Labour proposals to introduce tax changes that would see the Scottish government take control over a portion of Scottish income tax have been described as “perverse” by respected economists Jim and Margaret Cuthbert.
The proposals based on the recommendations of Sir Kenneth Calman’s Commission on Scottish Devolution are supposed to address the weakness of the current system – that the Scottish Government has powers to spend but little by way of responsibility over how the money is raised.
The Cuthberts point out that should the Scottish economy be stimulated through a lowering of the Scottish tax rate then the extra revenue generated would accrue to the UK treasury and not to the Scottish government who would bizarrely find themselves having less to spend.
The report also highlights the problem of ‘fiscal drag’; this is where through time the proportion of the overall tax take that comes from higher tax bands increases. Since the Scottish Government receives a lower proportion of the higher rate tax collected then the overall proportion of income tax revenues it would receive would reduce.
In their latest examination of the plans the Cuthberts look at the transitional arrangements unveiled by Jim Murphy recently and demonstrate the negative effect they will have on Scotland’s economy and on taxation, this they say will make the original flawed plans even worse.
Writing in Public Finance they say:
“The transitional arrangements would increase the disincentive for the Scottish Government to introduce a fiscal stimulus package, including a cut in the Scottish rate of income tax. Instead if it needed to increase its revenues, it would be forced to increase the tax rate – at the expense of deflating the Scottish economy. Far from having a stake in the success of that economy, the Scottish Government would have, in effect, the opposite.”
Commenting on the analysis SNP MSP and Finance Committee member Linda Fabiani said:
“Only Labour could take these damaging plans and make them worse.
“Far from proposing a system of fiscal autonomy that would enhance both the power and responsibility for taxation in Scotland this plan seems designed to leave the Scottish Government with one hand tied behind its back. No other government in the world would face a situation where rather than increase economic growth to increase revenues it is expected to increase taxes and potentially damage growth.
“These plans are utterly perverse and increasingly incompetent.
“The Scottish Government should have responsibility for taxation in Scotland. Short of independence full fiscal autonomy is the only way this can be delivered. Labour’s half baked electoral fudge is set to make Scotland’s situation worse not better.”
The report echos a similar report compiled by Professors Andrew Hughes Hallett of St Andrews University and Drew Scott of Edinburgh University.
The full article by Jim and Margaret Cuthbert can be found here:
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