A good place to do business

“The true size of the fiscal deficit will be smaller than the one cobbled together for the dubious GERS exercise, but a fiscal deficit certainly exists.”

I agree with that bit of Michael Fry’s article, but not much else. I’d say the case for growing an economy by cutting taxes lacks credibility. That’s me being polite. My inclination is to dismiss the idea with a word that rhymes with “polite”.

Economies are not mechanistic at anything other than a level too basic to be relevant to macro-economic policy. At the level being addressed by fiscal policy, economies are more akin to a living organism than a machine. The economic behaviour of individuals and groups may, to an appreciable extent, be altered in predictable ways by adjustments to their income and expenses, but altering taxes across the entire business sector doesn’t work in the same way.

When we’re talking about inward investment we have to appreciate that companies aren’t only looking at taxation. They’re looking at a whole raft of considerations from education and health to housing and communications infrastructure. And we have to bear in mind that large corporations are invariably very timid and extremely conservative. More than anything, they crave stability.

My prescription would not be to cut taxes, but to set business taxes at a level which can sustain development and maintenance of education, health, housing, communications etc. and then commit to reviews at intervals of no less than ten years. The kind of companies we should be seeking to attract are more likely to be attracted by this kind of stability than the short-term savings offered by substantial, but almost certainly unsustainable, tax cuts.

The aim should not be to secure investment – and, thereby, economic growth – by selling Scotland cheaply, but to make Scotland the sort of place where companies will gladly pay higher taxes in return for a wider range of benefits.

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6 thoughts on “A good place to do business

  1. Phil

    Agree wholeheartedly.Cutting taxes only encourages other countries to undercut whatever rate is set.It’s much more important to create an environment as you outline plus a few things like decent access to a workforce and proper transport links.

  2. Graham

    I agree with that. One benefit of the very high marginal personal tax rates we had in the 50’s and 60’s was that it put a curb on excessive pay awards to those at the top of the income scale. The exact opposite to what happens now. Thereafter personal taxes were reduced and indirect taxes increased, a regressive move. Taxation on companies have also been reduced, putting a greater burden on individuals.

    Re the Irish Republic an economist has suggested that it’s recent increase in GDP is due to companies relocating to Ireland due to their low rate of corporation tax – as we have seen with Apple – and that ordinary citizens haven’t benefitted. I don’t think we want to join that race to the bottom.

    The great scourge is inequality and a fairer taxation policy is fundamental to tackling that.

  3. Scott Egner

    Michael fry just repeats the flat earth Tory economic view. I guess at least the National is offering a broad spectrum of view.

    Capitalism is based on sales

    You can cut taxes all day but if no one can afford to buy the products companies are never going to expand and create jobs. There has to be demand.

    Right now there is little demand in the economy because everyone is indebted up to the eyeballs due to the Tory labour Ponzi scheme running through the 80s and 90s, culminating in it’s crash in 2008.

    The low deficits in the SE and London are a result of the £1TR bailout of the banking sector. The big hand of govt is very much behind this low deficit ‘success’ story. It’s just that the positive signs don’t appear until a couple of years down the line.

    Scotland and north England actually need to run bigger deficits but they need to be directed into job creation and not into something as destructive as our unregulated money system in the city.

    Maybe we should ask the question – how much of the £1.6Tr national debt is attributable to Scotland.

    1. Iain Barker

      How much of the crudely calculated household/personal debt of 1.6 trillion and growing is attributable to Scotland where there is traditionally a greater level and culture of saving. The British Banks are in deep Voodoo.

      Well the last time I checked it was 1.6 trillion for personal debt as well. The Master Race Master Card UKOK Brits have maxed out their Credit cards and then some.

      I am just waiting for that Brexit button to be pushed and then the Brit Peso to slide more and off goes inflation and thus rising interest rates. Boom goes UKOK but it will be manna from heaven for those rapacious British Bankers. Thrown in even more Brit Nat UKOK austerity.

      Long after we are gone they might be calling it the North Sea Bubble? It will make the South Sea Bubble look like an easy pleasant walk in the park.

      They will pull every trick in the book and then some to stop Scotland going Indy.

      1. Iain Barker

        I forgot to add that UK Household Debt in relation to GDP is even way larger than that of ho hum Greece and getting bigger. Imagine what that debt burden would be on the South of England in particular without Scottish Contributions to that GDP.

        If we thought the last Referendum was bad for dirty tricks being employed against us then we haven’t seen nothing yet.

  4. scottieDog

    Indeed. I have seen some websites quoting private debt up to 400% of gdp.
    I also saw a figure of 5 trillion.

    As long as you have a central bank to buy up your sovereign debt you don’t have a sovereign debt problem.

    Who is going to buy up the private debt?!

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