A "TARTAN tax" under a Scottish parliament could mean higher profits for Scottish businesses, and attract inward investment, according to a leading academic economist.
The run-up to the Scottish devolution referendum on September 11 is being dominated by the contentious issue of the parliament's proposed tax-varying powers. Douglas Mair, head of Heriot-Watt University's economics department, has drawn up The Voter's Guide to the Tartan Tax in a bid to promote an informed debate.
"The tartan tax is a simple slogan behind which complex economic issues have tended to be obscured," Professor Mair said.
"I believe that it is important for as broad a spectrum of the voting population as possible to take part in the debate, and hope the guide will help them to do so."
The guide presents 20 basic questions and answers on the effects of the proposed tax powers. It says opposition stems from "a widespread misunderstanding among politicians, businessmen and economists" as to how taxes can affect a country's rate of growth. There has been some ideological opposition based on the belief that Government should keep its spending and taxation levels low, said Professor Mair, but there have also been fears that Scottish businesses might be put at a disadvantage.
But the "multiplier effect" of the parliament's spending, provided there is no Treasury clawback, would mean an increase in general spending levels, and higher business profits, Professor Mair said.
If Scottish taxpayers cannot negotiate higher salaries to offset the tax increases, this will probably result in faster economic growth, since the overall percentage share of wages in the Scottish national income would fall, but the percentage share of profits would rise. This would boost investment and the rate of growth.
A move to higher salaries could slow the growth rate of the Scottish economy, Professor Mair warns. But many of the problems associated with applying different rates of income tax in Scotland compared to the rest of the country could be avoided by increasing the council tax, which is linked to where people live rather than where they work.
"It is estimated that the tartan tax would raise around Pounds 450 million in Scotland. If a Scottish parliament were to raise the same amount via a supplement to council tax, it would mean an average increase of 37.5 per cent in council tax bills."
The Voter's Guide to the Tartan Tax can be found at http://www.hw.ac.uk/somWWW/comweb/ecoov.htm