Economy facing worst period for a generation
Northern Ireland faces a steep decline in living standards as a result of public sector cuts — and its citizens should be able to choose between spending cuts or paying more for public services through higher taxes, an economist has said.
Mike Smyth said Northern Ireland was facing its gloomiest period for public expenditure in more than a generation as the province awaits to hear how next month’s comprehensive spending review will cut public services.
He said a decline in living standards would result from the cuts proposed by the Coalition Government, and said the cuts would result in a reduction in public expenditure of £1.5bn or £350m per year from 2011/2012 to 2014/2015.
“If this proves to be the case Northern Ireland faces a severe decline in living standards over the next four years, unless the private sector responds spectacularly well to fill the gap with employment. In this context, it is time for the one sided debate about public expenditure restraint — its impact on jobs, public services — to end and to consider some local tax choices.”
Mr Smyth, who was writing in First Trust’s economic outlook and business review, suggested revenue raising options such as water charges, which he said would generate up to £200m per year or the abolition of free prescriptions, which he said would save £12m per year.
Rates could also be raised or a car parking levy applied to the public sector, he added.
The economist also called for a review of corporation tax provisions. “When this period of fiscal retrenchment is over, it is extremely unlikely that the Northern Ireland private sector will have grown sufficiently to fill the gap.
“In this context, Northern Ireland needs to be able to compete effectively for mobile foreign direct investment and it will only be able to do so if it has a compelling investment proposition centred round a competitive rate of corporation tax.”
Philip Major, the bank’s senior manager of global treasury services, said: “There is no surprise that there is such a focus on the potential impact of the impending public sector cuts on the Northern Ireland economy.
“While the extent of these are not yet fully understood we can assume that Northern Ireland will have to share the national pain of spending cuts resulting in the deterioration of some public services and the mothballing of some public capital investment projects.
“With this looming it would be prudent to consider all of the options available to us to minimise the potential impact of these cuts while at the same time assisting the private sector to help fill the gap left by the public sector retraction.
“While dealing with the short term we also need to remain focused on the long-term security of the local economy.”
The review predicted the province’s GDP would grow by just 0.5% this year while the UK economy would grow by 1.7% in 2010 and 2% in 2011.
Living standards, jobs and infrastructure will decline as a result of spending cuts, according to the review.
Meanwhile, it suggested that the prospects for a cut in corporation tax had come closer and described such a move as “a potential game changer and perhaps the only one in town”.