A Place to Stand

Holyrood Lib Dems ponder tax cut (particularly business taxes all as a way to stimulate economic growth)

As previous readers here will know I was expelled from the SLD for, among other things, calling for business tax cuts to stimulate economic growth (my Enterprise Motion). So yesterday I read this in the Scotsman

Nicol Stephen, the party's Scottish leader, is studying plans to produce a "pro-enterprise" party platform, which is also likely to include a promise to make further reductions in business rates.

Lib Dem party sources last night stressed that the plans to cut the "tartan tax" - which will cost at least £500 million a year - were at an early stage.

However, it is understood Mr Stephen, the deputy first minister, and Tavish Scott, the minister for transport, are both determined to see tax-cutting promises in the Lib Dems' next manifesto.

Neither Mr Stephen nor Mr Scott was prepared to say anything in public yesterday, but party sources confirmed they were looking at income and business tariffs as part of a wider package of tax plans.

The unattributed nature of this means that they are running up a flag to see if anybody salutes rather than making firm policy. They did something similar last year in regard to Nicol's loony idea of spending £3 billion on a Glasgow/Edinburgh bullet train (he had been on a junket to China, seetheirs's & wanted to play too), which eventually became official policy.

For 3 years I tried to get the party to even think about doing this & as a direct result was expelled on charges that such reforms arspecificallyly "illiberal" & "too right wing" to be considered. So I wonder where they got the ideas? Well OK I don't & I do claim credit.

So am I bitter. In the words of General Schmuck* - Hell, yes.

For that reason you may assume I am biased, though I don't think so, when, having claimed authorship, I now explain why it is a bad idea.

The main part of the proposal is a 2p cut in income tax. Business tax cuts which would be a more efficient targeting are a lesser part. Well after all income tax cuts are good for votes.

The real problem is how are these tax cuts to be paid for & the answer is

new taxes to offset the cost of the "tartan tax" reduction and the expense of using the parliament's tax powers for the first time.

That's right. Tax cuts paid for by new taxes. Unspecified Green taxes (a tax on plastic bags is mentioned which I can't see replacing much income tax) & more charges for recycling (as if recycling was a profit making rather than heavily subsidised activity).

This is the sort of lifting yourself up by pulling on your own bootstraps which is a sort of economics equivalent of perpetual motion (actually economics being what it is it might just work if the tax cuts were focused completely on business investment since it concentrates diffuse resources on growth, but the income tax cuts are, by definition, diffuse).

Worse. The administrative cost of this is going to be high. Firstly the cost of invoking the income tax cuts will "cost around £100 million, and there would be an administrative cost of about £60 million a year". Moreover income tax is one of the cheapest taxes to collect. Collecting an extra £500 million (the figure given) from recycling charges & plastic bags (or slightly more credible green taxes like higher fuel prices, higher cigarette prices, surcharges on electricity not produced by windmills, community charge surcharges for higher cleansing prices, parking or driving in cities surcharges etc any suggestions welcomed) would probably cost at least 20%, which in turn means higher taxes to cover the extra costs.

Thus to replace the £500 Million will cost £700 Million (the original £500M plus £60M for increased income tax administration plus £140M ie 20% of the extra cost in raising £700M). Good tactics. That will really stimulate the economy. This exclude the initial £100M to redo income tax.

The real way to encourage growth is to cut the outrageous amount of our money spent by government (54%) & direct it primarily into cutting business taxes (cutting income tax, while everybody likes it should come 2nd to building our future - though this requires some faith in the Scots people not being short term junkies, a faith I believe justified). Cut the outrageous amount of waste, don't spend £3 billion on goa railway & cut overmaning until we reach English levels, drasticly cut the £500M given to Scottish Enterpise & select a few more sacred cows for culling. That would work. Anything which isn't willing to face cutting government@s cost is just smoke & mirrors.

The article implies that this stuff was put together by Nicol Stephen & Tavish Scott. I assume they didn't ask the advice of Ross Finnie, an accountant to trade & the Executive minister called in to run things when the going gets tough (foot & mouth, fishing, water) but does not have the chiseled blondeness of Nicol (& has had a heart attack) & so is relegated to the position of Minister For Things That Happen Outdoors. They should let him tell them how to fix this.


*General Schmuck says this in Dr Strangelove.