Wednesday, 8 May 2019

Facing the reality of choices

I’ve posted before on the debate about devolution of Air Passenger Duty (APD) to Wales, and the fact that many of those supporting its devolution are confusing the means and the ends.  As an independentista, I’m always going to support the devolution of more taxation powers to Wales (although I tend to the view that it’s more about claiming our right to levy taxes than having part of the power graciously devolved back to us), but that isn’t the same as supporting the immediate reduction of those taxes as soon as they are devolved, which is the real objective of many of those arguing the particular case for APD.  It is for the Welsh Government and the Assembly, once in control of taxes, to decide how to set the level of those taxes and rebalance the raising of revenue between them, and the interests of the state-owned Cardiff airport aren’t the only interests to be considered.
Given the emphasis being placed on climate change by so many Welsh politicians, one has to seriously question whether encouraging an increase in air travel (which is the deliberately planned outcome of a reduction in APD) is in any way in line with the demands for the declaration of a climate emergency.  It will be interesting to see how those making that demand respond – but I’m not going to hold my breath on that.  Interestingly, one devolved administration in the UK has already faced up to that contradiction, with the Scottish Government announcing this week that its planned cuts to APD will not now go forward.  It’s a bold move, breaking a clear pledge given in the past, but who can honestly disagree with the assessment by the Finance Minister that reducing the tax is “no longer compatible” with its climate targets.  It’s the sort of change in policy which governments need to be making, rather than simply declaring symbolic emergencies.
The decision to change tack was greeted with the inevitable criticism by those involved in the aviation industry who remain committed to growth regardless of impact, but there was one comment by the Chief Executive of AGS Airports which struck me as a good illustration of very different understandings of economics.  He said that, “Over the course of the past year alone, we have seen the withdrawal by airlines of almost 30 routes from Aberdeen and Glasgow airports because of Air Passenger Duty".  I’m not in a position to dispute whether that number of 30 is correct or not, but he’s probably in a better position than me to judge.  But whether it’s a bad thing as he claims or actually a positive thing that fewer flights are taking place is surely a matter of opinion rather than fact. 
And the idea that it’s “because of Air Passenger Duty” is a complete nonsense.  The truth is that the number of people travelling at the price at which tickets are being sold is inadequate to cover the costs of providing that service (and tax is one of those costs) and return a profit.  The abolition of APD might be enough to fix that mismatch, but that isn’t the same thing as saying that the tax causes that mismatch.  It’s ideology, not economics, which drives the idea that taxes are somehow a special sort of operating cost which ought to be dismissed from consideration in determining profitability and abolished if profitability is otherwise marginal.


Jonathan said...

Completely agree that its one thing to assert Welsh control over a tax, and quite another to go ahead and cut it. No streetwise State which knows how to govern will mix these up. But those who rule Wales are not thinking like proper rulers. The Severn Bridge set a terrible precedent on statecraft. Get control of the tax and then scrap it. Wrong on the Bridge and would be wrong on APD. For one thing, Wales must try to be self-financing. This means keeping sources of revenue, not taking then over and abolishing them. Not easy being an independista.
- very tempting to take over taxes, cut them, race to the bottom, and stay broke
- I'd like to balance Welsh tax receipts and expenditure over time, but won't be easy to cover the actual/apparent deficits.
- I'd love a Welsh Aer Lingus. But Cardiff is not Dublin and geography is against growing the Welsh economy by this route. Ditto for Ferries.
- another country invented Skype and Transfer wise
- growth in tourism of doubtful value, although Tourism Tax needs thought.
- we seem to have missed out on making wind-turbines
So we are going to have to look very hard for what Wales is going to do for a living.
Tough, being an Independista

John Dixon said...

"Tough, being an Independista" Indeed; and those who seek to mislead by arguing that devolution of taxes will automatically lead to cutting those taxes do the cause more harm than good overall. An independent Wales will need to live in the real world.

I don't entirely agree, though, with "I'd like to balance Welsh tax receipts and expenditure over time", not without significant caveats at least. In the real world factors such as economic growth, inflation, and changes in productivity make it possible and indeed normal for most countries to run a deficit most of the time, and there's no reason why Wales should be different. 'Balance' implies a more static economy than reality dictates. The question is not whether we can or should 'balance' income and expenditure but why Wales should be any different to other countries.

Jonathan said...

Agree that we want Wales to be normal so, yes, I get it that you can run a deficit for a long time. What I really meant was that I want Wales to control the process, which means starting with some basics
1. What taxes can we control what do they yield?
2. Expenditure, what is it and do we control it also?
3. Inevitably we will have a gap. What is the gap? Cardiff Uni has the best figures. OK, assuming we have to fill at least some of it, but do not have the money, we will have to turn to London, as now.
And then the target will be to reduce/meet the gap ways which we choose, maybe make a transitional deal with London.
And then become a normal country as you say.
We do now have a Welsh Treasury. So it is a fair ambition to start to use it in this way.

John Dixon said...

I completely agree with points 1 and 2 of your response. Point 3, on the other hand...

"Cardiff Uni has the best figures". I assume that you are referring to the GERW report a couple of years ago, and if so, you're right in saying that they're the best figures that we have. The best figures for what, though? The authors of that report made no attempt, and stated clearly that they had made no attempt, to model the finances of an independent Wales. What they set out to do was to look at the position of Wales within the UK, and identify a series of assumptions and numbers which showed where we stood on that basis. To extrapolate those into any sort of independent future is to assume that the act of independence doesn't change the pattern of income and expenditure or overall policy - but that would make independence pointless, surely?

"...we will have to turn to London, as now." I'm not sure what your scenario is here; but if Wales is 'independent' I don't understand why we would ever expect London to underwrite any budget deficit, even in part. That isn't the way normal independent countries behave. If you are talking about the period of time between now and independence, then that is another matter entirely, of course. In that scenario, Wales remains a devolved administration within a single state; sharing and pooling across that state is entirely reasonable. It just doesn't tell us very much about what happens at the point of independence.

One thing which I think that independentistas need to think about a lot more than most have to date is the 'process' of independence, and how we manage that. Some seem to assume that this is simply about a slow accretion of powers for the Assembly; I think that an over-simplification. Devolution is not independence, nor is it, in itself, an adequate preparation for independence. Others sometimes seem to assume that we vote for independence one day and become independent the next; that too is over-simplification. There needs to be a transition period and plan, and it is only really when we get to that point that many of the questions can be answered, since many of the answers are context (and therefore time) dependent.