Economists suggest
this revenue-raising budget will fund investment in public services, but will
kick some of the more difficult spending decisions into future years
FAI - Academics at Strathclyde Business School's Fraser of
Allander Institute, Scotland’s leading independent economic research institute,
have been analysing today’s Scottish budget.
Professor Graeme Roy, Director of the Fraser of Allander
Institute, commented, “Today’s Budget contained little in the way of new
surprises beyond what had been widely trailed in advance.
“The budget contained a number of policies designed to boost
economic growth including cuts to business rates, and with Scotland currently
growing at around one third of the UK, the Government will be hoping these
policies have an immediate impact.
“The major announcement was an increase of around £270m in
the spending power of local authorities. This is made up of a mix of higher
revenues from council tax increases of up to £180m, new spending linked to
commitments on educational attainment and childcare, and the allocation of
money from the health budget to support implementation of the living wage for
care workers.
“But by setting out spending plans for just one year, and
with significant real terms cuts coming down the line, a lot of the hard
choices have been left for another day.
"Next year’s budget is forecast to rise slightly in
real-terms, but further cuts are planned for 2018-19 and 2019-20 of just over
3% in real-terms. Where these cuts will fall remain unknown.
“The centrepiece of Mr MacKay’s Budget statement was
confirmation that the Scottish Government plans to set a different income tax
policy to the UK – the first time since devolution that Scotland’s major tax
power will be used.
“From April 2017, Scottish taxpayers will start paying the
40p higher rate of tax on incomes above £43,430, compared to a UK threshold of
£45,000.
“There are two ways to view this.
“On the one hand, the Scottish Government is not actually
taxing people more than they were last year – provided their earnings rise with
inflation – but instead not passing on a tax cut that is being implemented
elsewhere in the UK.
“On the other hand, it is now the case that middle-to-high
earners in Scotland will face a higher tax burden – of around £300 per annum
(or just over £25 per month) - than people earning exactly the same amount
elsewhere in the UK.
“In 2017-18, this income tax policy is expected to raise an
additional £79m for public services. This is less than the government forecast
back in March.
“Whilst a relatively small change next year, the Scottish
Government also announced their intention to continue with this policy up to
2020-21, so the gap between Scotland and the rest of the UK will widen over
time. By 2020-21, Scottish higher rate taxpayers are likely to be paying an
additional £700 per year (or around £60 per month) more in income tax than the
rest of the UK.
“This is part of an overall effort by the Scottish
Government to raise the size of its budget to support public services, and to
take a different path from the rest of the UK. The flipside of course is higher
tax bills. For a family with one higher earner in a band G council tax
property, this will amount to a combined tax increase of over £600 in 2017-18.”
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