Belfast Telegraph

Northern Ireland is officially one of UK's costliest regions as fiscal deficit hits £9bn

BY MARGARET CANNING

Finance Minister Simon Hamilton has said Northern Ireland's £9.6bn fiscal deficit can only be addressed by rebalancing the economy.

Mr Hamilton spoke after the Department of Finance and Personnel's net fiscal balance report showed an increase of £3bn in the fiscal deficit from £6.6bn in the financial year 2007/08 to £9.6bn in 2011/12. It means that the shortfall between money coming into the public purse and the expenditure coming out, grew by 45% over the five years.

In a statement to the Belfast Telegraph, Mr Hamilton said: "The best way to address Northern Ireland's fiscal deficit is to grow and rebalance the economy.

"The Executive is already taking steps to do this, and indeed rebalancing the economy is at the very heart of our Programme for Government and Economic Strategy."

He said that a successful rebalancing of the economy would result in increased tax revenues and more employment, which would decrease the spending required in areas like welfare.

The Executive is under growing pressure from Westminster to cut Northern Ireland welfare bill.

The net fiscal balance report said the deficit climbed by 13.6 percentage points from 2007/08 to 2009/10, partly because the economic downturn resulted in a fall in GVA.

There was less money pouring into the coffers from income tax, national insurance and Vat, while government expenditure was growing at the same time.

But after peaking at £10.3bn in the financial year 2009/10, the deficit fell by £0.7bn (3.2%) in 2011/12 as the economy continued to stabilise, mainly due to government expenditure slowing down and revenue going up.

The report breaks down the constituents of revenue from sources including fuel duties, tobacco duty and alcohol duties.

In 2011/12, revenue from Vat amounted to £3.446bn, with the next largest share coming from fuel duties at £927m.

Tobacco duty accounted for £538m, and alcohol duties £328m.

The report said the shortfall was the equivalent of £5,311 per head in Northern Ireland – more than double the UK's per head figure of £2,133.

However, the report said that its estimates were "subject to a margin of error and should be treated accordingly".

But Sinn Fein MLA Phil Flanagan said the report was based "purely on guestimates and speculation". and accused the minister of using "dodgy" figures.

"Estimating revenue based on poorly researched surveys is no substitute for accurate data."

He said the enterprise committee was looking into the issue of the accuracy of economic data.

In response, the minister said he would wish for clearer data on taxes raised locally.

"But we need to recognise that generally, the tax system wasn't designed to produce actual regional data so estimates need to be produced if we want them," added Mr Hamilton.

"And these are not on the basis of dodgy surveys as is suggested, but draw on official economic statistics and methodologies which in many instances have been independently assessed and designated as National Statistics."

He acknowledged the figures were estimates, but said Scotland was the only other UK region to produce a similar analysis.

"So in that regard we are ahead of other regions, not behind them in the information we produce."

Northern Ireland frequently comes under fire for the amount of support it receives from Westminster. Yesterday's net fiscal balance report will only add to the pressure on the province to reduce its dependency on Westminster. But many of the figures in the report are based on small-sample surveys – prompting Sinn Fein to describe it as containing "dodgy figures".

Treasury bemused as Stormont continues to spend beyond its means

By Esmond Birnie

IN 2011-12 tax revenues raised in Northern Ireland were £14.1bn. In the same year, total government spending was £23.8bn. Admittedly, of that total, £19.4bn was actually spent in Northern Ireland.

The remaining £4.4bn combines Northern Ireland's share of certain UK-wide expenditures (eg defence, interest repayments on the national debt, international services) and an accounting adjustment to allow for the depreciation of public sector capital.

This implies Northern Ireland had a fiscal deficit of £9.6bn, equivalent to a third of the region's output or gross value added.

This is a small reduction on the figure for 2010-11 which was £10bn.

DFP was at pains to emphasise there is some uncertainty around many of these figures including the exact amount of tax receipts in Northern Ireland. In most cases these have had to be estimated.

HMRC have produced their own estimates for Northern Ireland's tax revenues, which are somewhat lower than those presented by DFP. At the same time, DFP have used methods used elsewhere in the UK and especially by the Scottish government.

As we all know, the London government also runs a considerable deficit -- albeit, it is a lot smaller in proportional terms. There is a pattern across the UK whereby regions with lower levels of income and higher unemployment also have fiscal deficits.

In fact, only the greater south east of England runs at a surplus. Some of that surplus is being recycled into transfers to Scotland, Wales and Northern Ireland as well as the north of England and Midlands. In return, the London economy benefits from flows of labour, especially young talented people, from the rest of the UK.

Stormont is not a sovereign government so it does not have to balance its books. Its position is not the same as the Dublin government. That said, having a regional fiscal deficit matters if the Treasury in London begins to think it matters, especially in an era of continuing austerity.

Additionally, economists sometimes point to the possibly harmful impact of "soft budget constraints".

If a friend or family member is always on hand to bail you out, will you ever learn to make responsible decisions? Perhaps the same applies to regional governments. One irony in the current situation is that we have had some debate about devolving certain taxes to Northern Ireland -- for example, corporation tax and to a lesser extent air passenger duty. It may be that we will only get more accurate measures of the amount of revenues raised after such taxes are devolved.

Belfast Telegraph

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