Many might be inclined to agree with what Winston Churchill wrote in 1937: “There is no such thing as a good tax”.
It is doubtful if the Finance Minister’s announcement of a fiscal commission to consider the taxing powers of the Assembly will produce widespread joy. Nevertheless, there is a strong case for such a commission.
Over the last 12 or so years, both Scotland and Wales have had several reviews of the fiscal powers of their devolved governments, the Calman and Smith and the Holtham and Silk commissions or reviews.
Consideration of fiscal devolution in Northern Ireland has so far been piecemeal. First, the tax on trans-Atlantic air flights was devolved and removed.
Then, in 2016, Westminster legislated to give Stormont an ability, as yet unused, to set a corporation tax rate different from the UK average. That, so far, has been it.
What is missing is a big-picture review of the Executive’s fiscal powers in the round.
The Executive remains highly dependent on the block grant it receives from London. In practice, it sometimes acts more like a spending agency than a regional government which has a fair degree of flexibility about its spending decisions.
The relative absence of revenue funding streams under its control may imply that all Executive parties continue to act as if they are in Opposition. Policy debates often end with pleas for even more money from London.
In principle, if decisions about spending extra cash had to be accompanied by a decision as to how to raise those funds, that might encourage more careful policy-making.
It is a mistake to assume an independent fiscal commission would be all about raising taxes or all about reducing them. Instead, it would consider which taxes could most appropriately be devolved. It would then be up to politicians to decide how to use such powers.
It is also likely to consider cases where a particular tax might be reduced in order to promote some policy objective, such as the competitiveness of the economy (apply the corporation tax powers), environmental protection (regional landfill taxes) or more healthy lifestyles (a regional tax on alcohol).
The remit of the commission may extend to the wider question of charging for public services where it is notable that the Northern Ireland public is significantly less charged than in Great Britain. The question of domestic water charges may come back into view.
The fiscal devolution agenda is a challenging one. There is the obvious point that almost no tax increase is ever a politically popular move.
It is a mistake to assume that if Stormont wants to raise a lot of extra revenue, all it has to do is tax the super-rich and leave the rest of us alone.
If, for example, the intention was to raise a significant extra amount through income tax, it is probable this could only be achieved by, amongst other things, increasing the 20% rate or the basic rate.
This is because the number of higher and top-rate tax payers in Northern Ireland is quite small.
If, however, certain taxes are reduced, the ‘cost’ to Stormont is likely to be a reduction in the block grant.
This is because either Northern Ireland remains subject to European Union rules about tax devolution or because the Treasury is unlikely to wish to give Northern Ireland a free ride in fiscal terms.
Whatever the fiscal commission recommends and whatever the Executive decides to implement, expect difficult times ahead given the fiscal implications of the 2020 recession.
Tax-varying powers, by themselves, will not usher in an era of social justice, nor correct the chronic lags in the economy’s growth and productivity.
That said, it is realistic and appropriate that Stormont takes on greater self-responsibility in fiscal terms.
- Dr Esmond Birnie is a senior economist at Ulster University’s Business school and a senior research fellow at the Pivotal NI Policy Forum