Tax hikes unlikely to bring ‘big revenue’
Professor Graeme Roy’s comments come after Finance Secretary Shona Robison on Thursday set out the government’s medium-term fiscal strategy and told MSPs “difficult decisions” would be needed.
She said resource spending needs are expected to exceed funding by £1bn in 2024-25, rising to £1.9bn by 2027-28.
By law, the Scottish Government must balance its budget.
CONTINUE READING: Robison hints at cuts as she tries to close the spending gap
Ms Robsison explained that while she did not “have all the leverage to make the Scottish tax system work in the most effective way”, she did have options as to “who and what should tax and at what rate.”
SFC figures showed that there were 510,500 higher-rate taxpayers in 2023-24, up from 405,500 in 2021-22 — an increase of just over 25%.
The higher tax rate in Scotland is currently 42p, with tax currently being levied on annual income between £43,663 and £125,140.
The Greens and STUC have urged ministers to consider a new tax rate for those earning between £75,000 and £125,000.
Speaking to journalists, Professor Roy said: “It is important to note that funds are increasing, but commitments made are increasing faster than available funds.”
“If you just look at it from a purely mechanistic point of view and from a mechanical and numerical point of view there are differences of £1 billion, £2 billion, be it three, four, five years later, there are limits, how.” Given the scope of the powers available to the Scottish Government you can essentially generate revenue to fund this.
“There are limits to how much a government can do to increase revenue to fund higher spending. If you change the tax rates, how might that affect the potential performance of the economy and the tax base?”
“It will be interesting to see what the government does over the coming months, particularly with this new tax advisory group, what the relative balance is between changing tax rates and ensuring that the base of the economy, the tax base, continues to grow .” ”
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The Fraser of Allander Institute’s economic think tank was even more outspoken. A fiscal strategy assessment released Friday morning said changes to the higher and top personal income tax rates “wouldn’t likely bring much revenue.”
They said a 2p increase in the overall higher tax rate would bring in just £176m.
“In practice, that means difficult spending decisions have to be made.”
