The reduction of corporation tax: an unnecessary gamble

“The evidence says that we will develop significant jobs. Guarantee? No. There is no guarantee and it would be totally misleading of me to sit here and say that I could guarantee you. I couldn’t guarantee you anything.”

These are the words of CBI NI chair Terence Brannigan when he spoke to the Northern Ireland Affairs Committee earlier this year on the long-running issue of the lowering of corporation tax.

Although neo-liberalism has proven to be an abject failure, those in power are convinced that more deregulation, lower taxes and attacks on wages is the only method of escaping from this latest crisis. Not least our esteemed politicians in Stormont. Despite the fact that the Stormont executive stands to lose at least £300 million in its block grant, the four main parties seem determined to turn the North into a tax haven.

This is all done on the grounds that it would “harmonise” the tax regime across the island of Ireland and attract “investment”. Vince Cable once described the Republic of Ireland as “Lichtenstein on the Liffey”.  It now appears the majority of Stormont’s politicians are content to emulate that system and see the North turned into “Lichtenstein on the Lagan”.

The absence of any real debate in the media on such an important issue like this one is striking. The main regional papers regularly provide business leaders with space in their publications to outline their case, while minimising the platform of those who oppose the move to lower corporation tax. For example, ‘Pot of Gold or Fool’s Gold?’, a brilliant report carried out by economist Richard Murphy demolishing the myth that corporation tax would boost the Northern economy, received very little media attention. The same goes for a recent report carried out by Cambridge University’s Wilberforce Society.  This was one of the reasons I made the effort to cobble together this article. I don’t claim to be in any way proficient in the field of economics, but, as a journalist, I feel I have a certain amount of responsibility to counter this conventional wisdom.

The claim that thousands of jobs will be created as a result of lowering corporation tax is, at best, a hopeful gamble, and, at worse, an outright lie. What you will actually get is transnational corporations basing their headquarters in Belfast to escape higher taxes in other jurisdictions. A handful of lawyers and accountants will be hired to fiddle the companies’ tax bills, with no other real jobs being created. And given that the bulk of businesses in the North are small and medium sized, which don’t pay corporation tax, its reduction would have no effect on most indigenous companies.

Of course, those who will take on the losses of this gamble will be the working class. In a previous case, concerning Portugal’s Azores Islands, the European Union ruled that any losses as a result of lowering tax in a certain region within a country must be incurred by that same region. In other words, if the predictions of the four main parties don’t materialize, the losses will have to be made up by further slashing public services. Even if the tax reduction did prove to be successful, the benefits would only be felt by the very rich. Former Unionist MP John Taylor (now Lord Kilclooney), hardy a leftie, told the House of Lords that “95% of the population of Northern Ireland who are not company directors would be worse off”.  On the back of the largest cuts in the public sector in decades, doesn’t this venture seem overly risky? Indeed, the ability of the main parties to fight for a reduction in corporation tax stands in stark contrast to their meek acceptance of Tory cuts.

Comparisons with the Republic of Ireland

The ‘success’ of the Celtic Tiger is usually cited by the proponents of this latest round of corporate welfare to justify their proposals.  However, any serious study on the Republic’s economic growth during the Tiger years recognises that the low level of corporation tax was, at best, a secondary factor in causing the boom.  The South 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 the UK.  On top of that, judging by today’s climate, the Republic’s is hardly a model to base a viable economy on.

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 fact that the Republic had a low corporation tax since the 1950s without any correlating growth in the economy is rarely acknowledged by the supporters of corporate handouts.

However, perhaps the most alarming aspect of all this is the fact that the main parties’ keenness to partake in this race to the bottom encourages the very worst traits of capitalism. The refusal of the rich to pay their fair share towards the societies in which they live is something which should be resolutely opposed, not facilitated. Indeed, we should be pushing them to put more money into the public coffers, considering we already have the sixth-lowest corporation tax rate in the European Union.

International effects

There are many reasons to oppose the lowering of corporation tax, not least the effect tax havens have on developing economies. Even from a strictly internationalist position, any moves to decrease taxes on the rich should be resisted for the simple reason that many of the poorest people on Earth will be worse off as a result. When large corporations declare their profits in tax havens, which the north of Ireland could soon be, the result is crippling for developing economies. Companies operating in parts of Africa and Latin America often declare their profits in Switzerland, Bermuda, or some other tax haven. The result is that some of the poorest countries in the world lose out on much-needed tax revenue.

Dr Sheila Killian, of the University of Limerick, put it well when she said:

 “…since business is now international, it is important that the taxes are designed not only with a domestic agenda in mind, but with a view to their consequences internationally, particularly for vulnerable economies in the global South.”

The point is also driven home by the Tax Justice Network (TJN), which says on its website:

“Supporters of tax havens point to the wealth enjoyed by such tax havens as Switzerland or the Cayman Islands to bolster their arguments. This is like pointing to the wealth of a corrupt politician and arguing that corruption is therefore a good thing: tax havens effectively appropriate other countries’ taxes for themselves.”

Furthermore, TJN also highlights the alarming fact that least $11 trillion is stashed away in tax havens around the globe. Why do our politicians feel the need to be part of this international crime ring which assists in the destruction of developing economies?

The reduction of corporation tax will almost certainly prove to be a costly mistake. The Wilberforce Society’s report concluded that it “could damage economic activity (by reducing local spending and increasing unemployment) and could have inequitable results, depending on where spending cuts or tax rises fell”.  At a time when hundreds of thousands of public sector workers are losing their jobs based on the spurious claim that they are “unaffordable”, all workers should stand in firm opposition to this latest spate of corporate welfare.

1 comment
  1. It seems that Sammy Wilson has backed off reducing corporation tax until after 2015. I think he and his advisers were influenced by the reasoned arguments that people in the trade union movement have been articulating.

    Small battle won but we need to win the war

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