Will increasing income tax rates harm Scottish economic growth?

It seems a near certainty that the Scottish Government will seek to increase income tax revenues in tomorrow’s budget – through a combination of changes to rates and thresholds. If this happens, it will kick-off a hotly contested debate about the impact on the Scottish economy.

The Scottish Chambers of Commerce have got their response in early, arguing that “at a time of sluggish growth and faltering business investment, a competitive Scotland cannot afford to be associated with higher taxes than elsewhere in the UK”. The Federation of Small Businesses has also warned about the impact of tax increases on the economy. Continue reading “Will increasing income tax rates harm Scottish economic growth?”

The choices facing Mr Mackay

As he has been developing his budget over the past few weeks and months, Mr. MacKay will have confronted a number of difficult choices. How should he prioritise his £27bn resource budget across portfolios ranging from health to education and local government? Should he use his tax powers to raise additional revenues, and if so by how much? What can he do to support the conditions for inclusive economic growth?

In previous blogs and in our latest commentary, we’ve discussed some of the key aspects of Thursday’s budget from the perspective of the economy and public finances.

But what are the big things to look out for from a policy perspective? Continue reading “The choices facing Mr Mackay”

A summary of today’s economic commentary

Today – in partnership with Deloitte – we published our latest Economic Commentary.

This blog summarises the contents and key message of the report.

Alongside the usual commentary on the Scottish economy there are some interesting articles from:

  • David Eiser on the links between economic growth and income tax revenues;
  • Grant Allan on what the latest FAI/AGCC oil and gas survey is telling us about the transition to low carbon energy systems in Scotland;
  • Jennifer Turnbull and Kenny Richmond on Scotland’s recent innovation performance; and,
  • A look by Viktoria Bachtler at Scotland’s recent performance in terms of high growth companies.

Here we summarise some of the key conclusions from our outlook section. Continue reading “A summary of today’s economic commentary”

Will slower economic growth in Scotland necessarily mean slower growth in income tax revenues?

David Eiser, Fraser of Allander Institute

The slowdown in Scotland’s rate of economic growth relative to the UK has been well documented. Whilst growth in UK GDP per head has been weak, growing at just 2.3% between Q1 2015 and Q2 2017, Scottish growth has been weaker still, with per capita GDP growing just 0.57%, over the same period (Chart 1).

Revenues from non-savings, non-dividend (NSND) income tax now form part of the Scottish budget. Under the Fiscal Framework, the Scottish budget will be better off than it would have been without tax devolution, if revenues per capita grow more quickly in Scotland than they do in the rest of the UK (rUK). Conversely, slower growth will translate into a smaller Scottish budget.

A critical question therefore is what slower growth in GDP per capita – in Scotland relative to rUK – might mean for the growth of income tax revenues per capita in Scotland relative to rUK. Does slower growth in GDP per capita necessarily mean slower growth in income tax revenues? How strong is the relationship and what factors might influence it? Continue reading “Will slower economic growth in Scotland necessarily mean slower growth in income tax revenues?”