Few options for Mackay
Tax rises back on agenda after ‘black hole’ report
Derek Mackay: ‘additional resources’ (photo by Terry Murden)
Scotland is facing the prospect of further tax rises after revenue fell short of forecasts, according to a tax specialist.
The government is facing a £1.7 billion shortfall in funding for public services over the next five years, with an immediate gap of £220m.
It is the likely outcome of slow economic growth which is not expected to top 1% until 2023, says the Scottish Fiscal Commission.
Real wages are now anticipated to fall by 0.5% this year before levelling off in 2019 and starting to grow slowly from 2020 onwards.
Dame Susan Rice, chairman of the Fiscal Commission which produced the data, said: “Our view of the Scottish economy has not fundamentally changed since December.
“The outlook is for subdued growth in Scotland over the next five years. The drivers of this are modest population and productivity growth, with productivity forecast to improve slowly from the weak performance experienced over 2016 and 2017.
“We have reduced our expectations for wage growth, which feed through to a reduction in income tax revenues throughout our five-year forecast.”
Ross Stupart, tax partner at accountancy firm RSM, said: “With a large deficit and increased demand on public services, Scotland doesn’t appear to have the option to cut key services or borrow more, which only leaves implementing further tax changes to mitigate the drop in revenue.
“However, it seems there is uncertainty around the measurement of the Scottish tax base, and a forthcoming HMRC report outlining the tax position of Scottish taxpayers will help to provide further clarity this summer. It will be interesting to see if this leads to a better or worse outlook for tax generation in Scotland.
“Overall the economic forecast highlights a challenging fiscal landscape for Scotland, which seems at odds with the aspirations within the recent Sustainable Growth Commission report – suggesting that considerable policy change would be required to kick start the desired growth to ensure a sustainable fiscal future for Scotland.”
Finance Secretary Derek Mackay yesterday set out an alternative to UK fiscal plans, aimed at providing “additional resources” for the public sector.
In his inaugural Medium Term Financial Strategy statement, he lay the blame at the door of the UK Chancellor and the UK government’s Brexit policies.
He said: “Let me be clear, the Scottish Government will always be ambitious for Scotland, even with the significant challenges we face.
“This strategy clearly lays out the consequences of UK choices on Scotland’s public finances, including UK imposed decisions on austerity, immigration policies that don’t suit Scotland, and taking us out of the Single Market through Brexit.
“We will always deliver responsible government and balance the books, and I challenge the Chancellor to change course. I have therefore set out fiscal alternatives that would mean a fairer deal for Scotland with substantial investment to support our public services and stimulate our economy.
“The nature of the Scottish Budget has changed significantly since the Scottish Parliament was reconvened almost 20 years ago. Publishing a Medium Term Financial Strategy is a further step in the evolution of its process and accountability.
“Central to our strategy is the prudent, responsible and balanced way we have managed, and will continue to manage Scotland’s finances. We will continue to provide value to taxpayers and certainty for our vital public services during the turbulent and uncertain times ahead.
“We want to grow the economy, invest in public services and give the taxpayers of Scotland the best deal anywhere in the UK. We have set out our key social and economic policies, and despite the challenges ahead of us, we can be trusted to keep on delivering for Scotland.”
Conservative finance spokesman Murdo Fraser said: “This is the most damning evidence yet that the SNP is unfit to run Scotland’s economy.
“The consequences of tax hikes, poor growth and low productivity look set to cost public finances hundreds of millions of pounds.
“Unless the SNP government sorts this out, the consequences could be even deeper cuts to public services.”
Labour’s finance spokesperson James Kelly MSP said: “Last week we had the SNP’s cuts commission – and now we have the SNP’s cuts forecast.
“SNP Finance Secretary Derek Mackay’s announcement will be of no comfort to the patients, parents and passengers across Scotland who are paying the price of SNP austerity in our NHS, in our schools and on our railways.
“This statement once again exposes the timidity of the SNP government and its refusal to fully use the powers of the Scottish Parliament to stop the cuts.”