06 April 2007
A leading public finance expert has criticised the Scottish National Party's plans for a local income tax, claiming they are based on shaky financial assumptions that would create a significant funding shortfall.
Professor Arthur Midwinter argues in a critique of the proposals that the party has underestimated the cost of replacing council tax, as it 'assumes wrongly' that council tax benefits worth £380m, currently paid directly to low-income households, would be transferred to the Scottish budget.
He also challenges the SNP claim that it could produce efficiency gains of at least £500m and says the party wrongly assumes that the whole of the £800m held in reserve at the Treasury could be reallocated to Scotland. His comments follow the publication of details of the SNP's plans. Under the proposals, the tax would be set nationally at 3p in the pound and would be levied on income, but not on savings income.
The SNP says that under this system more than half a million pensioners – those who pay no income tax at present – would pay nothing in local taxes. Only the richest 10% of taxpayers would pay more, but even they would pay less than 1% more of their income, the SNP claims.
Midwinter, budget adviser to the Scottish Parliament finance committee, told Public Finance that he agreed with Institute for Fiscal Studies' estimates of a funding gap of at least £840m in the SNP council tax calculations.
This would require a local income tax rate of 5p rather than the 3p proposed, Midwinter said. 'It would add greatly to taxpayers' bills.'
With the election campaign now firmly under way following the dissolution of the Holyrood Parliament, local taxation is a key campaign issue. In a series of recent opinion polls, the SNP has been consistently ahead of Labour.
SNP leader Alex Salmond said in a speech this week that there was a clear mood across Scotland to abolish the council tax, with the latest opinion poll showing that 71% of Scots agreed it should be replaced by a local income tax.
He claimed that such a tax, based on ability to pay, would benefit 90% of pensioners, who would either pay nothing or less than currently.
Salmond added: 'The council tax causes particular difficulty for Scottish pensioners. There is no doubt it is time to scrap the council tax and replace it with a fairer system based on ability to pay.'
PFapr2007
