Friday, 4 February 2011

A taxing question

Everyone (except 'True Wales') is absolutely clear that giving the Assembly the power to vary taxes is not on the agenda for the referendum in March.  But most people also recognise that there is a problem for any body which can make laws and change policies in ways which affect spending without having to face the consequences of the impact of that on taxation. 
It's easy to understand why many would prefer to avoid any discussion of the issue of taxation before the referendum.  Or indeed, at all.  I fear, however, that simply leaves it as an unanswered question, and looks like a lack of honesty.  Taxation is an issue which isn’t going to go away any time soon, no matter how often some people avoid it.
Part of the problem in discussing the issue is the use of the word ‘raise’, with its two slightly different meanings.  ‘Raising taxes’ means setting the level of taxes and collecting them – it doesn’t necessarily include the other connotation of increasing the level of them.  Yet that is the connotation generally placed on the word by opponents of devolution – it’s a form of verbal sleight of hand in a way, to suggest that ‘devolution = more taxes’. 
In reality, having the power to ‘raise taxes’ also includes the power to set them at a lower level, and reducing some taxes might well be the best way of building a stronger economy in Wales.
It worries me that both Calman in Scotland and Holtham in Wales have concentrated their attention on the right to vary one tax only, namely income tax.  It is, of course, one of the largest and most easily collectable sources of revenue, but it’s also the most ‘visible’ of taxes.  It’s likely to be one of the hardest to vary significantly as a result.  Having one tax that it can vary does, of course, put the Assembly on a par with local councils – it does not, however, put it on a par with other legislatures, which can vary a range of taxes.
That isn’t just about perceived status differences.  Varying income tax does give some degree of fiscal responsibility to a body which is otherwise only spending its ‘allowance’; but it doesn’t give it the same range of options for varying policy.  The power to change income tax alone would be something of a poisoned chalice.  If we want to get to the stage where the Assembly Government can even begin to think about ‘transforming the economy’ as Peter Hain suggested it would do, then it needs to have a greater range of fiscal tools available to it.
At the moment, taxes are collected in the UK, and a portion is then allocated back to the Assembly for it to spend, on devolved matters, as it wishes.  It would surely be better for taxes to be set and collected at a Welsh level, with an agreed amount being passed on to the UK Government to pay for UK level services.  And it isn’t another step on a ‘slippery slope’ to anywhere – it’s a common-sense approach adopted by stable federal systems.
It would give the Welsh Government serious fiscal responsibility, as well as a much better opportunity to vary fiscal policy to achieve its economic objectives.  It would also clarify exactly how much we in Wales are paying for non-devolved services – and that would be no bad thing either.

6 comments:

Old_Miwl said...

Being able to vary a wide range of taxes (or to abolish some and introduce others) could also be a good way of encouraging or discouraging certain types of behaviour - much in the same way as landfill tax helps to encourage councils to send less to landfill. However, I think that borrowing powers also need to be on the agenda. If the WAG wants to invest in some big infrastructure project which could help the economy, then that freedom to borrow responsibly is essential.

Anonymous said...

Borrowing powers? Why can't governments spend what they recieve as income and cap it at that?

John Dixon said...

Anon,

Old Miwl is right on borrowing powers, although it wasn't the focus of the post. Capping spending at the level of income might work, just about, for revenue spending, but it doesn't work for capital spending. It'd be like telling people that they could only buy a house if they paid cash.

Anonymous said...

"It'd be like telling people that they could only buy a house if they paid cash."

What's wrong with that? If everybody pays cash...everybody pays cash. If everybody can borrow 3.5 salary....then houses increase to this value ie 3.5 times salary. People are no better off in the end. But we live in a debt driven society run by the banking cartel who gain interest on payments. Oh yes....credit growth also fuels inflation which is another tax on the people especially the poor who don't have property/land which increases with inflation. The poor are left with holding a devalued currency, if they are lucky enough to have any savings.

Governments should live within their means.

Back to your post. I agree that Wales should be able to raise it's revenue through taxation. :-)

SiƓnnyn said...

Canvassing yesterday, I gave a couple of old ladies who brought taxation up, pause for thought when I pointed out that the UK government could easily - without reference to us - impose Tax raising powers on the assembly - but that a good YES vote would boost our ability to resit it!

Bit disingenuous, I know, but it is far nearer the truth than any of True Wales's lies!

Anonymous said...

John
It would surely be a major step forward for the people of Wales to be able to directly invest in infrastructure projects. what is missing is the mechanism.
If RBS is to be broken up in the public interest then why cannot we reclaim the "Bank of Wales" as our own Plan B would be for Finance Wales to become a deposit taker.
Most of us are aware how Tesco is now slipping the words Tesco Bank into its Advertisements as a warm up to acquiring deposit taking status.
If a supermarket can then why cant WAG