Corporation tax: This could prove a high-risk move and biggest test to face Executive
Published 18/08/2014 | 12:00
The decision to devolve corporation tax to Northern Ireland could be a kill or cure moment for the Executive.
On one hand it would be the shot in the arm that business, and most economists, say we need. It would give the politicians what they have been asking for – but it carries a hefty price tag.
Reducing corporation tax would immediately suck revenue out of the economy as businesses received windfall profits. The banks would also benefit unless agreement could be reached to devolve powers to levy them as the UK government has done when it cuts corporation tax.
Some businesses would reinvest the money locally – that is the plan – but there is no guarantee of how many would do so. Increased profits could get paid out in dividends or be invested abroad. The politicians would need to manage the change, and to make a plan to increase the size of the corporate sector in order to make the change pay its way.
It would imply increased public investment elsewhere. We would need to gear our schools, colleges and universities to produce the sort of trainees and graduates who can attract new firms in and benefit from the job opportunities. Building roads and infrastructure would also be essential.
We would need to plan exactly what companies we wanted and begin to target them. Voters would need to see the benefit in increased living standards – we don't just need more jobs, we need better jobs. Wages here lag far behind both the Republic and the UK, especially in the private sector. Politicians would need to agree a way to fund this investment in tax cuts without crippling the education system and infrastructure which are also needed.
Nobody is saying it out loud but the best way to do that might involve more taxes. Water charges, which apply in both the UK and the Republic, could free up £400m a year.
That would look like taxing households to subsidise big business. Whether we did that or cut services, pushing through the change would require a degree or political vision and discipline that is not evident at present.
The question is whether, after demanding this change for around seven years, the parties are now capable of the sort of joined-up thinking it demands. If Mr Cameron (left) grants the powers it will be the biggest test our squabbling political elite has faced since devolution.