OPINION:Garret FitzGerald underestimates the British prime minister's opposition to a special tax deal for the North, says Graham Gudgin
THE GREAT success of the Irish economy has come to be much admired in Northern Ireland. The fact that the Republic has had the best record of sustained economic growth of any European country in the last 50 years is now well recognised.
This recognition is not new. In his first speech in the South after becoming first minister in 1998, David Trimble strongly praised the southern economy to his hosts at the Institute of Directors, and hoped that the North would share in this prosperity.
The truth was, though, that little thought was given to how this might be achieved.
The short-sightedness of the first Assembly has not characterised the second and current Assembly. During the run-up to the restoration of the devolved Assembly last year, all of the major parties stressed the need for a tax regime similar to that in the Republic of Ireland.
A strong case was made to reduce corporation tax to the 12.5 per cent enjoyed in the Republic. The parties accepted the view, popularised by Sir George Quigley, and advanced by most northern economists, that only a low corporation tax could lead Northern Ireland to emulate the Republic's success.
The demand for low corporation tax became the centre piece of the three reports by the shadow assembly's economic sub-group. Each party backed this demand, although with differing degrees of enthusiasm. Ian Paisley's DUP backed it strongly and at times described it as a potential deal breaker.
Sinn Féin had their own, completely unrealistic aim for a uniform 17 per cent tax across the whole island, but went along with the general demand for something closer to 12.5 per cent, to maintain a common negotiating position.
The least supportive party was the UUP, although again they did not wish to undermine the negotiating position.
The problem was to persuade Her Majesty's Treasury. This was attempted at two meetings at 11 Downing Street in 2007 attended by the four main parties. They found Gordon Brown at his most intransigent. It became clear that such tax flexibility would only achieved only over his dead body.
The most that could be achieved by heavy pounding, particularly from Ian Paisley jnr, was the promise of a review of taxation in Northern Ireland. This promise was so reluctantly conceded that it seemed obvious that any review would produce negative conclusions, particularly as the review was to be conducted by the Treasury itself.
When the review, headed by Sir David Varney, reported at the end of 2007, it came as little surprise that it completely rejected any deviation from the UK corporation tax rate of 28 per cent for large companies. The review argued that a tax concession would be horrendously expensive, would distort the UK tax system, and in any case had not been an essential element in the Republic's economic success.
Local economists regard these conclusions as being an example of the New Labour practice of working back form an expedient political preference to manipulated evidence.
The belief in the north is that low corporation tax has indeed been the key element in the South's success. Although the Republic's spokespeople tend to emphasis other factors, including a good education system and effective development agency in the IDA, these are not regarded as sufficiently different from Northern Ireland to be able to account for the gap in economic growth.
Skills training, which in the South is tailored to incoming multinational company needs, relies on low tax to provide a predictable flow of jobs. Similarly, the much admired effectiveness of the IDA is based on Europe's most attractive tax concession for incoming companies. Northern Ireland could match the South's effectiveness in these areas, but only if it had a similarly predictable inflow of foreign investors attracted by low taxation.
At present, the Executive appear to have accepted Varney's rejection of any change to corporation tax. They are organising no fight-back, despite the fact that Gordon Brown is making more positive noises about tax flexibility in Scotland, where Labour faces severe electoral difficulties.
Rather oddly, Peter Robinson has asked Sir David Varney and the Treasury to conduct a follow-up review to advise on wider economic development issues in Northern Ireland. The UK government, and Treasury, have been heavily criticised for the ineffectiveness of their own Regional Development Agencies in England and it is not obvious what they can contribute to the less familiar circumstances of the Northern Ireland economy.
The difficulties faced by the current devolved administration in Northern Ireland shed light on Garrett FitzGerald's claim that low corporation tax could have been made a pre-condition for devolution in 1998.
His rather muddled musings on the reasons for the failure to insert this precondition into the Good Friday Agreement underestimates the huge difficulty faced by the unionists in obtaining more politically pressing pre-conditions on IRA weapons.
The idea that Trimble's economic advisers were in denial about the success of the southern economy is laughable. My own position was one of acute awareness, but having no role whatsoever in the talks leading to the Good Friday Agreement this was hardly relevant.
It could be argued that the devolved Executive under Trimble could have subsequently done more to argue for lower tax but by then Northern Ireland's bargaining position was weaker and the window of opportunity had passed. In any case, Trimble had little interest in economic development and his economics minister, Sir Reg Empey, did not look to economists for advice.
Tax matters could have been led by Mark Durkan as finance minister, but he saw his role as primarily one of fairness and effectiveness in allocating public expenditure between departments and hence parties.
The UUP generally took a pragmatic attitude to co-operation with the South, and tended not to worry much about the long-term political implications of the South's economic success.
They were, of course, not helped much by the Republic's continued ambition, expressed in its Constitution, to take them over.
Dr Graham Gudgin was special adviser to former first minister David Trimble (1998-2002) and adviser to the shadow assembly economic committee in 2007