Fun with numbers

Here's an Easter story.

Imagine that Scotland had been given full powers over income tax back in 1985. Imagine that Holyrood had introduced a package of measures designed to reduce the wealth gap;

• A 60p top rate of tax
• A cap on top salaries in the public sector, and amongst firms bidding for government contracts
• A wages top-up for the lowest paid

These measures had changed the discourse, so that company bosses talked about their social responsibility in boardroom salaries. Fergus Ewing  chaired an annual conference with the Scottish CBI and the unions, and gave a prize for the most innovative way of making pay fairer in companies.

While in the rest of the UK the wealth gap continued to grow (you don't have to imagine that bit. It did), in Scotland the wealth gap was static or mebbe even shrunk a little.

What would have been the effect on the Scottish economy?

The OECD has calculated that the growth in the wealth gap in the UK slowed down the growth of the economy. When you leave the poor to get poorer then they miss out on schooling and the result is that the economy does not benefit from their talents. The UK economy was slowed down by 0.35% per year because Westminster allowed the wealth gap to grow. The OECD figures are based on the growth of the wealth gap 1985-2005, and the subsequent effect on the growth of GDP 1990-2010.

Back to our Easter story. If the wealth gap had not grown in Scotland, our economy would have grown faster.

Now let's do the maths. We will use the same time period as the OECD;

In 1990 Scotland's GDP was £90.9 billion (Source: calculated from Scottish Government)

By 2010 it was £131.8 billion, excluding offshore oil share (Source: Scottish Government)

If we had stopped the growth in the wealth gap, the economy would have grown 0.35% more per year.

By 2010 it would have been £140.9 billion

That would have been an extra £9.1 billion, thanks to the three measures introduced in 1985, that stopped the growth in the wealth gap.

It was a package of measures, so we'll assume that each measure had an equal effect. The 60p tax rate was responsible for one third of the effect, as was the salary cap and the wage top-up.

So one third of the £9 billion in extra GDP is due to the 60p tax band; that's £3 billion extra, as the result of the tax band.

You can see where I am going with this maths now; the Scottish Government has said that it will not introduce a 50p tax band for fear that it might lose £30m in tax receipts (I'm paraphrasing, so do read the full report to see the details.)

But a 50p or 60p tax band as part of a series of measures designed to tackle the wealth gap, could have grown GDP by much more. If you follow the maths, the potential benefit is £3 billion more, against a risk of losing £30m in tax revenues. A 100:1 opportunity. Too good to miss.

This is the upside; by tackling the wealth gap, using tax as one of a range of measures designed to change the discourse about incomes and wealth, you make your country richer.

Let's hope that the new Scottish Government  does the maths.

Disclaimer: So's we're all clear, I am not an economist and I live in Catalonia, not Scotland. So this is just a wee grain of grit for the debate that you are having, and voting on, in Scotland.

References:

Anon, 2014. Focus on Inequality and Growth, Paris, France: OECD Directorate for Employment, Labour and Social Affairs. Available at: https://www.oecd.org/social/Focus-Inequality-and-Growth-2014.pdf [Accessed March 29, 2016].

It's not the money

The SNP's decision not to create a 50p top rate of tax is an odd one. 

According to the Scottish Government's analysis, published a few days ago, there are just 17,000 people, 0.7% of the taxpaying population, who would pay the tax. The analysis says that there is a risk that this handful of high earners would move home/job/residence to England, and thus that the Scottish Government would not benefit from the tax revenue.

They might. But they might not; France has a wealth tax (ISF) which is paid by about 300,000 people there. They have not moved en masse to Switzerland. (OK, ageing rock star Johnny Hallyday has, but that still leaves 299,999 ISF tax payers in France.) People of wealth will stay in Scotland because that's where their family is, where their work is, where they love to be. As the Lallands Peat Worrier points out, extra taxes mean better services, and that means you and me, as taxpayers, benefit.

But that is not the point.

Thomas Piketty, in 'The Economics of Inequality'* demonstrates that tax does not close the wealth gap. Yes, the wealthy pay more and the poor pay less, but tax alone does not effectively redistribute wealth from rich to poor. He says that 'the countries where household income inequality is slight are the countries where salary differences are small, and vice versa, and not the countries where redistribution by tax would have reduced an initially large salary gap.' 

OK that's not very readable; what Piketty is saying is that this is cultural. That countries with large differences between top and lowest salaries cannot close that gap with tax.  Countries - such as some of the Scandinavian countries - with smaller differences in salaries have those smaller differences because they think that is the right way to live. It is how we want to be, not how we are taxed that defines the size of our income, and wealth, gaps.


Iain Macwhirter says the same in today's Herald; 

But revenue raising isn’t the only function of taxation, as the financial geographer Danny Dorling has argued. It is about fairness, equity and the kind of society you want to live in.
 
Does Scotland really want to create that more communitarian, harmonious Nordic society where income differentials are held in check and top rates are up to 60 per cent? Or are we content to join the low tax, devil-take-the-hindmost society of the UK under the Tories?


I hope the SNP will rethink. It's not the money. It is the signal that we are giving as a society in Scotland. We should be signalling equality, fairness and a fight against poverty. The 50p, or 60p tax band will help send that signal to all of us. 

And no, 17,000 people will not leave our lochs and glens. They like it too much to go.


PS: Happy Independence Day. Next time, it's a YES!

*Piketty, T., 2014. L’économie des inégalités, Paris: la Découverte, p101.

I would walk 500 miles

It is 500 miles from Westminster to Dalwhinnie and just a wee bit more to Oban. Worth the walk, if you want to live in a progressive country.

This week the Scottish Parliament has shown its mettle with two new acts. One on tenants' rights that will make life a wee bit more secure for people living in private rented housing, and the Land Reform (Scotland) Bill that will help secure tenant farmers' land, and show us who owns the big estates.

Like much in politics it is as much the signpost as the journey. The Scottish Parliament is signalling that it wants a fairer, more equal society. The bills and acts of the Parliament are important, but the attitude, the change in thinking away from 'let the rich get richer' to 'let's make Scotland a fairer place' is the piece that will stay.

These decisions are 500 miles, a million miles, from Westminster. On Tuesday Mr 'I'm-not-an-economist' Osborne passed a budget that will benefit the rich, and continue to hit the poor. This Institute of Fiscal Studies analysis shows the effects clearly, and graphically.

The road that Westminster is taking is the neoliberal one; let the rich get richer, and the money will 'trickle down.' It clearly does not. It floats up, leaving a growing wealth gap, and hundreds of thousands of families in poverty.

I would walk to Dalwhinnie to escape a Westminster like that.



Late But in Earnest, tweeting @serosedker

Poor Oil

It's not the oil, stupid.

It is Westminster.

We made the same points loud and clear during the Scottish Referendum, but let's do this one more time.

If you are concerned about why we have so many people living in poverty in Scotland, don't start telling me that Brent crude is $40 a barrel. That is not relevant to poor people. 

Do tell me, as the IPPR Scotland report published earlier this week makes clear, that Westminster is planning to remove £600 million from welfare expenditure in Scotland over the next five years. The poorest households will lose 'an average £730 per year' thanks to the machinations of Herr Osbameron. That is £14 a week less - so the kids won't get lunch, or Mum will go without her supper, or we'll no be paying the rent this week, mebbe next...

And that, as IPPR point out, is only the half of it. A further £600m will be cut from other departments in Scotland as our George slashes the State from under our feet.

But there is more, and this time we are talking oil:

As the eminently sensible Gordon MacIntyre-Kemp points out in today's The National, Westminster never gave us the 'protection of a mechanism  to deal with the impact of oil price volatility.' In other words Westminster did not create a sovereign wealth fund based on oil revenues. The Norwegian Government did, and Norway's fund is one of the world's largest, wealthiest investment funds. Scotland is poorer because Westminster did not save up the oil money in the boom times.

Westminster took our oil and squandered it, and is now hitting the poorest people of Scotland with cuts.

Like I said. We told you that loud and clear, during the Scottish Referendum campaign. 

Time to think again?