Of course the saving made by reducing or eliminating grants can be set against the cost of reducing corporation tax.
The annual cost would also be reduced by the amount of corporation tax we collect here at the reduced rate.
Our leaders need to press the Treasury to close this deal on the best terms possible.
The second powerful lever is reducing our energy costs. I will look at the potential to do that next week.