Debate needs to be had over taxation strategy in Wales
Chairman of CBI Wales Michael Plaut explores how lower taxes in Wales could boost the economy
MY own personal view is that Wales needs to strategically look at what kind of nation it wants to become.
A high-tax nation, where investment and success are perceived to be “punished” through higher taxation and the economy suffers; or a country that rewards and encourages economic activity, at all levels, through lower taxation and in the longer term builds a thriving economy.
While next year the Welsh Government will be able to alter the level of income tax some individuals will pay, it already levies other taxes, and no doubt in the future more taxes will become devolved.
It is at the beginning of this journey that debate is needed, not just discussing the taxes that have been or are being devolved, but taxation in its widest context.
In Wales it can be difficult to introduce or discuss ideas that go against the prevailing political ideology, and open debate which dares to go outside the agreed political parameters is often discouraged and frowned upon.
This is certainly true of tax, where the prevailing attitude among many is the higher the tax rate the better, regardless of whether a higher tax rate generates more revenue than a lower tax rate.
Paradoxically lower rates of tax can result in a higher tax take.
The truth is, though, that if we want to have public services we can all be proud of, it is difficult to be able to afford these in the longer term if we have a stagnant or lowgrowth economy.
One of the keys to long-term wellfunded public services in Wales has to be to grow the economy, and lower taxation is a proven means to do so. Just for that reason we need to encourage a proper debate on the role of taxation in building a Wales fit for the future.
Wales always used to look across the Irish Sea and try to learn all it could from our Celtic Tiger neighbour, and the way in which Ireland was developing its economy.
While some in Wales seem to have become less enamoured by the Irish example (perhaps because of the very success of its low-tax model), we still need to look closely at Ireland, and the incredible success of that nation.
The use of low taxation to encourage economic activity, and attract individuals and companies, has been central to Ireland’s success.
Why don’t we try to see if we can adopt some of the same proven policies going forward?
The Irish model is not perfect, no system is, but we can learn from their mistakes as well as their successes. Surely the only thing worse is not trying at all?
If we are going to have a proper debate over the direction of taxation in Wales, and to have the courage to put the future success of Wales in front of political ideology, let’s really explore all the possibilities.
It is interesting that in my discussions with various people a number of interesting ideas on Welsh taxation have been suggested.
While to some these ideas will be seen as politically outside the ideological comfort zone, they do deserve proper research and discussion.
These ideas have come from a variety of individuals, and while some may feel uncomfortable exploring such seemingly radical approaches, these are all ideas that have been successfully implemented and adopted elsewhere.
We need to be bold enough to ask these questions and brave enough to develop a model that works for Wales:
Should Wales become a low-taxation nation to attract talented individuals?
Should Wales become a tax haven to encourage wealthy individuals to relocate here, and base their businesses here?
Should Wales become a low-taxation nation for business, to encourage companies to locate here, or remain here?
Should Wales adopt a flat taxation system in order to ensure everybody’s interests are aligned?
I personally would really like to see Wales set a lower rate of income tax next year – so Wales sends out a clear message that Wales is open for business, welcomes economic activity, and wants to encourage the economy to grow through rewarding work, talent and risk taking.
After all, everybody benefits from a growing economy with more money in people’s pockets and more funding for our public services.
■ (These are the private views of Michael Plaut and do not necessarily reflect CBI Wales policy.)