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Rebalancing the Northern Ireland economy

Rebalancing the Northern Ireland economy. Eamonn Donaghy Head of Tax KPMG in Belfast. Educated workforce Competitive operating costs Advanced telecommunications infrastructure Sectoral /cluster strengths Excellent university/business linkages Access to key markets

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Rebalancing the Northern Ireland economy

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  1. Rebalancing the Northern Ireland economy EamonnDonaghyHead of TaxKPMG in Belfast

  2. Educated workforce Competitive operating costs Advanced telecommunications infrastructure Sectoral/cluster strengths Excellent university/business linkages Access to key markets Good track record for foreign direct investment English speaking Good time zone for East and West Reasons to invest in Northern Ireland

  3. So why has the Northern Ireland economy consistently failed to deliver the type of economic growth that has occurred in the Republic of Ireland?

  4. Northern Ireland is too reliant on the public sector and has too small a private sector Current economic policies are struggling to grow the private sector Economic growth is needed and new economic levers are required Why does the Northern Ireland economy not grow?

  5. Reducing corporation tax rates to 12.5% will cause a shift change Previous UK administrations have refused to consider a separate Northern Ireland corporation tax rate The current UK Government is actively consulting on this issue All the Northern Ireland political parties support the devolution of corporation tax varying powers Backing of the business community in Northern Ireland – The Grow NI campaign Background to the consultation document Not a silver bullet but a key ingredient to making Northern Ireland a more competitive place to do business

  6. Profits up to £300k: 20% Profits £300k - £1.5m: 20% - 26% Profits over £1.5m: 26% (due to fall to 23% over the next 3 years) The UK corporation tax rate is competitive Current corporation tax rates in Northern Ireland BUTRepublic of Ireland rate: 12.5% for all trading companies; no plans to reduce

  7. Increased foreign direct investment Increased internal investment by existing firms Increased economic growth and a stronger private sector Potential long-term employment benefits Positive indirect impact on tax receipts as a result of growth Overall a means to kickstart the Northern Ireland economy which traditionally has relied more heavily on the public sector than other parts of the United Kingdom and Republic of Ireland Benefits of a reduction to 12.5%

  8. Impact on the Northern Ireland block grant Artificial profit shifting by GB companies - brass-plating Additional administrative burdens for both the Northern Ireland Executive and businesses Financial implications

  9. Determining the profits which would benefit from the reduced rate Determining Northern Ireland activity from non Northern Ireland activity Profit shifting Tax motivated incorporation Mechanics of implementing the Northern Ireland corporation tax rate Implementation issues

  10. An immediate reduction The cost to the Northern Ireland Assembly would be £225m - £270m per annum for the first 5 years of implementation Deferral of the reduction The Northern Ireland Executive could announce an intention to reduce the rate without doing so immediately, with no immediate cost Phased reduction Would reduce costs in early years and give more time to adjust to the necessary budgetary changes Each 2.5 percentage point reduction in the main rate would cost around £30m – £50m and around £30m - £40m for the small profits rate Exclude non-trading profits This could reduce the overall costs of the measure by up to £85m per annum Consultation document: options for reducing the rate to 12.5%

  11. R&D tax credits Enhanced Annual Investment Allowance (AIA) Training credits National Insurance holiday Other options

  12. The clear conclusion must be to: Phase in the reduction over a period of 3 - 5 years Apply the reduced rate to trading profits only The best solution for Northern Ireland

  13. Consultation process closes 24 June 2011 The result of the consultation process will be announced in autumn 2011 If the Government agrees to devolve corporation tax rate setting powers to the Executive, it will require a change to the Northern Ireland Act (6 – 9 months) It will then be up to the Executive to decide its rate policy setting and how to manage the cost within its budget (this could take 2 years before ‘phasing in’ of the rate will commence). What happens next? A once-in-a-lifetime opportunity for the Northern Ireland economy  eMail: niconsultation@hmtreasury.gsi.gov.uk

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