By Tony Weekes on June 16, 2011
I returned home this afternoon to find an e-mail with a question from a friend who is the director of an environmental NGO. He wishes to respond to a “consultative paper” on whether Northern Ireland should be allowed to set its own rate of corporation tax.
The standard argument – now firmly part of the ‘conventional wisdom’ – is that a lower rate of corporation tax will make Northern Ireland ‘competitive’ with the Irish Republic and will thereby encourage ‘inward investment’. [One should, of course, beware of the word ‘competitive’ – it can easily lead to a race to the bottom!]
We reflected for a while, and we found it quite difficult. The reason being, we decided, is that the question posed is the wrong one.
The right question is to ask “What do we need the economy to do for us in Northern Ireland?” Then ask what steps need to be taken to achieve this.
Being both ‘environmentalists’ – my NGO friend and I – we felt the answer to the ‘real question’ is (at least in simple form) quite easy to state: we need a low carbon, energy efficient, renewable based economy. We are very vulnerable in matters of energy and food security. An economy such as we suggest we need would deliver many benefits, including good work, a modest prosperity, a renewed agriculture (and a renewal of the small urban areas which serve the needs of agriculture) … and so on.
If – and this is an enormous if – a lower corporation tax would deliver this, then it would be a good idea. But there’s no reason to think that the rate of corporation tax has anything to do with the economy we need.
There’s another set of arguments – from a different perspective – on Richard Murphy’s Tax Research website. The opening of Richard’s answer says simply that the willingness to consider a corporation tax cut is “ … a triumph of dogma over reason”.
But this is how ‘economic policy’ is being made (and then forced upon us) – by gathering daft answers to the wrong questions!