Northern Ireland at a crossroads

Tom Healy discusses the potential of the Northern Irish economy and explains why lower corporation tax may not necessarily be a driver for growth.

From the outside looking in, Northern Ireland’s economy is a rather peculiar phenomenon and certainly nothing like its closest neighbour’s. The state of the economy is rarely headline news and there is no equivalent of the Dublin Economics Workshop

Economically, Northern Ireland lost out on many of the benefits of post-World War II growth. A long-term decline in shipbuilding and associated industries together with textiles was not matched by a huge surge in other areas of economic activity though the public sector grew, especially in the 1970s.

Northern Ireland did not share the success of the Republic of Ireland in attracting large-scale multinational investors producing high value-added products and services and as a consequence the economy of Northern Ireland remains under-developed.

Typically two reactions to this plight are common: one motivated by an agenda encompassing a political, and not just economic, united Ireland. It is argued that Northern Ireland is a failed political entity; has no meaningful local political autonomy and is suffering from the lack of synergies that would flow from a fully integrated all-island economy and politic.

The other reaction is very different and is entirely focused on the role of the private sector as a generator of growth. This latter view sees the large public sector as a barrier to growth and that the key to a flourishing and dynamic Northern Ireland economy is an ever lower corporate tax regime. The subject of a lower (or even all-island corporate tax regime as advocated by Sinn Féin) tax rate for businesses has become a fad among many commentators, politicians and a few leading economists.

Both reactions are what I would term the ‘race-to-the-bottom’ solutions involving a super tax-competitive jurisdiction off the shores of the British ‘mainland’ and both raise significant questions and problems.

The idea of a united Ireland any time soon is unrealistic even if Brexit, Scottish independence and other events were to come to pass, it is not clear that citizens of the Republic of Ireland would want a united Ireland.

The low corporate tax policy has come to grief for at least three reasons:

1.   There is shocking little evidence that a further cut in corporate tax would ‘pay for itself’ and not cause continuing damage to an already fragile level of public services.

2.   The prospect of a lower tax rate has been frozen as a result of a continuing local political row about how UK ‘Welfare Reform’ should be implemented in Northern Ireland.

3.   The UK Government has accelerated the cut to corporation tax for the UK as a whole by announcing in the July budget an 18 per cent headline rate for 2020. It will be hard to keep up with that level of ambition.

Missing from the public debate in Northern Ireland is a consideration of how a long-term strategy of investment, local enterprise development, innovative commercial state activity and raising of skill levels could help transform the economy over a long period of time.

There is much to be positive about in regards to Northern Ireland. It is rich in potential renewable natural resources; it has a relatively well developed infrastructure (it could be much better) and good quality of life; it is in the European Union (for now); speaks English, has Belfast Port and surrounding lands in public ownership and has weathered the storms of the 2008-2012 economic crisis.

All that is needed is a wee bit of forward planning, political courage and Ulster business acumen!

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