Beware of the corporate tax cut brigade

Last month an article in the Belfast Telegraph warned readers that Northern Ireland faced an impending economic “meltdown.”
Accountancy firm KPMG’s Eamonn Donaghy, described in the report as “a top financial expert,” argued that the region’s economy was not sustainable without reducing corporation tax to 12.5 per cent, in line with the Republic of Ireland.
Donaghy is one of a long list of “experts” regularly carted out by the local media in support of the tax cut.
Unimaginatively held up as the saving grace of a battered economy, all four main parties in the Stormont Assembly have rallied behind the appeals of these “experts,” whose collective failure to foresee the worst economic crisis in 70 years should, by all rights, consign them into obscurity.
The prevalent narrative of the issue is a pleasingly simple one — low taxes will attract business to the region, and this investment will create jobs.
Reporting of the issue has been extraordinarily one-sided. Representatives of banks, finance firms and other multinationals are given considerable space in the Irish News, the Newsletter and, of course, the Belfast Telegraph.
In the article mentioned above, Donaghy was treated as a well-informed, unbiased commentator.
Nothing was said of the fact that his firm, KPMG, would stand to gain a great deal from the tax break.
“In every other country where corporation tax rates have been significantly cut,” Donaghy said, “positive economic benefits and job creation has happened.”
The names of these countries were not mentioned and no evidence was provided to back this up.
Pot of Gold or Fool’s Gold?, a thorough report carried out by Tax Research UK’s Richard Murphy, demolished the case for cutting corporation tax.
Promises of job creation were shown to be a hopeful gamble with a large immediate cost.
As a result of a previous EU court ruling a minimum of £300 million will have to be cut from Stormont’s block grant from Westminster if the tax rate is reduced.
On top of that not a single new job can even be guaranteed. Murphy’s findings were given little attention by the local press.
Parties from both the unionist and nationalist sides, notorious for inter-communal bickering, have been remarkably united on this particular issue.
The conventional wisdom states that the North is “overreliant” on a “bloated” public sector, which requires a “rebalancing” of the economy.
However, the private-sector-led recovery promised by David Cameron has not happened in Britain, and there is little reason to believe it will occur anywhere else any time soon.
It marks a curious juncture in Irish politics when nominally leftist parties, Sinn Fein and the SDLP, adopt a distinctly Thatcherite economic platform.
The blueprint of Dublin’s notorious tax haven, the International Financial Services Centre — once dubbed “Lichtenstein on the Liffey” — looks set to be replicated north of the border.
“For Northern Ireland,” Murphy argues, “the problem will be that of all tax havens — fly-by-night companies that have no intention of creating real jobs, and whose sole aim is to park profits in the province before moving them on to another tax haven as quickly as possible, will be those attracted by this policy.”
He continued: “That policy has virtually bankrupted the Republic. Why on Earth would anyone want to replicate it?”
Advocates of this corporate welfare have, on occasion, been surprisingly candid.
When he addressed the Northern Ireland affairs committee in 2011 CBI NI chairman Terence Brannigan admitted: “There is no guarantee [of job creation] and it would be totally misleading of me to sit here and say that I could guarantee you. I couldn’t guarantee you anything.”
Millionaire former unionist MP John Taylor, now Lord Kilclooney, told the House of Lords that “95 per cent of the population of Northern Ireland who are not company directors would be worse off.”
Recently described by Taoiseach Enda Kenny as the “cornerstone of the economy,” and deemed politically untouchable, the 12.5 per cent corporate tax rate has long been a solid feature of southern Ireland.
Claims that it “attracts jobs” are easily dismissed. Dell’s abandonment of its Limerick plant in 2009 and the current unemployment rate of 15 per cent testify to this.
The country’s reliance of foreign investment merely underlines the failure of our economy to develop in a sustainable way.
Conor McCabe, in his 2011 book Sins of the Father, rightly points out: “Given such a modest effect on the Irish economy — 7 per cent of total employment and approximately €2.8 billion in corporation tax — why is foreign direct investment constantly put forward as the prime objective of the state’s economic policies and strategies?”
Suggestions by proponents of the tax cut that the Celtic Tiger was fuelled by the 12.5 per cent rate are also groundless.
It was, at best, a secondary factor in causing the boom in the south of Ireland.
The Irish state had an overall lower tax base with many loopholes which could be exploited by big business — something the North could never duplicate while it remains under the jurisdiction of London.
More important to foreign investors than a low corporation tax during the boom years was Ireland’s highly educated English-speaking workforce, its proximity to mainland Europe and its lack of government regulation — along with widespread corruption carried out in the interests of capital.
The refusal of multinationals to pay their fair share should be challenged, not accommodated.
A race to the bottom serves only the interests of the super-wealthy. Reducing what is already one of the lowest corporation tax rates in Europe is not going to stem the effects of the Great Recession, no matter what business “experts” contend.
Tax cuts don’t develop economies or create employment — they create tax havens.