Act now on corporation tax by forming task-force

Corporation tax in Northern Ireland is on its way

‘The future depends on what you do today’. It’s a very simple mantra but it rings so true when you consider the author and what he achieved, Mahatma Gandhi truly was a man of iconic vision and wisdom.

As details of the ‘Fresh Start’ Stormont agreement started to emerge last week these words really resonated with me, particularly in relation to the devolution of corporation tax. As a tactic there are so many unknowns with this policy and the proposed date for devolution of April 2018 is truly ambitious in the current economic environment.

The Republic is, of course, a seasoned campaigner when it comes to this tax policy and importantly it has many of the supporting structures in place which has helped sustain it through the worst economic times in the state’s short history. With a projected GDP growth of 6 per cent in 2015 and with the recent biannual OECD report stating that Irish unemployment and public debt is falling steadily with international credibility being strengthened, Ireland is well and truly coming out the other side of an economic tsunami and being globally endorsed as a good place to do business.

The scaffolding needed to support the implementation of corporation tax is far reaching and wide ranging as outlined in EY’s 2014 survey which examined factors which businesses take into account when deciding where and when to invest. Skill levels and infrastructure are the two most obvious but transparency of political, legal and regulatory environments involving issues such as planning were all ranked above corporation tax.

This is not being pejorative towards the Northern Ireland Executive’s policy of a corporation tax rate of 12.5 per cent, it simply emphasises the areas that need to be developed to ensure that it can deliver on its promise and the considerable work that needs to be done in a very short period of time.

At the DUP party conference outgoing First Minister Peter Robinson again outlined the Executive’s commitment to see the devolution of corporation tax in 2018 and reassured all assembled that Invest NI would not be sitting on its laurels but continuing to attract and build on its strong FDI track record in the interim.

The concern about this was that while the need for skills was widely debated within the conference there was no mention of it or infrastructure or the other supporting policies and practices needed to make corporation tax a long term sustainable success, within this speech.

These are no doubt difficult areas for the FM and indeed any leading member of the Executive to breach in a public setting, given the budgetary constraints that they are operating under which have seen acerbic cuts in education and infrastructure. However, this doesn’t mean that they can be exempt from criticism regarding the myopic approach, to date, in terms of putting the support in place for this policy to truly help transform economic prosperity.

The Grow NI team in particular and the business lobby generally has done sterling work to get the policy to this point but it also needs to re-enter the stage now to support, augment and influence government policy to ensure the economy is fit for purpose to capitalise on a reduced corporation tax rate. It’s not enough to say that FDI employers will help pick up the slack and take the responsibility to train staff themselves.

With Northern Ireland already at a disadvantage with a smaller university sector per capita than the rest of the UK, DEL’s budget reduction of £62M this year resulting in a cut of 8.2 per cent for higher education institutions has simply compounded matters. The importance of a shift in skills supply in delivering economic transformation has been well documented as has the higher than average working age population that are economically inactive in Northern Ireland.

Irrespective of the corporation tax rate, attracting FDI over the longer term will hinge on our ability to consistently reactivate and upskill, increasing employability and building a strong graduate base in the revenue generating STEM industries.

Infrastructure, another vital cog in the overall package required to attract new business and indigenous start-ups, is also suffering from under-investment with the DRD unable to carry out basic services.

Notwithstanding some good news within the recent agreement on these two areas notably increased investment in infrastructure, it’s easy to see why many believe that the conditions required to see this incipient policy thrive are not achievable within the time-frame set out by the Northern Ireland Executive. And that’s before any talk of the reduction to the block grant and the political will needed to see that through without another petition of concern, assuming that tactical opportunity remains in place.

The inverse view of this is that we will never have the ideal conditions to implement the devolution of corporation tax and we must put in place practices, procedures and supporting policies as best we can to circumvent our current economic impediments.

Some of the policies that have made Ireland’s corporation tax such a success were inadvertently set out by Sean Lemass and and Permanent Secretary for Finance, TK Whittaker in the 1960s by inviting the OECD to conduct a survey of the educational system. This became regarded as a landmark report leading to the reorientation of educational policy. The involvement of the OECD has been a frequent feature of policy development in the South also recommending that the government focus on what is now a bedrock of the economy, ‘technology sourced FDI’.

The current Irish government has made many mistakes but it has been judicious in not resting on its corporation tax laurels by proactively considering what is required to support the evolving needs of the knowledge based business sector.

To offset the demise of the double Irish tax loophole the government is implementing R&D friendly policies and developing intellectual property tax incentives such as the Knowledge Development Box at 6.5 per cent, similar to the Patent Box in the UK.

It has also maximised the impact of the Irish diaspora culminating in the Global Irish Economic Conference held every two years in Dublin.

Of course on the northern side of the border, while we have adopted some of these tactics through organisations such as Northern Ireland Connections, we do not have the power to implement others.

However, what the south’s approach demonstrates is an openness to address the challenges it faces, first progressed by Lemass and Whittaker and more recently a willingness to think laterally, develop ideas based on an unconventional approach and also to be innovative.

A small country needs to think in this way to compete and, horrendous downturn aside, Ireland has done it well. We must learn from this approach in Northern Ireland, to create a thriving environment for a low corporation tax rate and from an economic development perspective to stop looking to Westminster for direction.

The first step in this process is to immediately set up a new ‘Corporation Tax Taskforce’ with leading representatives of all the stakeholder groups that, are erudite in and, have influence across areas that will enable the policy to thrive, including skills, education, business, industry, planning & development, infrastructural & export networks, regulation, EU reps and where appropriate seek the support of the OECD.

Back in 1887 it took just over two years to build the Eiffel Tower. In just under two and a half years there is the potential to devolve corporation tax – ‘tide and time waits for no man’ (Geoffrey Chaucer).