Showing posts with label wealth. Show all posts
Showing posts with label wealth. Show all posts

Thursday, 10 August 2017

Catalonia, Untangled

The climate in Catalonia is getting hotter every day, and not just because it is high summer here. The Generalitat, the Catalan government, is planning an October 1st referendum on independence and Carles Puigdemont, its President, has said that a Yes vote will mean a near-immediate declaration of independence. The conservative ('Partido Popular') party in Madrid is using the Constitutional Court ('Tribunal Constitutional') to overturn the decisions of the - supposedly - autonomous Generalitat, and is checking - each week - every payment made by the Catalan government to ensure that its funds are not being used for the plebiscite.

At any point over the next few weeks this could erupt into a real face-to-face confrontation. Puigdemont will reconvene the Generalitat two weeks earlier than normal, on August 15th, and the plan is then to pass the laws that would govern the referendum and its aftermath. It is likely that the Madrid government will intervene - the use of force is being talked about - while the Catalans will respond with mass protests of the sort seen each 11th of September.

11/9/14
Picture source: http://www.ara.cat/2014/09/11/videos/el-radar/11_setembre_2014-V_1210108985_16906799_987x555.png

Why is this happening? And what are the parallels with Scotland?

Three reasons stand out: bad governance, regional finance, and the wealth gap.

Bad Governance

The Spanish government in Madrid has consistently mis-read the signals from Catalonia. President Rajoy promised 'dialogue' but has offered none. Instead he and his conservative government have used the Constitutional Court to overturn, again and again, decisions made by the 'autonomous' government of Catalonia. The first, and for many Catalans the worst, of these decisions was to overturn the 2006 Statute for Catalonia, which had been passed first by the Generalitat and then approved by 74% of voters in a referendum. The process in the Court took four years - the decision was published in 2010 - and the result confirmed what many in Catalonia had suspected - that our government had no real power, and that at any moment Madrid could intervene to change a policy that it did not like.

The parallel for Scotland is the overturning of the 'Sewell Convention' in the Brexit case taken by Gina Miller et al to the UK Supreme Court. That decision demonstrated that the Scottish Parliament has no real powers and that Westminster is supreme.

Back in Spain, the conservative government continues to use the Constitutional Court to overturn the Generalitat's decisions - on everything from how we can pass laws to what we can call our ministries. This is simply bad governance. Instead of engaging with the Generalitat, the Spanish government is bashing it with a large legal hammer. It's law-law, not jaw-jaw.

Money

In a state made up of autonomous regions you'd expect a sensible system of financial transfers so that wealthy regions help to fund poorer regions. 

In Spain, this is a muddle hidden in a black box.

The Basque Country and Navarra are treated differently from other regions - allowed to gather and spend their own taxes and to pay the Spanish state an annual sum for shared services such as defence and foreign affairs. (This is called the 'Foral' system here.) The remaining regions either pay into the central pot (Catalonia and Madrid are the principal contributors) or receive from the pot (poor regions such as Andalucia and Extremadura are normally net recipients.) But it is not nearly as clear as that, and there is endless political horseplay with successive Spanish governments favouring regions that voted for the party in power, and pharaonic projects planted in some regions and not in others. It's a mess, but the Spanish government seems unable to sort it out.

The Catalans - consistently one of the regions paying out - are sick of it. Catalunya has been a net contributor for years, and yet sees very little benefit, or change, in the recipient regions.

The parallel for Scotland is, of course, our oil. Oil from Scotland's waters has been squandered by Westminster (the phrase comes from Kevin McKenna's article here). Scotland's poor have not benefited from the country's huge natural resource wealth - check the Scottish Index of Multiple Deprivation if you need confirmation. Like the system in Spain, the UK government has hidden from the Scots the extent of the squandering, and has favoured political friends in the City of London over the people who really need the money in Possil Park or Pilton. 


The Wealth Gap

Something has made more people in Catalonia, more discontented than they were. One possible explanation is the combination of the 2007 financial crisis, and the wealth gap.

The financial crisis forced millions of people across Spain into unemployment. Youth unemployment rose to over 50% and millions of families were left with no breadwinner in a country in which unemployment benefit is limited and short-term. During the crisis the Spanish government passed a series of laws to create more 'flexibility' in the workplace - meaning the same sorts of zero-hours, flimsy contracts that the Tories of Westminster favour. For their employees, not for themselves of course.

Spain, like the UK, has the dubious distinction of being in the top - worst - dozen countries in the OECD index of wealth inequality. Wealth is not being shared out and so, like other countries in the top 12 (Turkey, Mexico, the USA...) folk at the bottom of the wealth pile are increasingly discontented and are expressing that discontent in their votes and on the streets.



The wealth gap is not the only reason for discontent, but it seems to be a catalyst for anyone who feels that injustice is being done. Catalonia hardly needs a catalyst - enough injustice is being done to this nation to ensure that, come 1st October, Yes will win outright in the referendum. The big question then is - what will Spain do next?

Friday, 3 February 2017

Scotland, for £8 a week

The Scottish Parliament at Holyrood passed its budget yesterday. Thanks to the Scottish Greens, the SNP was able to make a coalition majority in favour.

To do so, the SNP agreed a Green Party amendment, meaning that the 360,000 people in Scotland who pay the highest income tax rate (40%), would pay £400 more per year than people on the same wage in England.

That's just under £8 a week.

£8 a week, to live in Scotland.

You'd pay that, wouldn't you?

The argument against this tiny tax-hike is that people with money will move away, taking their businesses with them.

Really? Is there any evidence of that?

In France, around the same number of tax payers (342,942) pay a much heavier tax, the ISF (Impôt Solidaire sur la Fortune). It's based on wealth, not income, and aims to tax the 1% wealthiest in the land. The rate is variable, depending on the amount of wealth you hold, but the average payment is just over €15,000. The French government earns €5.22 billion from this tax. Much more than the £29 million that the tiny shift in Scotland's taxation will raise.

Wealthy people in France don't leave the country because of this tax. In 2015 around 10,000 more people paid the ISF tax than the year before. French business is not collapsing. Entrepreneurs are not leaving the country in droves.

Why?

Er, because France is a good place to live. It's worth staying there because the food is better, the social services are better, the TGV (largely) runs on time and the sun never stops shining in Cannes.

Raising tax does not drive people out of the country, if the country is a good place to be.

So yes, as Scotland will show, people on higher incomes will stay in Scotland, pay the £8 a week and contribute a wee bit more to making Scotland a better, fairer, place to live.

Wednesday, 18 May 2016

Pain in Spain

A report just published by the Valencian Institute of Economic Research and funded, ironically, by a bank foundation shows the horrible results of the 2007-15 economic crisis.

Francisco José Goerlich Gisbert, Professor of Economic Analysis at the University of Valencia has studied the share of income for households in Spain, and the policies that the various governments (national and regional) have applied to income distribution. The results make interesting, and often awful, reading.

His report shows that:

  • Household income in Spain has dropped since 2007
  • Income inequality (the 'wealth gap') in 2013 (the latest figure available) is greater than it has been since records began. The principal cause has been the worsening situation of the job market.
  • 'The challenge for the next few years is to encourage growth and at the same time to reduce inequalities'. Professor Goerlich refers to research by various authors demonstrating that inequalities in income slow down economic growth
  • New technology is creating jobs, but only for people who are trained and qualified. Many miss out
  • State pension payments are the main route through which money is redistributed from rich to poor. Professor Goerlich underlines the vital importance of the state pension...and then reminds us that Spain will find it increasingly difficult to pay the pension as our population ages
  • Unemployment payments (benefits) are the second most important means of redistributing income.
  • The 'supply of public services in kind (education and health) is the third [most important] means by which the public sector can improve the distribution of household incomes'


That last point is important here in Catalonia and in Scotland. Both countries offer free state-paid education, and both offer free or almost free higher education. It turns out that this is an important means for redistributing money - in this case in kind - from the rich to the poor. Professor Goerlich demonstrates that including the monetary value of the public services of health 'appreciably reduces inequality' in household incomes. Drawing the parallel with my home country, Scotland's health service and its free or nearly free education are worth fighting for.


We need a 'paradigm shift in economic policy to focus on the quality of life and the wellbeing of citizens, rather than on GDP per head.' In other words we need to move to an economy that shares out the wealth and the growth more fairly; 'Growth is not social sustainable if it is not inclusive,' concludes Professor Goerlich.

Reference:
Goerlich Gisbert, F.J., 2016. Distribución de la renta, crisis económica y políticas redistributivas 1st Edition., Bilbao: Fundación BBVA. Available at: http://www.ivie.es/en/actividades/noticias/2016/libro-distribucion-de-la-renta-crisis-economica-y-politicas-redistributivas.php [Accessed May 17, 2016].

Thursday, 24 March 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.