NI corporation tax rate should be cut - study

A lower corporation tax rate and a less dominant public sector would together be the key to kick-starting the North's economy, an analysis from Goodbody Stockbrokers concludes.

It says that a more competitive tax rate, such as the 12.5 per cent in the Republic, could see foreign direct investment rising 20-fold to $6.5 billion (€5.4 billion).

Likewise, Goodbody says that greater levels of private entrepreneurship could spur growth across the economy.

The North has a corporation tax rate of 30 per cent, one of the highest in the EU. Northern politicians have no power to reduce it, however, even when the power-sharing Assembly is operational.

Dermot O'Leary, chief economist with Goodbody, believes this should be changed. He noted that in the Channel Islands and the Isle of Man local authorities can set corporation tax rates independently of London.

A lower corporation tax rate would be "the final piece of the jigsaw in terms of unlocking the North's potential", according to Goodbody.

"All the ingredients are there for this economy," said Mr O'Leary.

He highlighted "attributes" such the North's young and populous labour force, low levels of current activity and high levels of educational attainment as evidence of its potential.

Weighing against this, however, is a clear over-reliance on the public sector for jobs and growth, according to the analysis.

Some 27 per cent of output in the North can be sourced to spending on public administration, defence, education, health and social work, the analysis finds. This compares to less than 20 per cent in parts of Britain and just 14.5 per cent in the Republic.

While acting as a support for labour demand and economic stability, this public sector involvement can distort perceptions of real underlying activity, Goodbody notes.

More importantly, according to Mr O'Leary, the availability of well-paid public sector jobs can act as a disincentive for innovation and entrepreneurial spirit.

Public sector employment accounts for 35.7 per cent of total employment in the North, compared to 20.5 per cent in the Republic.

The latest data show that just 29 businesses are being registered per 1,000 people in the North annually. The equivalent figure in England is 42 per 1,000.

Mr O'Leary acknowledged that the North has statistically been the fastest-growing "regional" economy in the UK over the decade to 2004 but said this masks the true picture.

The North remains the third-poorest of the UK's 13 regions and its productivity levels "significantly" lag behind Britain, he said. He urged UK policymakers to look at the Republic as a "template for what can be achieved".