£1.5bn warning to finance chief
SOARING numbers of high earners will set up companies to avoid the SNP’s tax hikes, according to the Scottish Government’s economic forecasters.
Economists have warned that Derek Mackay’s plans to force hardworking Scots to pay more income tax could backfire – and cost more than £1.5billion in revenues.
The Scottish Fiscal Commission (SFC) has predicted that thousands of taxpayers could attempt to avoid paying higher rates by incorporating their cash.
This would see workers route their salaries through companies and means they could take their money as dividends, which attract a lower rate of tax, or pay corporation tax at only 19 per cent.
As corporation tax and income tax on dividends are reserved to Westminster, this would mean any money raised would go to the Treasury and not the Scottish Government.
Last night, opponents said that Mr Mackay had acted ‘recklessly and thoughtlessly’ by opting to hike taxes.
The SFC published a forecast for the year ahead based on Mr Mackay’s Budget – which will see those earning more than £33,000 a year pay more income tax. As well as creating an intermediate band at 21p, the rate for those earning between £44,273 and £150,000 will rise from 40p to 41p.
And the top rate for those earning over £150,000 a year will increase from 45p to 46p.
Following the Finance Secretary’s decision, the SFC revised forecasts on incorporating – more than doubling the estimates predicted by the Scottish Government earlier this year.
The report forecasts that between 2017/18 and 2021/22, the Scottish Government could lose more than £1.5billion in tax revenues, double the SNP’s prediction of £682million in February.
Scottish Conservative economy spokesman Dean Lockhart said: ‘This is yet another example of the SNP failing to think through the consequences of their Nat tax.
‘As much as £1.6billion could be lost to Scotland as a result of people changing their tax status. That’s what happens when you push up taxes too much.
‘Scotland’s tax powers should be used responsibly and prudently. Instead, the SNP has used them recklessly and thoughtlessly in a way that will damage Scotland.
‘The upshot will be less money for public services. The SNP must rethink its Nat tax and stop punishing Scottish taxpayers.’
Mr Mackay was warned about the threat of an increase in avoid- ance through incorporating days after releasing a tax paper with First Minister Nicola Sturgeon, which set out options they were looking at before the Budget.
The Institute for Fiscal Studies (IFS) said the behaviour of high earners was unpredictable and there were a number of actions they could take to limit their tax liability.
It claimed it was likely avoidance figures would be significantly higher than forecast in February.
The SNP’s plans will mean the pay packets of one in three will be cut, while 45 per cent will pay more than their counterparts in the rest of the UK.
A Scottish Government spokesman said: ‘Our new, fairer, income tax policy will protect the 70 per cent of taxpayers who earn less than £33,000 a year and ensure they pay less tax next year for any given income, while asking those earning more than £33,000 to pay a proportionate amount more to support our public services.
‘These measures ensure that Scotland will be the fairest taxed part of the UK.’
Meanwhile, world renowned economist Arthur Laffer hit out at the SNP’s tax plans, claiming it would see Scots at a disadvantage over their UK counterparts. He said the measures would ‘discourage growth’.
Mr Laffer said: ‘There are clear disadvantages to living in Scotland if your tax rates are higher than the rest of the UK.
‘The Scottish Government needs to understand you cannot distribute more than you can produce. These sorts of measures will put Scotland on a par with Greece, they discourage growth.’
He added: ‘Scotland has a large number of low-paid jobs and you cannot grow an economy on lowpaid jobs.’
Mr Laffer was often cited by Alex Salmond, and was an economic adviser to Donald Trump during his presidential campaign.
As well as Mr Trump, Mr Laffer advised politicians including former Prime Minister Margaret Thatcher and former US president Ronald Reagan. Stephen Daisley and Comment – Page 16