CHANGING INCOME TAX RATE COULD DAMAGE ECONOMY
Think tank says Scotland needs more powers in its tax basket – such as VAT and Corporation Tax – before it can introduce coherent tax reform
Reform Scotland, the independent, non-party think tank, has called on the Scottish Government to resist calls to increase income tax, calling instead for it to be pegged to the Westminster level until more taxes are devolved.
The think tank, which through its Devo Plus campaign has been a leading proponent of increasing the Scottish Parliament’s fiscal powers, has said that because Scotland’s taxation powers are so heavily skewed towards income tax, coherent tax reform cannot currently be introduced.
Despite the devolution of income tax, which was significant and welcome, the Scottish Parliament still raises only around 40% of what it spends, and the disproportionate dependence on income tax is highlighted by the fact that it accounts for around two-thirds of all the tax raised by Holyrood.
Reform Scotland believes that the lack of balanced fiscal levers could lead to a situation where increasing income tax could actually reduce the total revenue raised, which in turn would necessitate a cut in funding for public services as well as damaging economic growth.
Commenting, Reform Scotland’s Chairman Alan McFarlane said:
“The Finance Secretary has led an excellent consultation process ahead of his Budget, which has been an exemplar of good governance. He should be wholly commended. However, his hands are tied by the fact that, welcome and significant as its devolution was, income tax alone represents a disproportionate and blunt instrument which is incapable of creating the conditions for economic growth.
“Altering the Income Tax rate to make it different from Westminster, far from being beneficial, could be detrimental to Scotland’s economic performance and lead to a drop in revenue available to spend on public services. The Scottish Government has itself acknowledged the potential for adverse behavioural change in response to income tax policies.
“We need more tax levers to equip us to introduce coherent reform. There are viable options with precedent, including VAT and Corporation Tax.
“As a member of the EU, the UK’s regions could not have differential sales taxes, but Brexit has changed that particular game and there is now no impediment to devolving VAT.
“Corporation Tax is now devolved to Northern Ireland in recognition of its unique circumstances, and could now be devolved to Scotland in recognition of ours.
“However, until we have those enhanced levers our plea to all political parties is ‘no change, please’.”