“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.Views: 2251
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