THE Scottish Growth Commission report is intended to provoke discussion. I am not enamoured by its suggestions on either monetary or fiscal economic policy, but what of the related issue of taxation, on which subject I wrote a White Paper for Common Weal last year.
In para 3.58 the report says:
Our recommended starting point for a Next Generation Economic Model for Scotland is based on learning the lessons from small advanced economies and applying them intelligently to Scotland's circumstances, needs and opportunities. … Features of that model include … using taxation as a tool for economic development but not competing as a low tax location.
The Commission has then rejected the option of ‘doing an Ireland' by becoming a tax haven.
However, caution is required. As the policy summary (para 18) says:
As part of the review of taxation recommended in Part B we recommend that the impact of business taxation on growth performance is carefully assessed. We are interested in the potential to tailor the Dutch R&D tax credit scheme, enhance incentives for longer term equity investment and improve capital allowances. While we do not consider that competitive use of profit taxation (corporation tax) is an optimal strategic tool, we do recommend that the headline rate of corporation tax should not rise above the level prevailing in the rest of the UK. As with all taxation the impact of the overall structure on both the tax base and revenue generation should be carefully assessed to ensure the more effective system is deployed.
It's important to note that the Dutch research and development tax credit has been widely condemned as abusive and a clear sign of aggressive tax competition on its part. Offering high levels of capital allowance on capital expenditure, especially in comparison with a neighbouring country like the UK, which does not at present do so, is also indication of a commitment to aggressive tax polices now consistent with onshore tax havens. And for those who say that this does not matter, I offer a word of caution. What it implies is an attitude that Scotland should not tax companies, capital and wealth too heavily for fear it will relocate. That there is almost no evidence that real wealth does relocate for tax reasons does not matter to those who promote these arguments. What this suggestion implies is that much of the tax due in post-independence Scotland will be paid by those who work for a living. The bias in the existing UK tax system towards the well-off is, then, by implication to be kept in Scotland.
When it comes to detail the report is quite vague. Just four paragraphs are dedicated to the issue. Whilst it is always the case that politicians wish to keep their powder dry on tax issues in this instance, especially when so much detail has been given on monetary and fiscal policy this approach is decidedly lightweight.
The report says:
Borrowing on the work of the Scottish Government's Fiscal Commission Working Group we highlight the issues and opportunities for the taxation system in Scotland and recommend further work.
The decisions that are taken by government on the design of taxes and tax rates set should take account of the likely economic impact on the economy, including on behaviour of individuals and on businesses. This should include regard for maximising revenues, since increasing (or reducing) rates does not always lead to increased (or reduced) revenues; taxpayers can often change behaviour as a result of the changes made.
A comprehensive review of the Scottish taxation system beyond income tax is recommended drawing on the best global expertise and experience with a view to recommending reforms to improve simplicity, neutrality and flexibility.
A cross-partisan approach is sought.
I welcome the opportunity for a detailed review. It is clearly needed. I hope the White Paper I have written might be drawn upon in that process. But there are still issues in these limited commitments worthy of note.
In particular, there is a worrying suggestion that the so-called ‘Laffer Curve' might be relevant in a Scottish context and that there are limits to the tax rates that it might wish to consider. I suggest that this is wrong. The work of economists working with Thomas Piketty has made clear that there is no tax rate that Scotland might reasonably consider where an increase in tax rate would reduce tax yield. In that case this hint is instead a suggestion that taxes on the wealthy will be kept at low rates as neoliberal tax thinking demands: this is trickle down economics at work.
The reference to ‘simple, neutral, and flexible' tax policies amounts to the same thing. These could be seen as references to Adam Smith, but they're at least as likely to be reference to the mantra of many right-wing think tanks for whom these are favourite words, often linked to flat tax debate and often used to suggest that taxes should be ‘business friendly'. We are all too familiar with where that has led in the past: Scotland cannot afford to go there.
In summary, the Scottish Growth Commission report might not seem to say much on tax, and leaves the issue open for further debate. But what it does say embraces a great deal of right-wing thinking and hints at Scotland partaking in tax competition, taxing business and wealth at low levels, and imposing most demand on the working people of the country. I would suggest that is not what Scotland expects. Further debate is very definitely required.
This article was first posted on the Common Weal web site
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History might might remind us that it was the Scots attempt to emulate the Dutch wealth gathering in foreign parts that led to the disaster of the Darien Scheme and then the loss of independence in 1707. Only this time it may not be England that gets final control.
Well worth watching.
I look at this as a test of whether the SNP and the Scottish ‘Conservative Lite’ party are running their government for the benefit of all citizens, or for a handful of rent-seekers.
According to Pat Kane, in today’s “The National”: ‘the Commission authors I talked to are ostentatious about dealing with what one of its contributors described to me as “the real world, sans unicorns and magic money trees”. This is robust, substantive stuff..’
Oh dear! We’re not going to go beyond any kind of thinking that isn’t based on the neoliberal world view which has been so successful in bringing us austerity, inequality, fiscal straightjackets and capture by the City.
Although there are some good things in the Report, the monetary and fiscal ideas suggest we might as well stay in the UK as we won’t have control of the areas that really matter.
Precisely
“there is almost no evidence that real wealth does relocate for tax reasons ”
Luxembourg, Monte Carlo, The UAE and the Caribbean are full of very wealthy people who have moved there.
Why did they move there?
A few sad gits prove nothing
Nor does it prove their wealth is there
So people do move for tax reasons?
But they don’t count because you don’t like them?
And of course they move their wealth with them. You think Lewis Hamilton is paying UK tax?
With respect, there are a tiny number of Lewis Hamilton’s who is a high earner, but was not wealthy
You are making a rather straightforward error with that claim
And Philip Green moved his wealth abroad by legally transferring shared to his wife. Who then didn’t pay tax on 100s of millions of pounds in dividends.
You can’t keep saying no one moves for tax readons and then dismiss all the people who move for tax reasons. It only takes a few to make a difference.
How many ‘average’ tax bills of £6k or £7k will have to be paid by ordinary people to make up for each billionaire who leaves?
It’s not right. But it happens. And you look foolish when you try to deny that it does.
I’m off now. This is not a place for debate but an echo chamber for your foolish views and rude rantings.
I found your last, self descriptive, comment so amusing I posted this
“in comparison with a neighbouring country like the UK, which does not at present do so…”
What do the Dutch offer that the UK does not on R&D.
The UK offers 100% on capital expenditure and 230% on revenue expenditure.
I’d say that was pretty generous.
I was discussing capital allowances
It would help if you paid attention
Yes. Capital Allowances.
That’s why I said there were 100% deductions on capital expenditure for R&D in the UK.
Then I asked if you could outline the Dutch approach as you had mentioned it. But you just ignored my question.
It would help if you read what I had written and weren’t so rude.
And I was not discussing R&D when discussing CAs
Don’t the UK tax rules allow for 100% AIA?
Are the Dutch rules more generous than that?
Can you give an example?
I think you can use google
And your email address suggests you are here to spam
Richard
You criticise the Dutch for aggressive tax allowances in comparison with us next door in the UK. But you also say no one moves for tax reasons.
So why worry about aggressive tax allowances? If no one moves for tax reasons the Dutch are wasting their time, surely?
If you read what I said it would help
I said real wealth does not move
There is little evidence to suggest R&D allowances have changed that
The biggest industry resulting from R&D allowances is creative accounting to make existing spends fit a claim
I did not say that abuse does not move: I said real wealth does not
So are you saying that the 100s of millions that the Greens moved is not real wealth?
That the billions held in tax havens is not real wealth?
Why campaign against tax havens if no real wealth is moved there?
You cannot have it both ways. You cannot say low tax regimes are damaging the UK and then say no one moves wealth to lower tax regimes.
The source of their wealth – the retailing businesses – stayed exactly where they were
It was record3d that money moved
But money also moves on in seconds. It never stays in small tax havens – there is no money to be made there
When I was a child in 1968 Sheffield extended its boundaries, and some family friends moved house just over the boundary to escape Sheffield’s tax clutches. In 1974 Sheffield extended its boundaries again, and these family friends moved again, again to escape Sheffield’s tax clutches. And you insist that people don’t move to change their tax residence?
I don’t believe you