Mr Mackay’s Scottish Budget raises a number of taxing issues
Between the lines Stephen Hay
History was created yesterday as the Scottish Finance Secretary delivered his first Budget and increased the number of tax rates in Scotland from three to five. This effectively aligns Scotland with the majority of OECD nations who favour and operate a progressive tax system. We must not lose sight of the fact that while it may be progressive, the measures will generate a mere £164 million in additional tax revenue at a time when the annual fiscal deficit in Scotland is a whopping £12 billion. The cost of collecting the new tax rates will also need to be factored into these figures given that HMRC will need to be paid by the Scottish Government.
As for the tax rises, it was no surprise that there would be increases and the new 21 per cent and 41 per cent rates had been predicted. The paper published by the Government in November provided all the information you required to make an educated guess. A 50 per cent rate looked a good bet until Tuesday when the Chief Economist published an assessment on the potential loss of revenue through the behavioural impact by those wishing to avoid the tax. Instead a new 46 per cent rate was a good second guess and so it proved. The 19 per cent rate will be welcomed by those on lower earnings, but adds to the overall complexity.
The Finance Secretary expects 55 per cent of Scottish taxpayers to pay less tax than they would if they were resident elsewhere in the UK but that is only because that percentage of our workforce earn less than £26,000. He stated that 70 per cent of Scottish tax payers will pay no more tax next year than they did this year which means that the remaining 30 per cent will foot the £164m bill. If you are one of those lucky to earn more than £150,000 and you are in the 1 per cent of the taxpayers who do, then you are likely to pay a significant amount.
At first glance, the proposed LBTT relief for first-time buyers of properties up to £175,000 seems very low compared with the £300,000 level introduced for the rest of the UK. A maximum saving of £600 compared with £5,000 south of the Border does seem paltry. However, the proposals for both taxes indicate that the relief will apply to 80 per cent of first-time buyers and it seems that matching the number of people receiving the relief to the rest of the UK could have been Mr Mackay’s overall