Politics

Corporation tax: the case against a cut

Cutting local corporation tax attracts support from the main parties and business groups, but other politicians and the unions dissent. agendaNi summarises the opposition.

The Unions

Cutting corporation tax would transfer wealth “from the poorest to the richest, as public services are cut to fill the gap,” according to ICTU Assistant General Secretary Peter Bunting.

There is no guarantee that jobs will follow or that profits will stay in Northern Ireland, Congress warns. It adds that the Celtic Tiger depended on extra factors, including the IFSC and the euro.

A policy mix, it contends, should include a financial transaction tax, linking rate reliefs to energy efficiency or support for urban regeneration, and progress on an all-island economy in energy, transport, R&D and health. R&D should be rewarded with employment grants or national insurance exemptions. Research foundations could cluster R&D, following the USA’s example.

ICTU says the debate has been characterised by “misinformation, political expediency and undeclared conflicts of interest.” NIPSA questions the media’s objectivity, as business groups receive widespread coverage. ICTU debated a motion supporting the Republic’s 12.5 per cent rate on 5 July but this was referred to its executive for further discussion.

Sylvia Hermon

The independent MP is “at this stage…not persuaded ”that the move is “a good idea in the current economic climate.” In the Northern Ireland Affairs Committee’s inquiry, she pressed business groups on the number of jobs which could be created but received no guarantees. Hermon also questioned how long it would take to make up the shortfall in the block grant.

Early in the inquiry, she indicated that a lower rate plus tax relief for R&D investments was “very attractive”. The block grant, though, remained her main concern.

The MP later challenged the FSB on whether it was “fair and equitable” to reduce corporation tax and benefit large businesses at the expense of schools, hospitals and social care. She has also pointed to advertising firm WPP’s decision to move its HQ from Dublin to London, despite the UK’s higher rate.

TUV

Devolving tax powers would weaken the union while cutting the block grant will destabilise the budget, the TUV claims. In an Assembly debate on 28 June, Jim Allister contrasted a consistent block grant with volatile receipts from corporation tax. The ex-MEP cited Germany which has a 30.2 per cent rate and a high success rate in attracting FDI.

The TUV’s response quotes Welsh First Minister Carwyn Jones who said tax-varying powers would be “disastrous … while we are also under-funded at the same time.” The party supports the ongoing UK-wide cut (to 23 per cent by 2015) and national insurance holiday.

Allister claims Sinn Féin’s support for the move is opportunistic, to transfer power from London. Gerry Adams stated in February 2006 that “Sinn Féin would increase taxes on capital gains, property speculation and corporate profits.” However, in November 2010, Adams said that his party had “no intention of supporting increases to the corporation tax levels”.

The Greens

The Greens’ Assembly manifesto proposes no reduction in the top rate (26 per cent from 1 April) but would consider a reduction in the small profits rate (currently 20 per cent) to help SMEs. The party therefore supports the devolution of tax-varying powers, to make that change.

In the 28 June debate, MLA Steven Agnew was “astonished” that the Assembly wanted to “voluntarily reduce” the block grant.

Agnew found that DETI officials were only considering two options: cutting corporation tax or doing nothing. A full debate would look at alternatives, including the Green New Deal.

The Green Party has supported the 12.5 per cent tax in the Republic since March 2006 but previously favoured a rise in that rate.

Agnew accepts that cutting the SME rate would also affect the block grant; he does not propose an immediate cut. He says that the Republic’s rate is well-established and a raise could deter investment. He views North and South as two different contexts.

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