Opinion: Tories must devolve fiscal powers to Assembly

Martin McGuinness with Cameron and Peter Robinson in Stormont

By Michael Burke

The new British Prime Minister David Cameron has been setting out his ideas for the economy in the Six Counties. His Secretary of State Owen Paterson has talked about making the jurisdiction the “most business-friendly region in the whole of Europe.” This sounds just like the economic policy of the joint UUP/Tory election manifesto, which was thoroughly rejected by Northern voters in the recent Westminster election. The UUP was wiped out and any association with the Tories was electorally toxic, to the benefit of Naomi Long, Sylvia Hermon, and of course most spectacularly Michelle Gildernew.
It is clear from those results that the days of diktat from Westminster are over. Instead, any economic policy adopted will need to be done in agreement with the elected representatives of the voters of the Six Counties. This would be a major advance of democratic rights, and place an increasing power to formulate economic policy in the hands of Irish women and men elected here. This is what one of Sinn Féin’s key proposals involves - the devolution of fiscal policies to the Assembly.



The Tory plan hatched with the UUP was to create an Enterprise Zone. This is a policy of low taxes, low spending and even lower wages and services. It is reminiscent of Britain under Thatcher, which one economic commentator at the time summarised as “Welcome to Slumsville”. The aim of policy is to drive down wages so as to drive up profits, and then hope that businesses both foreign and domestic will invest.  The DUP’s economic policy for the Westminster elections was remarkably similar.
There is a precedent for such a policy- and it can work for a while under certain circumstances. We don’t have to look too far for that. This was the policy of the Dublin government from around 2000 onwards. The level of foreign investment did not surge, but parking profits from overseas to avail of ultra-low taxes did. And the level of domestic investment did increase to some degree, but it was redirected by tax breaks away from manufacturing and other productive areas towards an unsustainable housing boom. And we know now how disastrously the fairytale ‘Celtic’ Tiger’ bubble burst.
There is an argument, made by people like the respected analyst Richard Murphy of the Tax Justice Network which says that this Tory policy will be disastrous for British taxpayers, as British companies and others will simply divert reported profits to the North and the overall tax take will decline. This in turn will pave the way for further cuts in public spending, including dismantling the NHS, on the grounds that the coffers are empty. Richard Murphy is right. And a re-run of the failed policies of the Dublin government’s last decade would also be disastrous for the economy and the people of the North.  In any event, that model was built on a constantly increasing availability of bank credit and debt. And those days are gone. No repetition of that bubble is possible in the foreseeable future.



The Tory plans are both damaging and unrealistic. But, because of a ruling by the European Court of Justice (the ‘Azores Ruling’) if they want to achieve them, the powers of setting tax rates has to be devolved to the Assembly. This is because a unitary elected body, like Westminster, cannot set different tax rates within its jurisdiction. So a commission will be established to investigate transferring tax powers to the Assembly. To achieve their economic ends, the Tories would be obliged to give up some of the powers they and other British governments have long insisted are vital to maintaining the unity of the British State.
Clearly, this devolution of fiscal powers should be supported by every democrat, and all attempts to put it on the long finger should be opposed. But then, any implementation of a different tax system or different tax levels in the North immediately raises the issue of fiscal harmonisation with the South.  Already there are major distortions to the economy in both parts of Ireland arising from different tax, judicial and currency regimes. Adding another, separate tax regime in the North would simply be chaotic.
Instead, harmonisation and unification of the tax system in both parts of Ireland would be the natural goal. But it is also clear that it could not be on the basis of simply matching the Dublin government’s ultra-low corporate taxes. This is the race to the bottom which left the economy and government finances so defenceless when the recession struck. In its obsession with ultra-low taxes, which Brian Lenihan calls “our international brand”, the economy and public finances were like an inverted pyramid, resting increasingly on the activities of speculative property developers and tax-sheltering investors.
An alternative policy can also be found at home. A policy of selective tax breaks aimed at enticing foreign manufacturers could be used to generate a type of income and jobs’ growth that occurred in the South in the 1980s and 1990s. All other tax-breaks, exemptions and claw-backs should be removed where they do not foster productive investment and jobs. And the overall tax rate should be set at a level which uses the wealth created for the benefit of the whole of society, providing needed investment, increased jobs and better services.
A rational all-Ireland tax policy could also simultaneously end two scandals.   The first is a stunted economy in the North which continues to decline even relative to Britain’s poor performance. The second is the scandal of a distorted economy in the South, which even now generates more income per head than Britain and yet where it is confidently asserted that ‘we are too poor to have a free health service’.  A just tax system requires greater democracy and accountability, and its principle should be to benefit the whole of society, not a select few.

Gerry Adams keeps a wacthful eye on David Cameron and Owen Paterson as they address the media outside Stormont