Delegating income tax powers to Stormont is unnecessary amid political dysfunction – The Irish Times
For those interested in the success of the Northern Irish economy, an important report was released last week by the Independent Fiscal Commission Northern Ireland. It examines how Northern Ireland could best develop its own sources of revenue to give greater independence in executive decision-making. However, with all the focus on protocol and constitutional issues, there appears to be little interest at present among politicians in Northern Ireland to pursue the new opportunities suggested by the commission.
The members of the commission, appointed last year by Finance Minister Conor Murphy, were truly independent and experts in their field. They produced an analytical and objective report template. Therefore, his analysis and conclusions cannot be dismissed by any of the parties in the new Assembly as being partisan.
Committee chair Paul Johnston of the Institute for Fiscal Studies in London noted at the launch that the Northern Irish administration already controls a very high share of public spending by European standards. This includes spending on health, education and social services. The decentralized administration also has the power to modify the social protection system. In the period since the Belfast Agreement, the Northern Ireland administration could have made major changes in spending priorities in a way that would have significantly improved the standard of living in Northern Ireland. However, to date, very limited use has been made of these powers.
Take education reform, for example. Recent ESRI research, echoing earlier findings by Professor Vani Borooah, shows the need for major changes in Northern Ireland’s education system, which has a high number of early school leavers, and a lack of educational opportunities for children from disadvantaged backgrounds. So far, successive devolved administrations have been reluctant to tackle these issues. The financial obstacle is not a lack of control over revenues but rather a reluctance to reprioritize spending.
If Stormont is reluctant to use the financial powers and fiscal leeway he already has, further fiscal decentralization would not be an easy recipe for success.
The commission looked at the three major sources of tax revenue: income tax, social insurance and VAT. He recommended that Northern Ireland would initially only ask for decentralization of one, and that income tax would be the best option. This would mean that from a given date all future tax revenue from income tax would go to Northern Ireland, and the annual transfer from London would be reduced by the amount of revenue collected in the first year.
Initially, the change would have a neutral impact on the Northern Ireland budget. Whether the North would be better off or worse off making the switch would depend on whether Northern Ireland’s economy and income tax grew faster or slower than Great Britain’s. Britain over the next few years.
Scotland, where tax revenues have already been devolved, has done worse since switching to the euro as its economy has grown more slowly than the rest of the UK. The commission’s report shows that the disappointing performance of the Northern Irish economy since 2010 would have cost it £2billion if income tax revenues had been transferred at that time.
Decentralizing income tax revenue to Northern Ireland only makes sense if local government can use the new powers to grow the economy – and therefore future tax revenue – significantly . It requires a capable executive that works well with the skills and vision to make it happen. Exploiting the dual membership of the EU and UK markets offers a unique opportunity.
Greater tax autonomy comes with risks – the tax commission suggests a kind of insurance against events beyond Stormont’s control negatively affecting its revenue. Choosing investments with a longer-term return – such as investing in improving the education system – could lead to short-term compression of income, but ultimately higher returns.
In its consultation with the wider Northern Ireland community, the committee found some pessimism about Northern Ireland’s ability to make good use of the enhanced powers. This reflects the current political stalemate.
It remains to be seen whether a well-functioning executive can be formed and can leverage a shared commitment across political divides to make Northern Ireland a better place for those who live there. Recent elections showed that most voters prioritized daily bread issues such as living standards, prices and health services over constitutional issues or protocol. The public wants a Stormont administration that will pull itself together on practical matters. Greater fiscal autonomy will only bring benefits if it is based on good governance.