Cut would help boost business and economy
Slashing corporation tax to 12.5% could create 90,000 new jobs in Northern Ireland by 2031. The argument in favour of a reduction is unanswerable, says Eamonn Donaghy
Already this year we have seen momentous events on this island. Our Assembly completed its first full term, the Queen has visited the Republic and all of the main local parties came together to support the call for a reduction in corporation tax in Northern Ireland at the launch of the Treasury consultation paper.
Okay, the last of these three events may not, at first glance, seem to be a momentous event in comparison to the other two.
But I believe that it could have the longest-lasting and biggest impact on our economic future.
The debate over a lower rate of corporation tax in Northern Ireland has been ongoing for a number of years, but came sharply back into focus in March 2011 when the Treasury issued its consultation document on rebalan-cing the Northern Ireland economy. With the consultation period coming to an end on Friday, June 24, it is important to restate the benefits that a lower rate could bring.
While a reduction in the corporation tax rate will not be the sole cause for the Northern Ireland economy to leap forward, it should be regarded as the 'essential ingredient' to unlock some of the excellent attributes that already exist: a well-educated workforce, an entrepreneurial heritage, membership of the EU and being part of the larger UK economy.
In simple terms, the main objective of reducing the rate is to stimulate the private sector economy in Northern Ireland by attracting new foreign direct investment and encouraging existing businesses to reinvest profits.
In addition, a rate reduction will ultimately lead to the creation of long-term, sustainable, well-paid jobs.
While the consultation document does not specify the potential number of new jobs, reports from the Northern Ireland Economic Reform Group (NIERG) and the Economic Advisory Group (EAG) have estimated that a reduction in the rate of corporation tax to 12.5% could create somewhere between 60,000 and 90,000 new jobs over a 20-year period. This sits in contrast to latest research from the EAG which states that, under current economic policies, the growth of Northern Ireland's private sector will only be a fraction of what could be achieved if the corporation tax rate is cut - a sobering thought.
As with most things in life, there's no such thing as a free lunch. As a result of EU rules, should the Northern Ireland Assembly, as part of the United Kingdom, wish to vary the corporation tax rate solely in Northern Ireland, it will have to bear the financial consequences. This is likely to have an impact on the Northern Ireland block grant.
However, we need to be clear that, as the Northern Ireland block grant is approximately £12bn per annum, any reduction that will be required as a result of reducing the corporation tax rate will, at worst, amount to less than 2.5% of the total block grant.
Giving up this amount to try to secure long-term job creation will not result in Northern Ireland ceasing to function. We would be investing in our future.
A bold move for our Executive to take would be to go for an immediate reduction in the tax rate to 12.5%. While it could result in a greater up-front loss of corporation tax revenues, it would send a very clear and powerful signal to both international and local corporations that Northern Ireland was 'open for business'.
An alternative solution for Northern Ireland could be to introduce a phased reduction over a three- to five-year period. The cost to the block grant would be reduced by more than 75% in the first three to five years, amounting to a cost of just 0.5% of the Northern Ireland block grant. Surely this is a price worth paying? I have just returned from a trip to Manhattan to speak to many different businesses and companies about the possibility of Northern Ireland having a reduced rate of corporation tax.
The consistent message from businesses based in the US was very clear: they liked what they saw in Northern Ireland in relation to the quality of the people, the business-friendly culture and the lower cost base when compared to London or Dublin.
However, the corporation tax rate, when compared to the current rate in the Republic, was a big issue. The clear message I got from all the businesses I met was that, if Northern Ireland had a corporation tax rate of 12.5%, the business case for them to locate their foreign operations would be "compelling". It's important to remember that a reduction won't just benefit company owners. It will benefit all of us. A reduced rate should stimulate economic growth in the private sector and, in turn, result in higher levels of employment, more disposable income and better opportunities for small businesses and retailers.
It would also mean that our young people may have a greater choice to stay in Northern Ireland rather than seek employment elsewhere. It's for these reasons that I feel that the corporation tax issue is so important.
This is an opportunity for everyone to voice their support for devolution of corporation tax to Northern Ireland. Simply submit a letter, or send an e-mail to ni firstname.lastname@example.org before June 24. I hope you think it's important enough to do so.