NI's leaders await crucial tax report

Belfast Briefing: It is not so long ago that your first impression of Northern Ireland if you approached it from the old Dublin to Belfast road used to be a political demand.

For years political posters requesting various things such as "End British Occupation" or "Free Political Prisoners" were the first indication you were approaching the Border, and, more likely than not, to hit a backlog of traffic on the road to Newry.

The cliche "you never get a second chance to make a first impression" is never truer than when it comes to wooing potential inward investors.

You can just imagine how foreign investors, previously wined and dined by the IDA, and brave enough to venture North must have felt as they were greeted by unsettling political slogans, traffic chaos and the prospect of a 30 per cent corporate tax rate.

Not exactly a combination designed to win friends.

Today there is a completely different approach to Northern Ireland - thanks to the sparkling new M1 motorway, traffic jams should in theory be a thing of the past, and the new Executive means the old political posters will probably be appearing on e-Bay soon.

There is just one thing left to sort out - corporation tax - and everyone in Northern Ireland, from political to business leaders, is anxiously waiting to see if the Varney review of taxation will finally be published this week.

Sir David Varney was asked by the British chancellor in June to carry out a review to examine how tax policy can support economic growth in Northern Ireland. His report is due any day.

Every business leader and every politician in the North has been campaigning to have the rates dropped from 30 per cent to 12.5 per cent to enable Northern Ireland to compete with the Republic . A recent survey carried out by BT and the Northern Ireland Chamber of Commerce showed that two out of every five businesses in the North believed that a reduction in corporation tax should be one of the main priorities for Northern Ireland politicians to achieve.

The North's Economy Minister Nigel Dodds believes that a reduced rate - although "not a silver bullet" - would make the single biggest contribution to accelerating the North's economic growth, while Minister for Finance Peter Robinson has warned that the outcome of the Varney review will play an important part in the Executive's economic strategy.

The Executive is due to publish its first budget and programme for government before the end of this month. It will form the crucial framework determining where the Executive's 11 departments will spend money.

There are already huge demands from various departments, particularly health and education.

But Mr Robinson has said one of the key priorities for the Executive is the economy, because he believes that without economic growth it will not be able to deliver on its other priorities. Last month he told an audience of members from the Confederation of British Industry in the North: "It is my view that as an Executive we cannot underestimate the pivotal role the economy must play in terms of the political, social and economic progress of Northern Ireland. "This must not simply apply to some, but to all departments."

The Varney review will play a critical role in Northern Ireland's future economic health - at the moment, public spending by the British government accounts for 63 per cent of the North's gross domestic product and one in every three people in the North works for the public sector.

Northern Ireland desperately needs new inward investment and new jobs if it stands any chance of being able to sustain and build a new political future.

Publicly there is a lot of hope among business and political leaders that Varney will take their pleas for a reduced tax rate on board, but privately there is little optimism that he will wholeheartedly recommend that the rate in the North is harmonised with the South's 12.5 per cent.

Varney has made no secret of the fact that he believes a rate cut would encourage transfer pricing - where foreign-owned companies who are based in Britain would register an office in the North just to record their profits without actually making an economic contribution to the area.

What happens if Varney does not make a recommendation in the North's favour?

International business people have told politicians in the North that if it comes down to a simple "tick the boxes" scenario on the island of Ireland, then investment is likely to go to where the best tax incentives exist - south of the Border.

Some business leaders privately say they will feel betrayed by the British chancellor who could take a big, if undoubtedly brave, step towards creating new economic opportunities for everyone who lives in Northern Ireland.

Francess McDonnell's column will appear every Tuesday. She can be contacted at fmcdnews@hotmail.com .