SNP’s triple tax Bombshell

SNP’s triple tax Bombshell

by Murdo Fraser
article from Thursday 31, January, 2019

IT WAS BAD ENOUGH that the SNP’s draft Budget published last month widened the income tax gap between Scotland and the rest of the UK, but this week the Finance Secretary Derek MacKay went even further, with the prospect of even more taxes to come, thanks to the deal he did with the Greens.

This is an SNP Government elected on a manifesto commitment not to raise the rate of income tax, a promise that they have broken. It is a SNP Government which promised to cap Council Tax increases at 3 per cent, another promise broken. And it is a SNP Government who promised that they would not introduce a tourist tax, but have done just that, in the face of overwhelming opposition from the industry. That’s a triple tax bombshell from the SNP Government, and it will do nothing for the competitiveness of the underperforming Scottish economy.

On top of all that, there could be new workplace parking levy, so we have to pay to park our cars at our place of work or even where we go shopping, or for leisure.  Derek Mackay likes to compare himself to Doctor Who, but with Patrick Harvie as his assistant, but between them they will exterminate Scotland’s attractiveness as a place to live, work, and build a business.

The Greens were very firm in advance of the Budget that nothing less than the wholesale reform of local taxation would get them on board. Instead, what we have is a proposal for yet another cross-Party working group, and tax reform at some indeterminate date in the future. They do seem to have sold themselves very short, and let their voters down.

The context for this budget was that the Finance Secretary found himself in a healthier position than he was expecting with Barnett Consequentials of an extra £950m in the Scottish Block Grant, following the Chancellor’s announcements in October. An increase which means that, according to SPICe, the Finance Secretary’s total budget is up in real terms on last year. And let us never forget that, contrary to all the spin from the SNP, the Scottish Government’s total budget is up in real terms since 2010, by £1bn.

And the background to all the Scottish Government financial decisions is the Barnett Formula – which at the latest estimate, from the Scottish Government itself, delivers an additional £1800 of spending for every man, woman and child in Scotland.  That’s a fiscal transfer to Scotland, a Union dividend, of more than £10 billion each year. And what is the SNP policy on the Barnett Formula, on this multi-billion pound bonus to Scotland?   They want to scrap it, and create a black hole in Scotland’s finances to a tune of more than £10bn. That’s why the greatest threat to our public services comes from independence, and the continual threat of a second independence referendum.

Against the backdrop of more money from Westminster, the Finance Secretary’s choice was to extend the income tax gap between Scotland and the rest of the UK, meaning that those earning between £43,430 and £50,000, will face a marginal tax rate of 53 per cent. It means that public servants such as Police Sergeants, Senior Nurse Managers, and Principal Teachers, will be paying more tax than their counterparts south of the border, in some cases over £1500 more.

It means that anyone earning over £27,000 will pay more than their equivalents south of the border. Not the rich, but households with a total income of £27,000, paying the price of having an SNP government.

What the Scottish Conservatives wanted to see in this Budget was a focus on growing the economy. A focus, the need for which is made apparent in the Scottish Fiscal Commission’s Report published in December. For each of the next four years the SFC are forecasting that the Scottish economy will grow at a lower rate than the UK as a whole, and that earnings here will grow more slowly.

And this has consequences for our public finances. Because a slower growing economy, and slower rising earnings, means less in terms of a tax take, and less money to spend on public services. And the perfect illustration of that comes in the SFC forecasts for income tax for the coming year, which in the period between May and December last year they revised downwards by a staggering £661m. That’s a cool two thirds of a billion pounds of revenue that we are missing out on.

These are only estimates, but in due course all these figures will have an impact. Table 8 on the Fiscal Commission’s Report shows the income tax reconciliations. For last year, the forecast reconciliation is minus £145m, which will have to be met in the financial year 2020-21. But even more serious is the forecast outturn for this year, down £472m, to be met in the budget for 2021-22. That’s another half a billion pounds black hole in this government’s Budget. How the Finance Secretary will be hoping that these forecasts turn out to be wrong, otherwise he will be the one writing a note to his successor saying: “I’m sorry, there’s no money left”.

To give just one example of spending in the Scottish Government’s draft Budget: International relations is a reserved matter, and yet this government is increasing the spending on international relations by a staggering 52 per cent over two years, from 15.7m to 23.9m. They tell us there is no money to spend, and yet that is us funding Scottish Ministers grandstanding around the globe at our expense. If ever there were an area of spending that could be trimmed, surely this is it.

With Scotland’s relative economic underperformance compared to the rest of the United Kingdom, we should have had a budget which focussed on improving our economy, on maximising the tax take from a growing economy, not on widening the tax gap and penalising those earners who are currently here. Every 20 new additional rate tax payers we attract to Scotland would generate £1m in tax revenue. An extra 2000 additional rate tax payers would give us a minimum of £100m annually. 

According to figures I heard recently, a 1 per cent increase in Scottish productivity, just 1 per cent, would deliver £2.3bn extra in GDP, and £400m in tax revenue. Rising wages would deliver much higher revenues, than increases in the tax rate. There was a time when there were those on the SNP front bench who understood these basic facts of economics, but they are sadly long gone.

We made an offer to the SNP in advance of this Budget. We asked them to ditch their plans for an unwanted second independence referendum, to take action to narrow the tax gap rather than widen it, and then we could sit and talk about measures to grow the Scottish economy and support our public services. But rather than talk to us they have turned to the anti-business, anti-growth Greens, and the consequence will be a Scottish economy continuing to underperform, and yet more taxes on hardworking families. That is the wrong direction for Scotland to take.

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