IT'S, NO? (via Pepys):

'The fact is, it's tax.' Blimey, O'Reilly, you never said five truer words (William Rees-Mogg, 6/12/06, Times of London)

Last week David Wighton, of the Financial Times, had lunch with Sir Anthony O’Reilly in Manhattan; the interview was published in Saturday’s FT magazine. [...]

[T]he key passage refers to tax. O’Reilly’s view is that the main reason for the Irish economic “miracle” has been the low level of corporate tax in Ireland. He is working to persuade the UK Government to reduce the rate of corporation tax in Northern Ireland to that of the south; that is, from the UK’s 30 per cent to the Republic’s 12.5 per cent. He comments that the Irish miracle is not “because the pubs are great, the golf is great and the climate is, well . . . the fact is, its tax.”

This is, indeed, one of the political truths that politicians ignore at their peril. O’Reilly’s “the fact is, its tax,” is just as valid as Bill Clinton’s “it’s the economy, stupid”. Of course, from the British point of view, there can be no question of cutting the Northern Ireland rate of corporation tax without cutting the UK level. If 12.5 per cent is good for the Republic — and it is — then indeed it would also be good for Northern Ireland. If it would be good for Northern Ireland it would be equally good for England, Wales and Scotland. Not only good, but essential.

Most politicians have little understanding of tax. They think it is easier to tax business because global businesses do not have votes. They do not realise that Ireland has found that lower tax rates produce higher yields. The result is that Conservative tax policies are inadequate, Liberal Democrat policies are self-defeating, and Labour’s are complex and perverse.

Politicians do not appear to understand that global businesses are free to arrange their tax affairs on a global basis. Most private individuals are still tied to the place in which they earn their living, though the genuinely rich can afford to live where tax is lowest. International companies, by definition, earn their profits internationally. They can, by and large, choose to place their headquarters in a low-tax jurisdiction. For instance, in the Republic of Ireland.

Why would you tax something you want more of?

Posted by Orrin Judd at June 13, 2006 11:23 PM