DEVOLVING corporation tax to Stormont would be a gamble, but might be one worth taking to transform the north’s under-performing economy, according to the chair of the new Fiscal Commission for Northern Ireland.
Paul Johnson is the director of the high-profile Institute for Fiscal Studies. He is also leading the group of academics and economists charged with examining the potential for granting more tax powers to the Executive.
In its interim report, the Fiscal Commission said it will prioritise income tax; fuel, alcohol and tobacco duties; stamp duty land tax; air passenger duty; the apprenticeship levy and landfill tax.
It said while there is a case for devolving corporation tax, it won’t take it any further due to the volume of work already done and the Treasury’s scepticism over Stormont’s readiness.
It follows the recent letter from the UK Chief Secretary to the Treasury to Finance Minister Conor Murphy, telling him the Executive had not yet been able to demonstrate that its finances are on a sustainable footing for the long term.
The commissioners said as a result, the Treasury opted not to engage with them as fully as they did with similar commissions looking at fiscal devolution for Scotland and Wales.
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The Fiscal Commission said it’s now down to the Executive and Treasury to reach an agreement on the issue.
Corporation tax currently raises around £810m annually in Northern Ireland, a fraction of the £12 billion the Republic is expected to raise this year from its low rate of 12.5 per cent.
Even with Dublin signing up to raise corporation tax to 15 per cent, the gulf is widening further with the UK on course to go from19 to 25 per cent by 2023.
Paul Johnson said devolving the tax to Stormont and cutting the rate would have considerable upfront costs.
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But he added: “The case for a lower corporation tax in Northern Ireland is pretty strong, given the need to boost the economy and the proximity of the Republic.
“Of course it’s a gamble because it’s an upfront cost, but it might be a gamble worth taking.
“It is one of those big political decisions. Are you willing to take that gamble, given where the Northern Ireland economy is at the moment is not at a great place?
“It’s very striking that on pretty much any measure, whether you are looking at incomes or earnings or employment or productivity, that Northern Ireland is right down there at the bottom three regions of the UK,” he added.
“This [corporation tax] might be one tool that could make a big difference, but you might end up with less tax revenue in the medium term.”
Chartered Accountants Ireland last night called on the Executive to put the matter back on the agenda.
“A clear and credible statement of intent from the NI Executive on how devolved powers would be used as well as meaningful engagement with HM Treasury on the block grant and borrowing powers is needed in order to move this forward,” said the professional body’s president Paul Henry.
“The complexities of activating corporation tax devolution are not new but now is the time to act and take a fresh look at how the Northern Ireland economy can level up by implementing a lower corporation tax rate in a way that minimises the cost to the block grant and addresses the well-known complexities of this issue.”
