The Northern Ireland Fiscal Commission, chaired by Paul Johnson, has opened what it hopes will be an important discussion about the potential for changes in the level and scale of different taxes here.
Are there changes in income tax rates, excise duties or VAT (or any other tax) that should be considered to improve the effectiveness of the working of devolution?
The newly-appointed commission has a wide agenda: what change in the application of any particular tax would it recommend because of expected consequences that might strengthen the local economy.
The challenge is constrained. Any tax change, for example a specific reduction in income tax, would take place on the assumption that there was a compensating reduction in some aspect of Government spending.
The change should not have the effect of increasing the amount of financial support from the Treasury: tax changes should be compensated by changes in local spending.
In recent years the possible tax change that has had greatest attention has been a proposal to reduce the rate of corporation tax to (possibly) 12.5% so that Northern Ireland could compete with the comparable lower rate in the Republic of Ireland.
Parliament in London had already legislated to make this possible, although a commencement order has not been made.
The plan to implement the proposal was first delayed because of the temporary suspension of the Assembly, and now has been displaced by special concentration on efforts to offset the pandemic.
The arrival of the Fiscal Commission is, if the case remains valid, an opportunity to refresh the planning for a change in the rate at which corporation tax is levied on local businesses.
There is therefore some surprise that, as part of the first comments from the commission, where it is setting out a wider agenda on its emerging work programme, it concludes that “we as a commission will not consider corporation tax any further”.
The logic of this conclusion lies in the explanation offered, that “given the work already done, the scale and complexity of the issues, the need for action from the NI Executive and constructive engagement from HM Treasury we will not consider...” etc.
In other words, for a mixture of reasons, the corporation tax issue has been placed at the bottom of a long list of possible changes in taxation.
The Fiscal Commission reached this negative conclusion after a detailed review of the earlier work which took place over the past 10 or more years.
There is a comprehensive review of the practical difficulties and some of the conceptual questions that had been faced as the original proposal was being developed.
The merits of corporation tax devolution accompanied by a reduced tax rate have a credible history attracting positive support.
The commission makes an unpersuasive suggestion when it argues that the evidence is somewhat dated and inevitably subject to uncertainty.
That conclusion might be merited if the circumstances of the corporation tax comparisons, north and south on this island, had radically changed.
The corporation tax rates comparison might be thought to have changed with the decision by the Irish Government to bring its arrangements into line with a new major international agreement.
OECD countries have now recently agreed to partially standardise corporation tax at, at least, 15% for the largest multinational companies whilst leaving national governments to tailor their own responses for other companies.
What is now clearer is that for a majority of the companies for which the Republic and Northern Ireland may hope to attract inward investment, the Irish rate of 12.5% will remain whilst, for Northern Ireland the UK rate is now scheduled to rise, over a short period, to 25%.
Whether the Republic’s rate is 12.5% and/or 15%, the gap will remain. The taxation difference is more critical since Northern Ireland-based businesses will now be competing on the basis of continued participation in the EU Single Market under the operational rules of the EU-UK protocol.
Of course, competitive outcomes are determined by much more than the incidence of company taxation, but the probable differences seem significant.
The corporation tax differences pose a continuing adverse incentive affecting how Northern Ireland emerges into the post-protocol world.
This does not avoid the complex administrative and legislative consequences of devising an appropriate constrained response for Northern Ireland.
Any agreement will need to be designed to minimise distortions of profit shifting or base erosion.
This presents a challenge to the Fiscal Commission. International expertise is available and could be applied to a difficult but soluble situation.
The commission has swerved what should have been an unavoidable issue.