Corporation tax cut – a gamble working people can’t afford

One of the features of this election campaign has been the degree of unanimity across the parties on economic issues.  This was summed up by Sinn Fein’s Martin McGuinness, who in a speech to business leaders could make the claim that the “next big battle is around the economy” and that he and the DUP leader “on the same side”.  But what are they battling for – Higher wages? No.  Better working conditions? No.  An expansion of public services? No.  What McGuinness and Robinson, and all the other political leaders, are battling for is a cut in corporation tax.  They believe that only a cut in corporation tax can provide the uplift that the economy requires.    

The most common argument used by those in favour of a cut is to point to the “success” of Ireland’s Celtic Tiger economy, which had at its heart a corporation tax rate of 12.5 per cent.  Of course they conveniently ignore the complete collapse of the Republic’s economy over the last three years and the role that a low tax rate played in creating a credit fuelled boom that turned to bust.  They also ignore the fact that while the Republic had a pursued a low corporation tax policy from the late fifties onwards the period of rapid growth had come only in the mid 90’s.  This suggests that tax was not the main factor but rather developments in the global economy such as the growth of mobile capital and the establishment of a single European market.  

However, it is not just a question of whether a lower tax rate will produce growth.  Pursuing such a policy will also have an impact on society.  The evidence is that lowering taxes on capital, while certainly benefitting the owners of capital, impoverishes broader society.  We need only look to the south during the recent period of rapid growth - class inequalities increased as the benefits of that growth were disproportionally focused on the rich, public services stagnated and infrastructure such as transport, communications and water remained underdeveloped.

The transfer of wealth from the poorest to the richest in society is even more obvious in the north as a cut in corporation tax would be accompanied by a cut in the block grant from the British Treasury.  It is estimated that a reduction in corporation tax to 12.5 percent would mean a reduction in the block grant of £300 million.  That’s the equivalent of the annual budget of NI Water.  The reality is that a cut in corporation tax would result in the introduction of charges and/or the cutting of public services.  The claims made by parties in this election campaign that they can maintain public services, avoid water charges or stop a rise in student fees while at the same time reducing corporation tax are simply not true.  

A reduction in corporation tax would be a huge gamble for working people in the north.  It is unlikely to work even in the terms set by its supporters, and even it did would create greater inequality and hardship for the majority of the population.  It is a real indictment of the parties at Stormont that they are attached to such reactionary nonsense.