Give Stormont power to set income tax in NI, Tax Commission recommends
A body set up by Finance Minister Conor Murphy to consider whether to delegate taxing powers to Stormont is to recommend that it would be appropriate for the executive to have the power to set income tax levels – and several other taxes – in Northern Ireland.
The Independent Tax Commission made this recommendation at a time when there is no functioning executive. However, it is clear that a decision to even partially delegate taxation to Stormont would involve “real risks” and could mean less money for public services.
The commission, which was chaired by one of Britain’s most respected economists, Paul Johnson, has yet to publish its final report. However, the body met Mr Murphy before he left office after the May election. During the meeting, the commission told the Sinn Fein minister that its full findings would be published in May, but that its main recommendations would include the proposal that income tax was likely to come under the control of local politicians .
It has long been a goal of Sinn Fein to have taxation delegated, seeing it as a way to move more power away from London and give it the ability to harmonize tax rates across the island. This policy involved the party favoring a reduction in corporation tax, to the great discomfort of some of its members.
However, corporate tax experience indicates that it may take many years for the executive to establish the income tax, if that ever happens. The government agreed in principle that corporation tax could be devolved years ago, but it forced Stormont to put its finances in order and accept that cutting tax would involve a big hole in its budget. Neither condition has been met yet, so nothing has happened.
Stormont also had the ability to generate more revenue for utilities through the pricing system, but still refused to do so.
In a statement today, Mr Johnson said: ‘The NI Assembly already enjoys a high level of spending autonomy and controls most public service spending here. However, with the exception of corporate and household rates, it has no substantive powers to change taxes.
“Our interim report, published in December, looked in detail at more than 20 different UK taxes to determine which might be the best candidates for devolution to Northern Ireland.
“The taxes we prioritized for more detailed examination were: income tax, fuel, alcohol and tobacco taxes, stamp duty property tax, air passenger tax, the apprenticeship tax and the landfill tax.”
The Director of the Institute for Fiscal Studies continued: ‘In briefing the Minister today, we have confirmed that our final report will recommend that income tax be adjusted for devolution to Northern Ireland. However, we have pointed out that full decentralization, i.e. full powers over allowances such as personal allowance and allowances, as well as local administration of income tax, does not is not necessary to reap the main benefits of decentralization.
“On the contrary, partial decentralization, with powers over income tax rates and, potentially, banding, would be effective in giving the NI Assembly a major new means of raising revenue, lowering taxes of its citizens or to vary the progressiveness of its tax system. This is possible without the disproportionate complexity and heavy administrative and compliance burden that completely decentralizing such a large tax would entail. »
He said that if the income tax is devolved, the apprenticeship tax should also be devolved because there are “administrative synergies”. And the commission must recommend the complete decentralization of the stamp duty property tax, the air passenger tax and the landfill tax.
The commission said that if these taxes are transferred, the executive should create a local revenue authority to administer them, which it said would increase the accountability of local politicians, allow for greater policy flexibility and innovation, and build institutional capacity. .
The commission said it believed excise duties on fuel, alcohol and tobacco might be suitable for decentralization, “but in the longer term”.
Mr Johnson stressed that delegating more tax “carried real risks”, adding: “Our analysis shows that, hypothetically, if Northern Ireland had devolved income tax 20 years ago, for example , the NI budget would have been favorably impacted in the early years, but then significantly negatively impacted, in the years following the financial crash…although this is not a measure of what will happen going forward, it makes it clear that decentralization has both risks and benefits.
Mr Johnson said the final decision on that would be up to politicians rather than the commission. Mr Murphy welcomed the recommendations, saying ‘increasing our taxing powers would give local authorities more control, allow us to set taxes according to the needs of society and businesses here, and give us new options to fund public services.