Why continually putting up taxes is raising less money
HOW many times do politicians need to learn the lesson that the politics of envy have a habit of hurting those who can bear it least?
You would think, from what politicians and the media tell us, that income inequality has increased in recent years and those who earn more are paying a reduced share of income tax.
In fact, if you look at official statistics you can see this is not true. The share of income tax paid by the top 25 per cent of earners in the UK increased by 9 per cent to more than 75% of the total between 1999/00 and 2018/19. For the top 1% of earners the increase in the share paid was 31%.
Scotland already has an income tax system that is highly redistributive and worryingly reliant on a small number of people to pay a very large proportion of the total amount of tax raised. These people are our most talented and tend to be highly mobile – they could work in Edinburgh, London, Frankfurt or Boston if they wanted to. We need to give them reasons to be here not drive them away.
The Scottish Government can’t resist focusing on the wrong target. The question it should ask is: “How can we tax people in a fair way so we raise the money we need for public services”.
Instead, what it does is pander to populism, raise tax rates and call it “progressive”.
What this causes is a further narrowing of the tax base and tax revenues actually fall in £ terms.
The Scottish Parliament should use its considerable tax raising powers more wisely – it is not percentages that pay for public services but pound notes.
Tax revenues in Scotland in 2016/17 were more than
£500 million less than expected, with a reduction in tax raised from
higher rate income taxpayers a major factor.
Unfortunately, it’s not just income tax that is a problem.
Land and Buildings Transaction Tax (LBTT) is the perfect demonstration of over-reliance on taxing the top of a market very heavily. The result has been that the market has changed, with fewer transactions involving the most taxed properties.
LBTT in 2016/17 collected
£483 million rather than the
£538m the Scottish Government thought it would. The Government had the chance to design a sensible property tax and fluffed it.
A smarter way forward would be for our leaders to learn from their mistakes and look carefully at where reduced tax rates would be likely to increase the amount of tax raised to spend on hospitals and schools.
Instead, they are salivating at the extra £100m Scotland would allegedly get if a Labour government put value-added tax (VAT) on private school fees.
This is raw state socialist envy. Tear down excellence under the badge of equality but do nothing to improve the quality of our state schools or to tackle the huge variation in quality among them.
What next? Extra council tax if your local school achieves good exam results? VAT on books that only posh people are deemed to read? VAT on art classes at your local college ?
Aside from the message of don’t dare to aspire for your family or buy something other than what we the state give you, the economics is nuts. Private schools generate export earnings, create jobs, pay taxes and, most important of all, reduce the number of pupils the state has to educate.
Adding 20% to fees will force many private schools to close and the resulting cost to the Scottish Government will be considerably more than its share of any extra VAT, leaving less rather than more to spend on education.
I live in hope that this particular spite tax will not be supported by the SNP.
It is not just income tax that is a problem