Scottish Budget: Round One to Derek

Financial Secretary Derek Mackay has announced his draft Scottish budget for 2019-20. This is a first offering as the minority SNP government at Holyrood needs support from a third party (i.e. the Greens) to get Mackay’s budget through in the early spring. What’s on offer?

Mackay has made a reasonable job of balancing the books, given the fact that Holyrood’s financial resources – the annual grant from the UK Treasury – have been squeezed in real terms since 2010. Except for those on very low incomes, the Financial Secretary has frozen income tax bands and tax rates, rather than giving cash away. This is a brave move and prompted the usual carping from the junior neoliberals in the Scottish Tory Party (“cut taxes!”) and junior neo-Stalinists in Labour (“raise taxes!”). For the record, crudely raising income tax in Scotland is problematic because there are only 13,000 top (“additional”) rate payers in the country, and they employ expensive accountants.

Despite the financial limitations imposed by Westminster, the SNP government continues to protect services, insists on everyone paying for the common good, and in return provides universal benefits. This is the best practical demonstration I know of social democracy.

WAGES OF AUSTERITY

Honestly requires that we accept there is one area where the SNP has been forced to make hard economic choices when it comes to rationing the available resources: local government. Successive SNP administrations have prioritised defending (and gently increasing) the real spend on the NHS. But this has consequences: if the cake is shrinking (thanks to Tory austerity) and you protect health, then other things suffer; i.e. local authority spending.

Lately opportunist Scottish Labour has seized on this contradiction to berate the SNP for “co-complicity” in austerity and demand an increase in local authority spending. I’ve even seen Labour apparatchiks complaining that the SNP froze the council tax for too long “as a middle class subsidy”.

The truth is that back in 2010, as the economic crisis caused by the Bank Crash began to worsen, the only real fiscal power in the hands of the then Scottish Finance Secretary, John Swinney, was council tax. Swinney was ahead of both Labour and Tories in freezing council tax as (1) a way of protecting working class incomes; and therefore (2) a way of putting more consumer spending into the local economy. As a result, this helped pull Scotland out of recession faster than in England. Smart guy, John.

This year, Derek Mackay has found extra real resources for local government. Plus future cash for the various City Deal partnerships with local councils across Scotland – a budget line Labour quietly ignores when attacking “cuts”.

Where I think Derek still has a problem is in funding wages. True, he announced a welcome 3 per cent general pay rise for most local employees. But RPI inflation (which includes housing and energy costs) is currently at 3.3 per cent. And a hard Brexit fall in the value of sterling will boost import prices. If the Scottish government raised wages above inflation – a one-off using reserves – this would force a similar increase in private pay, and feed directly through to increased consumption. That, in turn, will put more income tax revenues into Derek’s coffers. Derek: scatter your bread on the waters and you’ll get it back!

TWO TO TANGO

Can Derek Mackay do a deal with the Greens to get his budget through? The Greens have been very upfront about wanting an SNP government commitment to genuine reform of local government finance. Mackay’s budget statement was curiously silent on this subject.

One solution is to return to the SNP’s traditional policy of introducing a local income tax. This has the great democratic advantage of devolving financial power to the local level. Alternatively (or in addition) we could replace the council tax with a thorough-going land tax of some kind. In any case, a land value tax is necessary if we are to widen the fiscal base and remove the main way the rich avoid paying their fair share.

According to the UK government’s own figures, published in the annual National Balance Sheet, fully 51 per cent of all the assets in Britain by value are held in the form of land – it might even be higher in Scotland. That’s out of line with the average in the G7 industrial countries, where only 39 per cent of assets are held as land. In Germany, it is a paltry 26 per cent, because smart Germans prefer to invest in making things rather than in owning estates.

British wealth is hidden in land as a way of avoiding taxes on share income and because successive UK governments have rigged the tax system to subsidise property, thereby creating an insane tendency for land values to rise in perpetuity. So it makes abundant political sense for the Scottish government to tax land values. As well as generating new public revenues, this will forced unproductive land into more productive public use, raising output and productivity. What are you waiting for, Derek?

Comments (22)

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  1. Partick Bateman says:

    Agree entirely on an LVT. 100%. It’s a complete no-brainer. The problem is, it was a no-brainer back in 2007 … and in 2011 … and then again in 2016. For some reason the SNP (leadership) have a problem with it and I can’t understand why.
    As you allude to you in your article, it’s possible they’re holding it back as a negotiating tactic, knowing the Greens will ask for it. I hope that’s the case but history doesn’t support that theory.

  2. Dougie Blackwood says:

    The case for a land tax is unanswerable and why the SNP have not fully kicked this off is a mystery. In the budget process it is necessary to keep back something to sweeten any deal with other parties and maybe this is what he has up his sleeve. Let’s hope so.

  3. Alexander Ritchie says:

    The Nationalist Government has cut LA budgets significantly more than cuts to its finances by the Tory Government. This has adversely affected the poorest of Scots society to a disproportionate degree than the middle classes. Social care of the elderly has been in crisis for the last few years…this Nationalist Government’s budget will tip it over edge.

    1. Terence callachan says:

      Piffle
      Westminster budget cuts otherwise known as austerity causes the poor to be in financial crisis, not the SNP

    2. AlexM says:

      The English Government has cut Local Authority budgets by approx 40%. Is that what you would prefer??

    3. Kenny Smith says:

      As compared to what? Our services are in a struggle I won’t argue but this “nationalist” government has kept Scotland’s services at a better level than a Tory England or a Labour Wales. People that splatter the bad stories forget we know how things are going in the rest of the yoonyun. Do I think they could do more, yes I do but the minute I see proper costings from other parties particularly the red Tories then I might actually pay attention to that sort of crap that you are spouting Alexander

    4. Tommy Aikenhead says:

      You are correct Alex, but it is pointless identifying the regressive nature of so many SNP policies in here. The SNP are a pressure group wedded to the notion of ‘independence’. (As the comments here show Bella are still timid in critical thinking) They (SNP) have no commitment whatever to the left or genuinely progressive politics. For them no pain is too great to endure, not price to high to pay for ‘freedom’. The left nationalist groupings have been had by the Murrells, if the neo liberal (guilded with fantasy bollocks)White Paper did not give them a clue, then the SGC should have made them realise, in the event of independence, our brave new world begins with a handbrake turn to the right, the most vulnerable being crushed and the rest facing austerity max and stunted opportunity for a generation. No amount of worthy if peripheral community activism changes this reality.

      RIC probably added 5-8% to the 2014 Yes vote, opportunistically promising the nationalisation of land, wind, water and whisky…..like an insidious payday loan company deep down they knew the reality was tax haven race to the bottom economics that would trampled on the poorest. But still Indy first, Indy second, Indy every time…..nationalism truly is the measles of political discourse. (c Einstein)

      1. Alexander Ritchie says:

        ,

      2. Alex M says:

        Obviously being a vassal state under England is vastly superior to having any control over our own affairs. Clearly under independence there is no chance of consensual policy. Better to be told what to do, with menaces, than think for ourselves.

        1. Alexander Ritchie says:

          Working people in Scotland, England , Wales and NI are vassals…but not England….we are vassals to the 1% …who dictate via the MSM what we think…affection those who live in Edinburgh, Cardiff, Liverpool and Belfast….changing chairs from WM to HR won’t change a thing…11 years of Nationalist Government has shown that…

  4. AlexM says:

    A well thought through Land Tax will take some time to devise and implement. Surely we can start the process, with a discussion paper and public consultation. That is essential, get on with it Derek!!!

    1. Kenny Smith says:

      There is some genuine concerns about a land tax that should be investigated but from what I know about it it is worth a real look at it. I think the SNP are squeezed a bit from labour and conservatives and sometimes walk the middle a bit too much but local authority funding is going to need a 21st century solution so let’s have that discussion

  5. Willie says:

    The current method of raising council tax is a disgrace and is long overdue replacement

    Quite why the SNP high command are disregarding proposals to consider a Scottish Land Tax is difficult to understand.

    A commission, a committee of experts could be set up to review and report.

    Or are we too scared to offend the land owning classes who own so much of Scotland.

  6. Alf Baird says:

    A land value tax would hit the Tories hard, which is as good a reason as any to do it, and do it good. Rumour is that the SNP may do a deal with Libdems this time perhaps in return for extra ferry money, not the Greens. At least 90% of the budget is always relatively fixed anyway going as it does to ‘big’ recipients such as NHS, local government, education, and various Scottish Government departments. Much if not most of the budget is for paying several hundred thousands of public/semi-public sector salaries – of which perhaps 20,000 or more senior public sector folks are now on more than £100k/yr, and quite a few of them are paid over £150k/yr as ‘additional’ top rate tax payers. Do these 20,000 or more ‘public servants’ really need or even deserve taxpayer funded salaries above £100k/yr, with some paid as much as £400k? Ok maybe to help pay the private school fees, state schools obviously not good enough for some public servants! But lets remind ourselves that more than half of working Scots are on less than £27k/yr, with many surviving on far less. So lets have a public sector pay cap and a LVT? Too radical? At least half of Scots and I daresay most SNP voters and members wouldn’t think so.

    1. Alexander Ritchie says:

      8 years of a Nationalist public sector cap was another example of SNP implementing Tory austerity …the Nationalist Government promised to reform LA taxes 10 years ago …still waiting. Freezing LA tax actually hurts the poorest in our country not help them as Kerevan states…due to LA cuts which as I stated above…hits the poorest disproportionately as they are the greatest users of LA social needs, closure of community centres, social care centres and so on

      1. Kenny Smith says:

        What part of Mars are you from? I guess you will be voting for independence then so we have the full tool kit required to fix all this?

        1. Alexander Ritchie says:

          I’m afraid the Nationalist Government is unable to handle it finances that raises…and receives via Bartnett …so I have known confidence that it’ll do any better were Scots to vote for Indy. But they’re happy to help themselves to Barnett funds allocated to Local Authorities for their own pet projects ..and fighting Indy fund. Resulting in £106 million funding gap in Edinburgh’s budget between 2019-2022. More social misery for Edinburgh’s poor, sick and elderly.
          Sad that Nationalists see such suffering as something to laugh at.

          1. prj says:

            Please compare and contrast with rest of UK. Then come back and tell us how much worse we are to the rest of UK, until then you are spounting rubbish. The simple fact is austerity affects all parts of UK with England suffering the worst.

          2. Alexander Ritchie says:

            Another whataboutery remark…I understood we have a parliament with a lot of powers ..and more money per head than England or Wales…to spend. We once had an education system that was the envy of the world …sadly no longer .. ask our teachers …we had police forces that answered to our Local Authorities …sadly no more …as for our NHS …#Ninewells #ERI #missedtargets #shortageofFluvacines

  7. SleepingDog says:

    Land reform that benefits ordinary people has historically been a trigger for a USAmerican military invasion or CIA-backed coup, so it should be attempted in conjunction with reforesting mountains and removing US bases. For example:
    https://en.wikipedia.org/wiki/Decree_900

  8. Colin Campbell says:

    First thing that could be done is a cost benefit comparison between Council Tax and any other form of revenue raising medium including Land Reform Taxation.
    Personally I would put pressure on the Greens to ‘run the numbers’ and present back to us how their Land Tax would look to all strata of our population – wealthy and poor.
    FMQ every Thursday lunchtime is an exercise in negativity. It’s easy for the opposition to take a pop at the health services, housing, taxation and anything else that springs to mind – when they don’t need to worry about delivery! A bit like Corbyn not taking the necessary steps to bring down the Tories just now – because God forbid he would then have to deliver.
    I am ( and I hope many others are too) getting fed up with the opposing parties constantly taking pot shots and not actually playing an active part in the governing of Scotland. They seem to forget that they are part of the Scottish Government.!!
    Personally I don’t think any of them could do half as good a job as the SNP – and I say that through watching their actions not through nationalist bias.
    Just watch FMQs and see how many times Nicola Sturgeon offers to work with Labour, Tories, Greens, and who are they again – oh LibDems, only to have offer ignored. Because they don’t want to fix the problem – they want to blame someone else.
    So back to the point – put pressure on the Greens to come up with the numbers! Then you give the Scottish Government something to work with.

  9. Adrian says:

    Maybe push for the ability to set a Scottish Living Wage – as distinct from the UK one – it would be really interesting to see how £9.50 or £10 per hour drives an expansion of demand in economy.

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